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Comment by benced | Hacker News Reader

People always cite the first-order benefits of this regulation but don't look into anything else. To be clear, I haven't either but what I would look for is: - are real prices cheaper for consumers? - is economic activity higher or lower (i.e. maybe credit cards encourage purchases?) - does making credit cards a less lucrative business lower credit card penetration? - is lowering credit card penetration, particularly for people bad at doing interest math a good thing? - is making cash or debit cards relatively more appealing good?

My vague impression is that the studies on these questions are mixed (am I wrong? A quick Google found several EC funded ones which I'm a little suspicious of). Note that the US has 4 credible payment processing networks but the fees have remained constant. My suspicion is that 3ish% is the optimal value or a very large anti-trust investigation (not a price cap) is in order.

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They're set at whatever the payment networks can get away with. There's nothing that says that's good for anyone else, although it is very good for Mastercard and Visa.

There are several ways to reduce costs underlying payments. One is better IT. Notice that IT infrastructure has improved and dropped in cost by immeasurable amounts since those 3% fees were first instituted. Another way is to reduce card fraud. Notice that we’ve had excellent solutions to many types of fraud for decades now, but online shopping still requires us to enter 16-digit easily-stolen numbers into websites, and so fraud is enormously higher than it needs to be. With biometrics and modern smartphones, in person fraud should be very low.

A better way to look at these networks is to understand two things: the first is that at one level, they’re an insurance business that makes a profit from insuring against fraud, and reducing fraud would reduce the profit margins they can make from that business. And a second way to understand them is as guardians of a hugely profitable network portal that’s very hard to compete with, and they’re charging as much as the market can bear for that service.

> online shopping still requires us to enter 16-digit easily-stolen numbers into websites, and so fraud is enormously higher than it needs to be

EU partially solved this with PSD2 enforcing two factor authentication for online card purchases.

https://finance.ec.europa.eu/publications/strong-customer-au...

I've noticed that I'm getting fewer and fewer 2FA requests with my 3DSEcure enabled VISA card of late. Places I frequently order from no longer trigger 3DS. Sometimes new shops don't either. From what I understand, whether or not the second factor triggers depends on a variety of factors including amount and retailer reputation.

They added a "frictionless" flow in 3-D Secure v2, so probably for situations like "we recognize this combination of device and payment card and the transaction is pretty small" it can slide you through without a direct interaction.

I think some interpretations of the PSD regulations call for specific "after X euros of spend/Y transactions you have to explicitly challenge" but it may vary by country.

I wish my bank had a setting I could toggle so 3DS would always trigger. I've had my card blocked twice because someone asshat made a bunch of online payments with it, some of which failed, but some succeeded. Presumably some shitty website leaked my details, but ideally 3DS should ensure that those details are unusable. Alas that wasn't the case.

> They're set at whatever the payment networks can get away with. There's nothing that says that's good for anyone else, although it is very good for Mastercard and Visa.

MasterCard and Visa are more like clearinghouses. The decision makers are their members having "access to the rails", issuers and processors, which are either banks, subsidiaries owned by banks, or companies sponsored by the aforementioned two (which very often includes one or more banks getting an ownership percentage).

> My suspicion is that 3ish% is the optimal value or a very large anti-trust investigation (not a price cap) is in order.

Why do you have this particular suspicion when you claim you haven't actually looked into ~any of the questions you raised?

> does making credit cards a less lucrative business lower credit card penetration?

It doesn't, EU uses card payments much more than the US. So end of discussion there, it got cheaper with no negatives, just positives.

That's false. It's 66.7% in the US. Only Iceland, Luxembourg, Switzerland, and Norway are higher.

https://genderdata.worldbank.org/en/indicator/fin7-t-a?gende...

(also, you answered - incorrectly - only one of the questions that I brought up)

That doesn't include debit cards, most people don't want nor need credit cards. I can count on one hand the amount of times I have seen people use cash the past year, basically everyone uses cards.

We have VISA and Mastercard with debit, not credit, so it works everywhere.

Sure, but the question was specifically regarding credit cards, not debit cards. In which case, they would be correct in that penetration is appears lower for credit cards in the EU no?

Note, I am not suggesting that is a bad thing, I fail to see largely how its a bad think but perhaps I lack enough understanding to see why people not loading up on credit cards is a negative.

> Sure, but the question was specifically regarding credit cards, not debit cards. In which case, they would be correct in that penetration is appears lower for credit cards in the EU no?

Yes, but that's because credit cards aren't needed in the EU (you don't need to build credit, and you get the same protections on both). So it's useless to try to focus on credit cards in particular, it only makes sense to consider debit+credit.

Ah fair enough. Thank you, makes sense. It’s much the same in my country honestly.

I think that there's very little reason to suspect that a rent-seeking middle man getting a bigger piece of the pie is in any way good for the efficiency of the value transfer system, first order or not. You're kind of crab-walking around making a point here.

If credit card networks disappeared today, would we want them back? If the answer is yes, then they deserve a fee. Unclear to me why a certain % is morally correct.

The correct % is the minimum amount required to sustain the service.we know what that amount is from countries with sane regulation.

Oh come on. You are going to debate whether a 3% parasitic tax is good or bad. Interchange is paid on debit card transactions too, it's not credit card specific.

Parasitic takes for granted that credit card companies do nothing. Anyone who works in finance could tell you that's very false.

(I'm open to the idea that this is a market inefficiency that needs government correction - but you need more than just saying "3%" to prove that)

And that is why we’ve continued to pay about 2.5-3% since the 1980s, despite the fact that every element of the card networks’ technical infrastructure and hence cost structure has radically changed since that time.

A simple way to determine whether “look, the burden of proof is on you to prove this is abusive” is the correct standard is this: try to get precise details on how much the underlying service costs, how much the various types of revenue are shared between card processors, Visa, and issuing banks. You’ll find that it’s almost impossible to get a clear picture of those details without signing an NDA. But if I’m wrong about this, come back to me with it and we’ll discuss how to use it to evaluate whether the fees are reasonable.

and along the same lines, how good is the fraud prevention, detection, and recovery?

US banks lose about 3x more to fraud than average and about 10x more than some countries with sane regulators. Those are direct losses, not accounting for "prevention, detection, and recovery" costs.

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