With Credit Card Settlement, Will Ecommerce Software Need an Update? | Hacker News Reader

With Credit Card Settlement, Will Ecommerce Software Need an Update?

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29 pointscallmeed27 comments

Can't be any worse than the morass that is tax calculation. Even on the US side it can be unbelievably complicated. Take a site I just wrapped up that had nexus in 3 US states, 1 of those states has different sales tax that has to be collected based on the county and town of the purchaser, and another state had a requirement that different goods are taxed at different rates, i.e. a jacket and a fur coat fall in two different categories and are taxed differently.

Like all things web, we ended up using an API for these calculations, from CyberSource in this case. There's no way a few fixed fees could be worse than this mess.

Most places using those software solutions are e-commerce only places, and only accept credit cards. This will have pretty much no effect on them, as they should already be taking into account those fees when they set their prices.

The merchants affected by this are those that accept both cash and credit cards for products sold through a given sales channel. Generally, that will be the brick and mortar shops. They'll now be able to advertise the cash price for the item, and tack on a credit card fee at the cash register.

This shouldn't change anything on the web where only payment methods with transaction fees were accepted all along. Why would you want to break out the fee into another line-item?

In the offline world, this settlement only offers a new label for an existing practice. Cash discounts were already legal, and a credit surcharge is just a cash discount by another name. I don't expect anyone that wasn't interested in advertising cash discounts to want to start advertising a credit surcharge. That sounds much more offensive to customers that want to give you their money but also want to use their credit card.

Reminds me of how the Affordable Care Act's health insurance requirement was declared legal.

> Why would you want to break out the fee into another line-item?

It's not unusual in things like concert ticketing to have a headline price of, say, $30 then when you get to the checkout there's an extra $10 in processing fees and delivery charges. I assume companies think this makes them more money than being up front about the total cost.

> Cash discounts were already legal, and a credit surcharge is just a cash discount by another name.

In one case the customer pays less than the advertised price, in the other case more.

I hadn't heard about this.

I'm kinda hoping this means American Express will have to fall into line with the other providers on pricing. I'm tempted to enable an AmEx penalty, since it costs more to process AmEx than Visa and Mastercard...that'd probably mean many customers would choose another card, even though it's probably our most popular payment choice right now (I'm pretty sure small business owners have AmEx cards at a higher rate than the average consumer, though I'm not entirely sure why).

> I'm pretty sure small business owners have AmEx cards at a higher rate than the average consumer, though I'm not entirely sure why

Because they treat business customers like royalty and offer great benefits. Nobody else offered me cards with:

* Unlimited credit

* Trade terms on all purchases (1.5% cash discount for paying a bill early, or pay 10% and have 60 days to pay interest-free)

* 90 days to return any purchase, even if the store won't take it back

* OPEN network discounts (office supplies, hotels, cars, etc)

* An actual human being that you talk to the same day your FedEx'd card arrives, who wants to know about your business and how AmEx can help you save money and manage cash flow

I'll echo what Dan said for their consumer accounts as well. I always get excellent, fast, friendly, competent, empowered customer service any time at all I have the slightest problem with a transaction on my American Express cards. So, I use them for everything.

I imagine their higher discount rate helps fund that customer service center, but if I saw a place charging more for Amex cards, I wouldn't shop there; I'd just go somewhere else. Amex customers are (at least, statistically,) more affluent and have a higher propensity to spend; you pay more for being able to access those people.

Why advertise a rate at all? Just show your price and have a line item for credit processing fees right after tax.

Anyway, it seems a little backwards that the merchant is paying the processing fee, since you're the one who's getting the great customer service.

You have to think of credit card fees as part of your customer acquisition cost. You should be willing to pay more if the customer is worth more to you. People and businesses with Amex cards are more affluent than average, so you are willing to pay Amex more to acquire them than you'd pay Visa or MasterCard. That's why Amex can and does charge you more, not because they're simply passing through costs. If that was the case, more businesses would choose not to accept Amex; many of those where customer acquisition isn't an issue already don't (like utilities).

