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Comment by eastbayjake | Hacker News Reader

I'm a little shocked that of all the comments so far, no one has mentioned the financial risk borne by this whole value chain. OP is operating as if it's just a debit system moving money from one account to another but:

- For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for -- credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees

- For many _businesses_ managing cash flow is existential -- as merchants they want to be paid as quickly as possible, but as B2B customers they want to have 30-60 days to sell the input goods they've purchased so they can pay for them upstream. There is a premium for that flexibility that gets reflected in processing fees.

- For both consumers and merchants, fraud risk is real and while it's the most solvable part of all this it's a real (and costly!) factor today. That risk for fraud gets moved upstream to the networks/acquirers/processors/issuers and that premium shows up in (you guessed it) processing fees.

If you want to switch the world to a debit-based system where economic transactions are limited by cash on hand, I'd argue that's a poorer and less dynamic world than the one we're operating in today.

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None of what you’ve mentioned has anything to do with Visa and Mastercard. Visa and Mastercard are just payment networks, their whole business is literally just transporting transaction information from payment terminals to banks and payment processors, plus keeping track of all the numbers (which is pretty important).

Payment networks don’t provide credit or any kind of liquidity whatsoever, that entirely provided by the various financial entities that communicate via the payment network. The reason Visa and Mastercard haven’t been easily replaced is simple network effects, nobody wants to integrate with a payment network where there’s nobody to transact with.

I replied downthread but I used "value chain" deliberately -- there are lots of intermediaries of which the card networks are just one link in the chain -- and the statement above is about risk being borne (and value being created for consumers) by the entire value chain that is different and difficult/impossible in a FedNow-style immediate settlement model: https://news.ycombinator.com/item?id=46964968

Mastercard and Visa also use immediate settlement models and basically always have done. The settlement buffer between end parties is created entirely by entities that are all basically banks.

There’s nothing special about Mastercard and Visa rails that prevents you recreating all the functionality that the broader ecosystem provides, without Visa and Mastercard. Hell all of that functionality could be provided by exactly the same companies and banks that provide it for Visa and Mastercard networks.

Because mastercard/visa don't personally bear any risk they are very happy to process refunds and chargebacks in the customer's favor. It's not a perfect system, but it's much better than direct bank debit where the customer has very little recourse. There is also a significant privacy issue. Today my bank can only see the sum total of my credit card purchases but not what I buy and from which vendor. Amex can see what I purchase but knows very little about me otherwise. I like this separation, and I like that it's hard for the government to get a complete picture of my financial affairs. I know credit cards get a lot of hate (here and elsewhere) but as a consumer I think they're exceptionally convenient.

> Because mastercard/visa don't personally bear any risk they are very happy to process refunds and chargebacks in the customer's favor.

That’s not how chargebacks and refunds work. Mastercard and Visa are not involved in the vast majority of disputes at all, it’s entirely handled by the card issuer and card acquirer. Mastercard/Visa only get involved in cases where network party has broken one of the technical rules of the network. For cases of missing or faulty goods etc, Mastercard/Visa do nothing except transport the messages used by bank/merchant to litigate the dispute.

When Mastercard/Visa are forced to step in and make an arbitration decision, they charge a hefty fee (hundreds of dollars) to the losing side to do so. So they have no issue with people raising disputes, it makes them a lot of money.

> Amex can see what I purchase but knows very little about me otherwise. I like this separation, and I like that it's hard for the government to get a complete picture of my financial affairs.

This is naive, all banks and credit card issuers are required by law to perform KYC (Know Your Customer) to ensure they know exactly who they’re transacting with. It’s trivial for the state to buildup a complete image of your financial situation by sending a small number of court orders to banks and financial entities to turn over all their records on you. That’s ignoring the automated tax reporting that banks also have to do.

Yep. Worked for a bank, they definitely know who you are

I had no idea visa/mc didn't bear the cost of fraud. I remember Paypal almost getting killed by fraud in the early days, and I always thought of Paypal as basically replicating visa/mc for online purchases. I didn't realize they were doing so much more than visa/mc by assuming fraud risk.

MC/Visa do drop merchants who do bad stuff (remember CSAM on PH) so I guess they bear some of it.

their monopolies were formed in a different time, when it might have been thought prudent to drop bad merchants even if they themselves did not bear the risk in order to not get governmental regulation imposed that would be more detrimental than just dropping the merchants.

Not saying that's the case, just given circumstances not sure if risk is needed to explain the result in this case.

PayPal was a counterparty so if one side didn't pay or there was a dispute then PayPal was stuck in the middle. Visa and MC are just payment networks and have minimal risk. The only risk I think would be criminal liability (handling drug money) or maybe if the bank goes bankrupt before the payment is due to the merchant (but even that might be borne by they merchant - not sure).

At least if the failed bank is Japanese, all of it will fall under their deposit insurance program (https://www.dic.go.jp/content/000010138.pdf#page=13), although this is actually a rare guarantee (FDIC and SVB comes to mind).

> Full coverage for deposits for payment and settlement purposes, bearing no interest, being redeemable on demand, and providing normally required payment and settlement services

Visa/MC do carry some risk, but the chain generally goes merchant -> acquiring bank -> ? platform (like Stripe or something) -> Visa/MC. So they care a lot about the people just above them in the chain, and not at all about the rest of them as they won't end up holding the bag.

