What Visa earnings tell us about the state of the payments industry
popularfintech.com
popularfintech.com
What stops a big bank from doing whatever it is they do?
That said, my level of trust in Early Warning Systems, who runs it, is pretty low-Zelle looks like a hot mess with EWS/banks ignoring Reg E as much as they can get away with:
https://www.bankingdive.com/news/zelle-scam-reimbursement-we...
This is tantamount to saying that all of software is just flipping a bunch of tiny switches on and off. Reconciliation of thousands of transactions per second across billions of customers spread around the globe doesn't have as trivial of a solution as dunking on straw men in HN comments.
Whether or not the level of complexity involved with this is justified is a value judgment that I'll refrain from making but it's pretty obvious to anybody that's worked in the industry that things aren't as simple as a layperson might think.
They are the telephone wires for your calls, basically.
>I assume they have a few datacenter that do trillions of little lookups, but is that all there is to it?
They also blackmai-- sorry, convince merchants to accept their services for a fee because look how many people pay with Visa/Mastercard!
>What stops a big bank from doing whatever it is they do?
Nothing. See American Express and Discover which are both banks and payment networks because they like taking the entire pie (and presumably do a lot less blackmai-- sorry, convincing).
This can very easily slaughter businesses. These companies need to be regulated as a utility instead of the insane shit that's happening now.
I hope more people start understanding that unregulated big business acting like unaccountable government is a problem.
All over the world you're seeing local competitors trying to usurp them now that everyone is carrying a smartphone and can just install a free app to make or receive payments - the most advanced are UPI in India and WeChat/Alipay in China, but Japan has PayPay, the European countries have all kinds of local systems based on phone numbers that are extremely popular (Swish, MobilPay, Vipps, Blik, etc) and often funded by the banks who don't want to keep paying the duopoly.
Eventually these will merge or ally into global-scale competitors.
Those country-issued cryptocoins that are popping everywhere should enable this.
But even now, a lot of companies are appearing that do international billing. Those tend to accept the popular formats from a few countries, and convert into the popular format of another country.
https://www.thebanker.com/Brazil-s-Pix-a-threat-to-credit-ca...
https://www.pymnts.com/news/cross-border-commerce/cross-bord...
https://www.reuters.com/business/finance/brazils-pix-payment...
> "I think credit cards will cease to exist at some point soon," central bank chief Roberto Campos said nearly two years ago, discussing the potential for open finance and the Pix platform. "This system eliminates the need to have a credit card."
> Market trends have since added weight to his forecast. Use of Pix surged 74% last year to nearly 42 billion payments across the Brazilian economy — surpassing credit and debit card charges combined by about 23%, according to central bank data and industry group Abecs.
> For buyers, the switch to Pix has been nearly seamless, as they simply scan a QR code with any banking app instead of reaching for their wallet. But for sellers, it has turned the tables on the traditionally lucrative card payments industry.
This bifurcates the payment choice, so people who don't want these conveniences can avoid the cost (instead of all of us having to pay for it through internalized interchange costs) but those who do can continue to receive those benefits at their own cost.
Walmart notably filed public comments in support of FedNow [1], and they are working internally to support these rails to avoid credit card network costs.
They've been exploiting 2-sided market network effects even before the internet existed: merchants feel pressured to accept them because that what all their customers use; customers use them because that's what all the merchants accept.
I agree with the overall premise.
But I had to wrestle with this more because I owned a point of sale company in 2010s...so, let's frame this to: if they are a vampire, how in the world are they still such a vampire 15 years later? As you put it more politely: what stops a big bank from doing whatever it is they do?
TL;Dr because they're middleman as in Switzerland, not middleman as in "pure dead weight"
No one has an incentive to cooperate with another big bank, and vice versa: they'd use rates competitively. Idk the proper game theory terminology for it anymore, but what comes to mind is "unstable equilibrium"
In this structure, all the incentives are aligned. Banks neatly separate out deposit customers from customers receiving credit, so you don't get pissed off at them if you get behind. The middleman wants to charge as much as possible, below the price where the bank is happy to take on reputation risk.