Amex has more affluent customers, on average, because they don't give cards to people with poor credit, and most of their cards have a significant annual fee. Their customers are those who can afford to pay extra for more benefits, which happens to correlate highly with overall affluence.

Agreed.

I have a Platinum American Express. I pay $495/year for my card, plus $175/year for three additional cards on the same account. I spend anywhere between $350K-$500K/year on the card (both personal and business-reimbursed expenses).

Are my charges more expensive for you as a business to process? Probably. I'm also more likely to spend a lot more with you than your average customer.

Would such big spenders quibble over a little 1% surcharge?

Honestly? I probably wouldn't. I'm in the minority though. Think how many Green charge card, OPEN card, regular consumer Amex credit card, and corporate card customers withe Amex there are out there. Would they quibble over an additional 1%? Or would they shop elsewhere with someone who absorbs the cost?

But at least merchants will have the choice now. In markets where you're operating on a 3% margin whether they're using amex or not can make or break the deal. Giving the consumer the option to pay a little extra or choose another payment method seems like a better solution than simply blocking amex altogether

"it seems a little backwards that the merchant is paying the cash processing fee" as every bank charges them. And every trip to the bank with the cash, or every armored card run to take it in.

I hate how people act like cash is costless. Cash is annoying, dirty, dangerous, and expensive. Perhaps not as much as credit cards, but places don't really honestly do the math much of the time.

That's pretty much how it played out in Australia where merchants have been allowed to on-charge credit card fees for several years. Most small businesses charge no additional fees for Visa or Mastercard but many will either not accept Amex or apply ~2% surcharge.

While it may no longer be a requirement of Visa or Mastercard that merchants not pass on fees on to consumers, I believe that there are laws on the books in several states (California included) that would still preclude this.

http://law.onecle.com/california/civil/1748.1.html

Also, it should be noted that PayPal's terms for merchants also state that surcharges are not allowed.

Note that this only applies customers who elect to use a credit card in lieu of cash or check or similar. For online transactions where credit cards are the only payment method accepted, that section does not apply.

While a reading of the letter of the law seems to indicate that you would be correct and would be able to pass on/differentiate charges ("The customer CAN'T 'elect' to use a credit card because we don't take anything else! Suck on that, legislature!"), my reading is that the "intent of the legislature"^ clause would almost certainly preclude you from charging credit card surcharges and that a customer who sued you for doing so would win.

^"It is the intent of the Legislature to promote the effective operation of the free market and protect consumers from deceptive price increases for goods and services by prohibiting credit card surcharges[...]"

What about section (c)? That pretty clearly indicates the legislature probably intended my reading.

I'm working on this for a client at the moment.

The tricky bit is that the credit-card processing itself is being done by a third party gateway. We pass a request to the third party to go collect a payment for $X and let us know when that is approved. The user's credit card number never actually passes through our system, which is a great way to avoid dealing with PCI-DSS.

But the card number isn't known at the time we pass $X to the gateway. So there's no way to apply a different surcharge percentage to different types of card.

If you have a traditional merchant account, there's no way you know what the fee will be beforehand anyway. Passing on the actual fee to the customer is impossible. The interchange rate for a basic card is different from the interchange rate for a rewards card, for a hotel card, for a signature card, for a business card, etc. There are hundreds of different classifications and no way to know which a card is until after you've charged it.

The fee tables are 100+ pages long.

http://ctlr.msu.edu/download/cashiers/VisaICApr12.pdf

http://www.mastercard.com/us/merchant/pdf/MasterCard_Interch...

If you're not dealing with a merchant account, but a 3rd party processor, then you're almost always paying a flat fee regardless of card type. So why would you need to pass on different rates?

I can't help but think this is a great opportunity for bitcoin, pay online with bitcoin for a 1-2% discount. Makes more sense than ever

Next, the government will start to put into place laws that force retailers to display information about the fees to consumers. I'm all for fixing this old system, but I agree with the poster that this will have far reaching implications.

While I get screwed a bit for almost exclusively using debit over cash I am very excited to see the holdouts of "cash only" start accepting cards under this ruling.

I can't see what the fuss is. Australia has had this in place for years...

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