There are many countries where debit cards are the norm and credit cards are extremely rare. In France, people are so afraid of consumer credit that cards are renamed ‘deferred debit cards’ rather than credit cards, otherwise people do not want them.

There is also a major difference as I understand it. They need to be resolved at the end of a certain period. There is a legal difference from Credit cards as in there is no continual liability and thus no continued line of credit. Getting a true credit card is also a lot harder here (not France) than a deferred payment card (usually 1 month) and has stricter credit checks.

Visa and MC have basicly all of these configurations, depending on country & legislation: - Direct Debit - Deffered Debit - Rolling Credit - Installment Credit

And if you are a $MegaBigCorp customer of them, you can customize even more.

indeed. my credit card requires me to preload money from my bank account. it's like there is a second account that keeps a balance that i can spend using the credit card. whenever i use it, the balance is updated. how the credit is paid off i don't know. it could be either right away, or the amount is just hidden by my bank until it is time to pay off at the end of the month. either way, the credit limit is zero. so i can never spend more than i put in first. (though this may be based on how much i spend or be a configurable value.)

So, your credit card is in practice a debit card?

yes. it is possible that i can get a real credit limit too, but i didn't check.

these debit like credit cards put a different light on the statistics. as some people here have said, europeans don't use creditcards, and then someone contradicted that with a statistic of how much is paid with credit cards. how much of those credit card payments are made with debit like cards like mine?

europe doesn't want their people to get into credit debt. possibly protection for people is stronger and makes it harder for banks to recover if people fail to pay? but most likely countries just want people to be able to protect themselves from overspending.

like i can get an overdraw limit on my bank account. it is set to a default value based on my income. but i deliberately reset that to zero. i don't want an overdraw limit. if i really need to overdraw i'll change the limit at that time and i think i can even set that it is valid only for a short time and then it resets automatically.

that is not a credit card :)

There is a point though - Mastercard and Visa treats them as "prepaid" credit cards, which are different from both true prepaid cards (as issued in the US), charge cards, and true debit cards (former Maestro and Visa Electron). Again, different regions have different lines for this, especially in Europe.

IIRC, bunq in the Netherlands issues Mastercard "credit cards" (with no "debit" annotation as on true Mastercard debit cards). They're treated as credit cards for Mastercard purposes but are backed by deposits.

it is what i get when i ask my bank for a credit card. it says credit card on it, and it is what i use when a credit card is called for.

as i said, it is possible that i can actually get a real credit limit on the card, or possibly the bank has other credit card products.

It's more taboo to talk about revolving credit card than crack addiction for a french. I don't know a bank that offer them, even the shady online bank.

Too bad that doesn't extend to their government, which seems to have no problem spending their credit down to the wire...

Historically, these have been issued by "consumer credit" specialized banks like Sofinco; and retail chains ("carte Aurore"); traditional banks would seldom advertise them, if offered at all.

Things have been changing a bit in recent years. Since the "debit" and "credit" nature of the card is now written on them, French folks have started to request "credit" ones for travelling (to rent a car for instance).

My understanding is that for car rental purposes, anything using Visa/MC (and not a national debit network like Visa Debit in the US) will work, it doesn't actually need to be backed by a revolving credit. At a US gas pump, a Frenchie needs to select "credit" even though the card has "debit" written on it. Still, should the clerk refuse the card because it reads "debit" without running it... better have this "credit"-labeled one.

> My understanding is that for car rental purposes, anything using Visa/MC (and not a national debit network like Visa Debit in the US) will work, it doesn't actually need to be backed by a revolving credit.

Many companies will refuse all debit cards, or all cards with "electronic use only" restriction, at least for the deposit, irrespective of the payment network involved.

Why would they do that? Are there differences in chargeback risks?

These are historically called “charge cards” in the US and are common for corporations who give employees “credit cards” for travel and the like.

American Express is big in this market - what looks like a normal Amex Business Platinum card can very well be a charge card that needs to be paid in full at the due date every month.

There are minor differences but the big one is no carried balance between months is allowed. Payment in full due each month.

Debit cards come with the same fraud protection as credit cards do, which is the most important benefit of Visa/MasterCard.

In UK, consumer protection for Credit Cards is guaranteed by law (Section 75 of the Consumer Credit Act), but not for Debit Cards (that's contractual).

The UK is often completely out of step with consumer protections in the EU.

If a pan European system takes off, it’ll be interesting to see what happens with the UK.

Their self-harming has been impressive.

Is it? Can’t say I’ve really noticed it.

In fact just today I read this article in my EU country that sounds almost identical to what this comment describes:

https://yle.fi/a/74-20209419

“ If, for example, the payment was made by credit card and the product has not been delivered, the consumer can contact their credit card company directly and request a refund.

Credit card firms can usually refund the money quickly, Beurling-Pomoell noted, whereas consumers who paid by debit card must try to claim their money back from the bankruptcy estate.

"Unfortunately, [reclaiming money from a bankruptcy estate] is usually a very long and difficult process. Consumers are generally in a relatively weak position when a company goes bankrupt," he said.

Beurling-Pomoell added that consumers should always consider using a credit card when purchasing a product that they do not immediately receive.”