I also cannot 100% confirm this, but I think the case you're presenting is too simplistic. Ex. doesn't ring true to me there's no credit extended. Maybe they securitize it, but ex. AmEx is the one giving me up to $CREDIT_LINE to spend, unless, I've been missing it all along and the credit cards are opaquely funded by other institutions. (Wouldn't surprise me, older I get, the more I see things I've managed to miss for 36+ years)
It’s still the “bank” (or credit union-a better choice, but I digress) issuing you a credit line; they’re also the ones on the hook if you don’t pay. Visa pretty much has nothing to gain by securitization, unless they want into the reinsurance industry. They just want to be paid any time their payment processing network is used or when a card with their logo on it is used.
Meanwhile, online purchases are still done by sending a number and trusting the person that received it. They keep dragging their feet to make any side channel verification or cryptographic validation.
But well, they dragged their feet for so long that most of the world already made some competitor with those features. I hope they go on and fail as soon as possible, they do deserve it.
Or even here in the states and sometimes you can pay via PayPal or Venmo or QR code.
But at the end of the day, I can just tap my Visa card (or lately just Apple Pay) in way more places than anywhere else, from storefronts to vending machines, in Italy or Japan or Wisconsin, and it Just Works.
Building a network that is accepted anywhere in the world (if they want it, and short of sanctions) is a combination of engineering, marketing and management.
Maybe we could see a thing where to purchase something in those categories, you have to call them and verify your identity, and that you’re buying this thing, and that you aren’t allowed to submit a chargeback.
But probably the volume isn’t worth it.
I think it can be both
In fact, I think if it weren't for the moral aspect, they wouldn't really get away with it. Imagine if they suddenly got a large problem of charge backs for groceries, gas or prescriptions. They might want to stop accepting payments for those things but the backlash would be astronomical against them
I've also never actually seen any concrete numbers about how many more chargebacks they get for adult content versus other categories. Is it possible they really don't get that many more chargebacks, but since it's a category they feel comfortable going after they decide not to accept those payments anymore?
They definitely don’t want to get sued if they facilitate what turns out to be not just distasteful to them but potentially illegal-see the PornHub lockout by all the CC companies after it was discovered that not all the things they hosted were legal/consenting/etc.
That said, “the optimal amount of fraud is non-zero”: https://www.bitsaboutmoney.com/archive/optimal-amount-of-fra...
I really dislike their duopoly and the fact they’re a tool for American politics but… it’s extremely convenient and well executed.
Contrast this with my bank, not using a third party provider, it would cost 30$ and take 3-5 business days to get money to a bank pickup location in a city.
Contrast this global coverage with the global coverage of my mobile provider that wants to charge me 6.50$/mb for data.
How convenient.
They had everything to do with it, that's my point.
[1] https://www.ycombinator.com/companies/nsave | https://www.nsave.com/ ("nsave is a fintech that provides trusted $€£ accounts abroad for people from countries where inflation is high and banking is broken.")
* of course, banks don't actually print the cards themselves, there are a smallish number of companies that do that, who may not be set up for your new scheme either, so that's also a thing.
> Visa’s management expects payment volume to grow at “a similar rate to Fiscal Q3 2024”, and cross-border volume to grow slightly below the Q3 growth rate.
> This would mean 5% YoY growth in the U.S. (and a lower growth rate for “card present”, or in-person, volumes and a higher growth rate for e-commerce volumes), and double-digit growth in Europe, Latin America, as well as the CEMEA region. A further slowdown in the cross-border volume growth suggests a headwind for e-commerce growth.
Do you have any evidence for that at all? The majority of fintechs I can think of (at least the ones that provide cards, either debit or credit) do so on the Visa or MC payment rails.
I imagine you live in the US.
But if you look at some of the top fintechs in both the US and Europe (e.g. Chime, Revolut, Brex, Robinhood, SoFi, etc.) all help extend Visa and MC's reach.