I think some examples are in order - where has the UK, having recently left the EU, changed its laws so that it was completely out of step with consumer protection? Or is this one thing that made it necessary for them to leave the union, perhaps?

The "consumer protections" of the EU basically amount to communism (i.e., state interference in private matters). So no, that's not a thing the U.K. should emulate.

Well the average bloke inside the EU is much better off than those in the UK. So much success for your policies

https://www.ft.com/content/837a7b40-f534-11e3-91a8-00144feab...

I somehow doubt that parent is British or has any clue about life in UK.

with a debit card your cash is gone from your bank account in that moment, even if you get it back later (hopefully). With a credit card they are not able to drain your bank account, the risks are entirely on the cc company and they will be significantly more motivated to get that back than a bank would. it's entirely their problem, not yours

No, Card Misuse is their problem either way in the EU

misuse is not what I mean, I am talking about if your card is stolen and someone runs up a bunch of purchases before it gets caught, that money is gone from your account and any fees from overdrafts are the account holders problem to deal with and stress they can entirely avoid if they did not have/use a card tied directly to their bank account. I pay close attention to my bank account (as it is important for rent/important bills direct drafted), I only check the credit card when the bill comes in.

users can even avoid interest if they pay that card off every month

I pay everything with my credit card (bills, stores, online, etc) and pay it off at the end of the month. Even my tap-to-pay is tied to the credit card. I never use my debit card anywhere but an ATM. I have never had my bank account violated but I have had the credit card stolen from a store I visited (card company caught it as there was a bunch of fraud from the same store, they let me know and they proactively replaced my credit card)

I have never had my ATM card compromised as it is for one purpose, the ATM

best part of all is my credit score loves the large payments I always make on my credit card

> I am talking about if your card is stolen and someone runs up a bunch of purchases before it gets caught, that money is gone from your account and any fees from overdrafts are the account holders problem to deal with and stress they can entirely avoid if they did not have/use a card tied directly to their bank account

Yes that's what I'm talking about too, and it's called misuse. Liability is capped at 50€ as I said. We also don't have any fixed overdraft fees, only a compared to credit cards low interest rate, but this would also be the banks problem in this case. Also you still need a pin to pay or 2FA when paying online for European Cards. So that scenario seems very unlikely anyway.

> I have never had my ATM card compromised as it is for one purpose, the ATM but I have had the credit card stolen from a store I visited (card company caught it as there was a bunch of fraud from the same store, they let me know and they proactively replaced my credit card.

I have never had my card compromised, as it only uses the EMV Chip for payments in the civilized world, which you can't clone, and even then you would still need the PIN to pay, or the second Factor. I also never had my Debit card (what you mean with ATM card) compromised, because it's the same thing.

US does not always have those proper card safety features (you can use debit cards without pin and online use does not require pin) and banks will fight tooth and nail not to give back overdraft fees (as the overdraft would be from other transactions from the account after the fraud drains an account)

Would you be able to overdraft with a debit card, though? When I was the victim of card cloning, I discovered it in the supermarket when my card purchase didn't go through due to lack of funds.

When a card is stolen or cloned, it is usually discovered really fast. Either by the victim or by the bank. It's probably in most cases a matter of hours or even minutes.

yes, it is possible depending on timing (if a card is authorized but captured later in the day or the authorization was less than the capture, this is why gas pumps do auth for $100 and hold that for days till it clears), but the risk is more about expected/scheduled transactions hitting the account before you realize it got drained

I guess my bank accounts have never had an overdraft function. If there aren't sufficient funds in the account, the debit card transaction/withdrawal gets denied, no matter who is using or misusing the card.

Yes

Just by their nature, that is inherently untrue.

If your CC is stolen, you are not out all the cash in your account until the dispute is resolved.

If your debit card is stolen, you lose that cash, making it more difficult to pay whatever other obligations you have that period.

If your debit card is stolen, your bank has to return all money that was used or withdrawn to you. Since it is unauthorized use of your funds. Same for credit cards of course. Such money is returned swiftly.

But the more concerning fraud is when you purchase something and don't receive what you should have received from the merchant. Whether it is due to outright fraud or not. In these cases you will also have your money reimbursed by your credit or debit card.

> If your debit card is stolen, your bank has to return all money that was used or withdrawn to you. Since it is unauthorized use of your funds. Same for credit cards of course. Such money is returned swiftly.

This may be what the letter of the law says but this isn't reality. Using debit puts you at greater financial risk.

“Using debit puts you at a greater financial risk.”

What how? Surely the US populations credit card debt dorf even the global populations debit card fraud numbers. So while my whole family in a combined 200 years of adulthood have indeed lost some 1000 euro total in fraud, it's not thing compared to the average Americans credit card bills.

I'd rather risk the street criminals with my debit than the suit wearing ones with their credit.

My debit card is a direct line to my primary bank account. If something goes wrong there and an attacker gains access, my cash is simply gone. Yes, the bank will perform an investigation and yes they may issue some provisional credits as a bridge, but there's a window of time between the theft and that investigation concluding where my actual cash is not in my account.

With a credit card, if the card is compromised, its not my money being stolen - its the card issuer's money from my line of credit, and they were planning on settling up with me when my monthly statement closes. I still have to launch a fraud case with the issuer, but critically, _all of my money is still in my bank account_ and I can continue to pay my other bills and obligations as normal.

I think its reasonable to consider giving up that buffer to be additional risk for the debit card approach, setting aside any other advantages or disadvantages between the two.

EU has much stronger consumer protection and it's on the banks to provide secure systems. Like if my card gets skimmed by an ATM or merchant the bank pays for the fraudulent charges. And overall the EU has much less card fraud.

My debit card is a direct line to my primary bank account. If something goes wrong there and an attacker gains access, my cash is simply gone.

Your bank lacks proper security protections then. Here most banks have limits on debit card transactions. If you want to do a very large transaction, you have to increase the limit for a short time period in your banking app, and there is a delay of a few hours (they'll warn you when the spending limit is increased).

IANAL, but also consumer protection is much stronger in Europe. E.g. in NL if you stick to 5 basic rules, which are sensible things like not intentionally giving away your banking card or PIN code, the bank has to refund stolen money:

https://www.consumentenbond.nl/betaalrekening/bankvoorwaarde...

That's what I said... but, that takes time, time for which you don't have access to that cash.

Just a quick Google... Wells Fargo's policy is 10 days to either case resolution OR provisional credit. I assume that's typical for American banks. For somebody living paycheck to paycheck, 10 days is a long time to go without access to what little cash they might have.

You guys use the debit card linked to your primary bank account??? There's been virtual cards for online shopping for 10+ years now. They're meant to be linked to an empty or low amount bank account. Now with Revolut you can schedule auto top-up to keep this low amount up to date.

Not to mention the per-purchase (online/in-person) limits, mandatory PIN entry, and daily maximums...

We have virtual cards as well, maybe used it once. But we also have a lot less fraud and typically require 2fa for online purchases and chip+pin every x purchases.

We don't use any cards for online shopping, what do you mean? In most European countries online shopping uses a payment API that takes you to your bank's payment portal where you can review the transaction amount before confirming. It's no longer the 20th century, we're not handing out any card details to online merchants.

Banking in the US feels like it's stuck in the 90s. Heck, half the time, it's not even chip+PIN, it's chip+signature (which is a relativelyrecent change from carbon copy or swipe and signature).

I've never had a web shop use an API to deduct from my bank account - the closest thing is PayPal, which as far as I can tell is basically ACH under the covers, just though an intermediary. Pretty sure more Americans use their CC or debit card for online shopping.

Of course all online merchants in Europe take card payment. Some of them also offer payment by bank payment portals, such as you've described. These have zero benefits for the customer.

Ah yes let me forego the chargeback protections (and convenience of one tap Apple Pay) to reduce merchants fee by 0.2% of transaction value, sounds great

The protections aren't quite the same with merchant issues. Notably, most situations that you attempt in good faith to resolve, purchased within 100 miles of your home are protected for credit cards.

But even if it were - most people operate one checking account, and most folks don't keep an especially large balance. If your debit card gets compromised or there is an erroneous charge, it will process up to your balance. It is incumbent on you to notice the fraud and take action. If the bad dip is today, and tomorrow morning my mortgage and other payments bounce or hit overdraft, I have a mess to clean up.

With a credit card, you're typically hitting a larger credit line that isn't fully utilize -- you may not notice the bad charge for a month, but there's no impact to you... the thief stole the bank's money.

In Europe your liability for Card Misuse is capped at 50€ for things that happened before you blocked it.

Also how would someone misuse it? You need a PIN Code for every transaction anyway, and the EMV Chip can't be cloned like Magstripes.

Online Payments need a mandatory 2 Factor Authentication

I have always heard that the 2fa verification really depended on the vendor actually doing that auth so I always scrape the 3 verification number (what is it for anyways ?) at the back of my card. It's just 3 numbers after all.

It's mandatory by law, and it's additionally to the 3 numbers at the back of the card. Usually it works by confirming or denying the transaction on the App of your Issuing bank

None of the eu amazons have 2fa on their card transactions.

They recently enabled 3DS for business accounts, on customer ones it’s indeed still disabled

Why do they say otherwise on their own website?

https://www.amazon.de/b?ie=UTF8&node=17666138031

Well I have bo idea. All I know is when I purchase on either .de, .co.uk or .ie the transaction goes through immediately. I have 3D secure enabled.

The text on that link of yours is sneaky though:

"...you MAY be asked to..." (Emphasis mine)

Because you can add them to a "That Store is safe" list, and you won't get asked again. You probably did this at some point

Not true. At least not in Sweden. There are different laws from credit cards and debit cards.

This is the law which regulates such things, and the law makes no difference between any payment service (ie credit or debit), when it comes to unauthorized use, see chapter 5:

https://svenskforfattningssamling.se/sites/default/files/sfs...

Edit: Page 28 to be precise.

The law explicitly states that funds have to be reimbursed to the victim immediately or at latest on the same bank day.

And do you think this law applies to Debit cards too? No, it doesn’t. Of course you can find some laws that apply to both. But the relevant law is.

https://www.riksdagen.se/sv/dokument-och-lagar/dokument/sven...

You're linking to a completely different and irrelevant law regarding consumer credits.