I'd suggest you read around the threads here to see all the comments about the EU and Japan.
Keep in mind that payments are broader than cards.
One of our greatest failings as a society is our abject failure to teach people finances. It's as critical to our lives as breathing, eating, and crapping, yet the vast majority of people can't even count change let alone understand credit.
Incidentally, anyone telling you BNPL is good for you is trying to milk you. Please just don't and stick to cash/debit or good old credit cards, for your friends' and family's sake if not yourself.
This is not much different from Microsoft fighting open source, Apple fighting right to repair, or Google fighting the CCPA.
As always: Cui Bono? Follow the money.
The downside for the customer is that it promotes overspending, which could be argued as a net negative on the whole. A careful consumer could make use of the free loan, investing the cash elsewhere during the loan period.
[1] https://www.bitsaboutmoney.com/archive/buy-now-pay-later/
The operative quote in support of this from the link, in support of subsidizing those who don’t and almost more damning because even cash users are subsidizing it as the overall price gets raised to roll in the cost of all the people who do use CCs: “Credit card issuers explicitly and directly charge the rest of the economy for the work involved in recruiting the most desirable customers.”
Maybe it is because I am in Germany, but merchants here only accept cash, girocard and credit cards - online shops obviously have a wider selection that regularly includes Paypal in Klarna, but I wouldn't expect credit cards to loose a lot of market share to them.
So in which geographic regions is this actually the case? Do you have any source I could read on this as I am quite interested.
UPI, Pix, FedNow and many others make direct payment much easier. In Brazil is now more common to accept Pix and not accept credit card than the opposite, although almost everywhere accepts card. But literally everywhere accepts Pix (and every app that uses it).
I just want to clarify, because this phrase looks like a huge understatement.
Beggars on the street accept Pix.
Far less things you'd be permitted to purchase, far more random account closures for violating intentionally nonspecific TOS. Worse customer support than we have now and even less consumer protections.
MasterCard and Visa hearken back to a time when KYC was far less aggressive.
I don't think I've ever seen a physical shop that accepts PayPal.
Also, PayPal regularly block transactions for incorrectly detected "fraud". Visa/MC never did.
https://www.paypal.com/us/legalhub/acceptableuse-full?locale...
They've done it in the US before with Porn.
They should at least be relegated to a dumb pipe, if you don't (or can't) accept mastercard and visa you might as well not exist at all in today's age.
Any links on what happened?
I’ve wondered why a network the size of Stripe has not issued its own currency to bypass the Visa/Mastercard middleman. Maybe political pressure? If SaaS vendors used a SaaS specific currency to settle payments for software subscriptions, that would have petrodollar implications for global currencies markets. In countries where even food and transportation is paid for by a software subscription this could finally jump the barrier which crypto failed to cross: being able to actually pay for everyday stuff like bread and milk with internet money.
The big takeaway I got is that it was a mistake to let corporations set up electronic money. The US government let a few corporations set up and conduct electronic money transactions, so not only do we as a society have to pay for our money, we have to do this article's type of kremlinology to understand data we should have open and free access to.
"Deduce" means to logically follow evidence. Semantically, there's no overlap, whatever etymology might say.
This is one of those problems where spell check is correct, but the word is used incorrectly.
"When you have eliminated the impossible, whatever remains, however improbable, must be the truth."
What's stopping the US govt from building a solution and competing for market share? If they can do it cheaper and better, it would gain adoption, but I suspect cheaper would just mean "offset by taxes".
It's obnoxious enough to have credit cards (/especially/ Visa and Mastercard) breathing down my neck about what and where I spend my money, I definitely don't want to make that even worse by having the government feast upon that data instead.
As near as I can tell, check clearing is fast and accurate and very rarely screws up. It's also adequately funded. The divisions of government, local state and federal, that are funded, do well. The ones that aren't funded adequately are awful. This is consistent with companies like CenturyLink that don't fund branches properly: those branches are terrible.