The law 2018:175, which I previously linked to, is crystal clear and protects consumers against unauthorized use of their digital payment means, including but not limited to all types of card transactions. Otherwise, please let me know which chapter excludes debit cards.

Even bank transactions are protected by this law. And it has been all the way to the supreme court, which ruled in favour of the fraud victim against the bank. The victim had voluntarily handed over their digital banking credentials to scammers, and the bank refused to reimburse the stolen money. However, the supreme court ruled that the bank was indeed bound by law to reimburse the money:

https://www.domstol.se/hogsta-domstolen/avgoranden2/2022/115...

But even so, if the law is not enough and if the supreme court ruling is not enough for you, then at least empirical evidence should be enough? Just ask around with family and friends and you'll find at least a few people who have been the victims of having their debit card stolen or cloned. They will let you know that the bank returned their money swiftly.

Others have said it but I will pile on as this is dangerous misinformation.

It’s sort of true in a legal sense, but not a practical one. If you find yourself in a dispute (even outright fraud sometimes) you might end up stuck for weeks or months with your disputed funds frozen.

If you are a highly paid software engineer with considerable assets and transaction volume at your bank it’s likely you will never experience hardship with disputing a transaction. If you are someone scraping by and that $200 depends on you paying rent on time that month you will find your experience to perhaps be different.

I’ve helped friends and family with such disputes in the past. Credit cards even when it “goes wrong” are much better to deal with. Your credit limit being reduced a bit is immaterial to your life most of the time. Having your own money tied up during an investigation that demands more and more paperwork like police reports etc. can be incredibly damaging and if nothing else quite stressful. The experience some of my friends had in these matters is nothing like I had when I had my wallet stolen and I no longer recommend anyone use debit if they can avoid it.

Heck, I had a friend who doesn’t even have a passport dispute an ATM transaction in a country he never visited. The bank initially denied it and it took weeks to eventually get it resolved in his favor.

In the end having the banks money tied up vs your own money at risk is always better if you can handle the responsibility of a credit card.

> Others have said it but I will pile on as this is dangerous misinformation.

Was that an introduction to the rest of your comment?

Explain to me please how a dispute with a vendor on a purchase makes a difference for your ability to pay rent? If the purchase was not fraud, then you have used that money anyway with your purchase. Unless you're planning to pay rent by bartering your Amazon order.

If you're instead talking about a stolen or cloned debit card, then that money is refunded usually as soon as you've made a police report and sent it to the bank, which is a matter of two days at most. The paperwork is not difficult, because cards get stolen and cloned all the time.

But the fraud protection is the same, even if procedures and timelines might differ.

> But the fraud protection is the same, even if procedures and timelines might differ.

I wrote about outright fraud taking weeks (in one case, months) to resolve. From my own personal direct experience.

> I had a friend who doesn’t even have a passport dispute an ATM transaction in a country he never visited.

Does this sound like a dispute with a vendor or outright fraud?

A dispute with a vendor can also mean an overcharge or something like a renewal fee for a yearly membership that is under dispute. It's not just marginal items you bought and the vendor refuses a return or it never shows up or whatever.

Like I said - if you are a highly paid professional you likely will never have a problem with this. It's an invisible part of the economy to you. If you are working class you are much more likely to have a wildly different experience. Banks have what is effectively an internal credit score system for each customer. For those with serious assets with the bank you get a lot more leeway and benefit of the doubt until you start abusing it.

Please spare me the "working class" appeals. You don't know anything about me, and I don't know anything about you.

I've had my own bank account emptied by card cloners. And the bank reimbursed the money swiftly after having made a police report. The same for everybody else I know who have fallen victim to the same. None of us with any kind of impressive assets when it happened.

As for disputes with vendors, sure, I give you that there is a difference in time frame when paying by credit instead of debit.

A cloned or stolen card should never take weeks or months to resolve. In that case, you've been the victim of a criminal bank. It's not the experience for most victims, whether rich or poor.

Growing up in the EU, living in North America now, it's mind blowing to me how much credit these companies are making available to me. Not that I ever would outside of an actual emergency but I can see how it's tempting to someone who didn't grow up in a financial risk averse society.

> grow up in a financial risk averse society.

It is not risk taking, it is a system that not just normalized the debt, but punishes people for not taking it. When you are recommended to use credit card, so you can function on debt, so that you can get better mortgage later on, then the thing in play is not just "risk aversion".

Yeah, that always blew my mind as a non American.

It's amazing. Meanwhile your fellow Europeans wouldn't trust to lend you their power drill for a weekend, even if you've known each other for 30 years.

My European business banks have never offered any kind of line of credit. Of course they probably would if I needed, and went there to grovel and prostrate myself. In contrast, my American business bank just sends unprompted e-mails sometimes asking if I would like to borrow a bunch of money.

American trust is based on rationality and intuition, while European trust is based on rules and authority. That's why business can flourish much more in the USA.

Nah, more like the money is lent out because it's so profitable to exploit americans addicted to debt.

> That's why business can flourish much more in the USA.

And look where that's gotten you.

Indeed!

> In contrast, my American business bank just sends unprompted e-mails sometimes asking if I would like to borrow a bunch of money.

> American trust is based on rationality and intuition

Just remind us where the 2008 subprime crisis started again?

The availability of credit is a positive imo. Sure, it's possible to trap yourself in debt, but being able to pull that lever in an emergency is valuable. Imo US is better on this front than Europe.

Here it's more normal to save up for something and then buy it. Rather than buying on credit and then paying it off.

It makes much more sense too.

The financial system is built to stimulate that. For example if you'd buy a house you need to pay about 30% in cash and you can't loan that money somewhere else. This way you get people that know how to deal with money. And also the bank doesn't run a big risk if there's a market slump.

This is not the only difference in the banking system; 25-year fixed-rate mortgages are also a feature that is rarely found elsewhere.

The minimum 10% deposit is mainly there to cover taxes, which cannot really be recovered by the bank in the event of default.

It's not a 10% deposit though, it's 30% (so 10% taxes and 20% investment in the house)

And the fixed-rate mortgages are a good thing (though only when the rate is low hehe)

> For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for

This is a uniquely American viewpoint. In most of Europe you don't buy anything on credit ever.

Most places outside the USA actually. A liability is someone else's asset, and everyone wants USA assets, so the USA needs to generate a lot of liabilities.

There are numerous credit providers in Europe that would beg to differ.

By December 2025, consumer credit in the Euro area alone stood at an estimated €812 billion.

Are you talking about the same thing?

Sure, in Europe people will subscribe to a credit to buy a car or materials to improve their home.

But buying your groceries or lunch with a credit card is quite a rare exception.

There is a significant amount both in credit card debt, buy-now-pay-later type offerings (e.g. Klarna), and payday loans - it's by no means all larger loans.

It also varies greatly by country, but all major European countries still have significant credit card (not consumer, so excluding e.g. car loans) debt, with the most "credit willing" countries like the UK reaching around 1/3 the US average credit card balance (but you'd also want to adjust for average salaries before comparing these). There is no single attitude to this across Europe.

I would have said "true", or at least - I would have said "I do, but never incurring a charge on next month's bill", but with services like Flex from Monzo, you can actually get credit over 3 months with 0% interest rates, which not only makes buying stuff more likely, but spreads out the costs. It doesn't solve over spending though.

How much is it?

You could draw all of it and put in a a 2x leveraged SP500 ETF :-D for 3 month and then return the money :-D

"Credit limit: £1200"

It depends. The more you use it the better the limit gets. Mine is nearly 3k now.

Just don't let the credit card companies find out. The reason they give the money to you and not the stock market is to diversify their portfolio.

Imagine if all the shares in Bank X were paid for by loans issued by Bank X.

How much is Flex? It is free. You have 2 options -

1) physical card, which works like a credit card. 2) You can flex payments you made on your regular card.

The rules are the same. If it was a card purchase it will more than likely flex (it will if you used the Flex card, account it will depend on the type of transaction.) But it needs to be used for purchases. I guess you could set up a CC processing unit and pay yourself, but it somehow doesn't seem worth it. You can't flex a bank transfer for example.

When you Flex, it gives you the option to "pay on next payment cycle", "pay in 3 installments with 0 interest", "pay in 6/12 installments with the usual big interest". But you can at any point pay it off and so you could do it over 4 months and only pay minimal interest and you could pay over the amount due and make it pay off quicker.

I would never buy a plane ticket on debit.

Airbnb reservations I also tend to do on credit.

Anything related to company expenses I also do on credit and receive reimbursement prior to having to pay it myself.

In Europe you typically have travel insurance on debit cards as well.

What? Where? I don't believe this to be common, and have some doubts about this existing anywhere at all.

Certainly not the case in Sweden. Although travel insurance is usually included in your home/renters insurance.

https://www.icabanken.se/kort-och-betala/reseforsakring-mast...

It's usually not tied to the debit card, but plenty of banks offer ad-hoc travel insurance as part of an options package with their checking accounts.

It's just now how it works in most of Europe. I've lived in four countries, had accounts with lots of banks, paid for countless plane tickets and booking reservations, and only had a credit card once when I was issued one at work. I don't expect I'd ever get a personal one, and can't think of anyone that regularly uses one.

The only time I even considered it was to build a credit score in the UK to eventually apply for a mortgage, but even then it's not really necessary.

In EU to build credit score the best thing is to have no credit at all. I'd be surprised if the UK works differently.

Even after a few years of living in the UK, I could not get a credit score from any of the three or so providers because they said they didn't have enough information about me. I guess being on the electoral roll and paying bills on time just wasn't enough.

Not having a credit score isn't necessarily a big problem, as banks use it for context rather than making decisions purely based on it, but I did see some advice online about getting a "credit builder card" [1] (essentially a high interest and low credit limit card) as a way to build up credit history.

I decided that getting in debt just so I can prove I can get out of it is a stupid system, and didn't do it. Last time I checked (with Experian), I had a perfect credit score, so I don't know what happened in the meantime.

1: https://www.experian.co.uk/consumer/credit-cards/types/credi...

Ah yes I see, being new to the country does not help instill their confidence either. True.

From your nickname it sounds like you are from Romania so if that's so there might be a dose of xenofobia included there as well. That is kinda big in the UK right now, the whole Brexit was fuelled by it, sadly, especially concerning eastern Europe. I was on the receiving end of some of it myself too, being called 'a non-national' and eyed with distrust. I'm sorry.

Close, I'm from Moldova! Not sure that it played much into it, this is all automated, nobody's manually looked at my score. I reckon they just needed n data points about me to show me a number, and I had n-1 (not that they'd tell you).

My only data point from Europe is Norway, where credit cards are widely adopted.

There are also official debt registries, where you (and prospective lenders) can look up how much debt you have.

A bit different than the credit score concept.

Seems you're right, Norway has one of the highest credit card ownership rates in the world. https://genderdata.worldbank.org/en/indicator/fin10

In Moldova where I'm from, only 8% of adults have one.

Those 'protections' have nothing to do with the purchase being credit or debit. They're just artificial incentives from the banks for you to pile on the debt. We frown on that behaviour here in the EU so it doesn't really happen. The same with the cashbacks american banks offer on credit cards, they're just paid by the extortionate card processing fees that vendors pay. So essentially, you are paying for your own cashbacks because the vendors just include it in the price in the end (and usually for everyone, not just those paying by credit card)

Besides, if you want insurance just get a 30€ per year rolling package.

> Besides, if you want insurance just get a 30€ per year rolling package.

My credit card has a yearly fee of €36 (and it’s not like having a debit card instead would have been free). The total annual insurance premiums of all insurances that it includes (travel, third party liability, purchase) would exceed €200 from the same provider.

It is not. https://tradingeconomics.com/country-list/private-debt-to-gd...

The widespread use with "buy now pay later" also counters your wildly baseless claim. Klarna, PayPal 30 days etc.

Just because you have to use Klarna doesn't mean you pay later as you can just select your debit card or even bank account directly.

... I know. But what do you think I meant when I said "Klarna" in the context of this discussion?

Your link counts all types of debt including mortgages which is the reason why Luxembourg comes up first.

The argument was, at least how I read it, that europe doesn't rely on credit that much. My argument is: we do. We just don't have 20 credit cards at a 45k debt level. But we have enough other stuff.

Sure, but mortgages are backed by an asset whereas credit card debt isn't.

> credit cards are giving you a revolving loan

I'm confused - is it not the issuing bank that gives you the loan, and the credit card company just provides the infrastructure?

Btw. having an overdraft limit of a few hundred Euros is quite typical for those liquidity issues. You don't need a credit card for that.

I used "value chain" euphemistically because you can get really complex on this and I wanted to spare the casual reader. I meant your credit card as an end-user product in your pocket and not meaning the card networks in isolation, but the value chain is roughly:

1. Merchant (bears little fraud risk but a lot of chargeback risk)

2. Payment Gateway (little direct risk but some liability risk)

3. Merchant Acquirer (more direct risk but mostly if merchants become insolvent)

4. Card Network (Visa/MC/AmEx - less risk but significant underlying costs managing a global technology that spans the financial system and needs to be distributed to almost every merchant of any scale in America)

5. Issuers (Banks + AmEx - most risk but get a big share of interchange fees)

I've surely missed something here that the very smart (and increasingly grumpy these days!) HN community will doubtlessly pile-on to correct, so I apologize in advance for errors or omissions... and I bow down if @patio11 swoops in to tell me about the complexity I've missed in either payments or Japanese economic/cultural conventions

Will also add that the benefit of credit is not overdraft but smoothing cash flow... if I'm living paycheck to paycheck and get paid every two weeks, I will incur essential expenses at the beginning of the fortnight that I can afford but lack cash in my account to pay now. I can't overdraft because I won't have the funds to deposit into that account for another two weeks. I'm getting a service that smooths my cashflow and there's a small premium added to reflect that. (Could you save up enough to avoid needing this? Is that a uniquely American way of living? I don't know! I'm making a descriptive claim not a normative one!)

Sadly I’ve noticed that comments on this topic usually devolve into tribal comments about how ‘things are done in the EU’ which always seem to not be actually that representative of the 27 different countries of the EU, but of course must be better than the US.

> ‘things are done in the EU’ which always seem to not be actually that representative of the 27 different countries of the EU

This is so true, the EU countries are super diverse, and yet EU citizens tend to believe that whatever happens in their country is common across the Union.

I shouldn't have to pay for your usury economy if I'm using cash. If that were really the issue, these companies would have no problems with businesses charging different prices or offering discounts for cash.

The networks allow cash discounts if it's posted clearly and the customer has an option to use a different payment method -- you see this on every gas station sign alongside every highway in America. (What's _not_ permitted is adding a secret surcharge or item mark-up for credit card payments)

The latter is allowed now - after the backs of the credit card processors were broken.

They fought tooth and nail against cash discounts OR credit surcharges and they finally lost. In some areas it's rampant that you get a pretty substantial discount - often 4 or 5%, better than cash-back - and many places post "cash prices".

You can get even more if you're willing to ride the hassle of the gift card train.

The credit card companies know people spend more if they use credit cards, and they turn around and sell that to the merchants.

The UK actually forbids cash discounts and cred surcharges by law - and has done so since at least 2012.

Credit card companies are allowed to run cashback for using them.

All in the name of "consumer rights": https://www.gov.uk/government/publications/payment-surcharge...

Some European countries forbid a price difference but they also limit card fees very low, so the merchant doesn't lose money and you don't get cash back. Forbidding a price difference but allowing high fees is nothing but pure corruption.

Mainly because cash processing fees are higher than electronic, and the primary use of cash is to avoid paying tax

Surcharges are permitted in some states.

Colorado law recently changed permitting merchants to pass on the actual cost of processing, except for cash, check and debit payments.

https://colorado.public.law/statutes/crs_5-2-212

This law overrides any prior contractual agreements with banks/processing companies that prohibit surcharges. This is previously how MasterCard and VISA coerced merchants into absorbing the processing fee, by contractually requiring credit same as cash pricing.

Not true. A chain of restaurants near me does not accept cash, and charges 3.5% markup from their list price to cover CC fees. Texas.

If you'd like to get that fixed: https://usa.visa.com/Forms/visa-rules.html

Companies did do that - but I belive now it’s not allowed to charge less for cash.

Yes this is exactly what GP is talking about (he just phrased it the other way round).

Sure, as long as I don't have to pay for how much your cash costs the business in cash handling, security, theft, counterfeiting losses, and more. Studies show businesses pay more for a transaction in cash than on credit. If they really were losing out on taking cards, they wouldn't accept them.

> credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees

Neither Visa nor MasterCard are loaning customers their money. It's the European banks that hold the bulk of the risk for European credit card transactions.

Also worth noting that who owns the risk is a regulatory question, not a technical or product one - and, like all regulatory questions, is different for different countries/regions.

Chip and pin and NFC transitions took off much quicker outside the US because merchants generally owned more of the chargeback risk than in the US, and therefore were willing to update their POS equipment accordingly.

Risk (like debt) is another place where a US-centric view will likely lead you to misunderstand the purpose of Visa/MC.

> Chip and pin and NFC transitions took off much quicker outside the US because merchants generally owned more of the chargeback risk than in the US, and therefore were willing to update their POS equipment accordingly.

Not really. The risk of all fraud is initial borne by banks issuing the cards, after all they’re only parties that have an actual financial relationship with the person providing the cash/debt. If something which results in that person cash/debt being stolen, it’s between that person and their bank to figure out who’s liable for the lost money. Chargebacks are just a mechanism for banks to recover some of that lost money, once the liability between the card holder and the bank has been settled.

One of the big reasons why Chip and PIN etc took off outside of the US, is that the US is very accepting of fraud, and charging crazy high interchange rates (up to 10x what they are in Europe) so the cost of fraud is spread over many individuals. Other parts of the world have regulations capping interchange rates, and providing better consumer protection, demanding that banks and payment networks tackle fraud, rather than increase the cost of everything by 1-2% to cover fraud losses.

Just to put another perspective there. In Brazil, chip and pin took off immediately (from non-existent to ubiquitous in about 6 months) after the government decided that the bank and card issuer were responsible for all the fraud risk.

I have no idea what policy made the US hold into signatures for that long. But the seller and the buyer are the least powerful people on that entire chain, so I don't think it reasonable to look at them.

> Neither Visa nor MasterCard are loaning customers their money. It's the European banks that hold the bulk of the risk for European credit card transactions.

And the bulk of the fees from credit card transactions goes to the bank(s) since they hold the risk: https://en.wikipedia.org/wiki/Interchange_fee#:~:text=The%20...

This shows a fundamental understanding about the market you're commenting on. The European market is nothing like the US market. The vast majority of transfers are already debit based. Most people have a credit card, but for most part it's not a daily driver. Many European countries don't have credit scores at all, and in the ones that do, it isn't nearly as important as in the US. Since there isn't much of a practical need to take on debt, most people don't do it (leaving aside mortgages and leases, but you don't take those on a credit card anyway).

Yeah very disconnected comment I agree, Europe is different (and dare I say better or more stable long term in this regard).

I have credit cards for decades with various institutions, but NEVER EVER went to minus, see no reason to change it. Just a bit of discipline. We don't have public credit score or similar dictatorial stuff here. The only loan I will ever have on my name is called mortgage on real estate, and beyond that is a line I'll never cross. Same goes for everybody I know - family, friends, coworkers.

This comes from somebody working for a bank so not some clueless fool.

I meant to write misunderstanding, sorry about the typo.

Cash flow and fraud, yes. Credit, not much in most of Europe. AFAIK nobody has had something close to real credit cards until recently. They were called credit cards but it was a debit card with payment and deferred to the end of the month and backed only by the cash in the bank account linked to the card. I guess that no financial institution did like to risk any money on the behavior of European customers.

> For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for -- credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees

This is really much less of a thing in Europe, or at the very least in Germany and Spain. Mostly it's the overdraft from banks that you can use as what you call a revolving loan. Most of the visa and mastercards I've had in my life simply debit from my main account.

> If you want to switch the world to a debit-based system where economic transactions are limited by cash on hand, I'd argue that's a poorer and less dynamic world than the one we're operating in today.

Disagree. Credit has its uses, but debit is superior for the vast majority consumer transactions: lower fees, lower risk, instant settlement, easy P2P transfers, and broader accessibility. That we've become used to credit card payment system in the West is largely a historical aberration that needs correcting.

Also, I'm a bit biased since I live in China, but WeChat Pay and Alipay are so far superior to the credit card system that I can hardly find a single redeeming quality in the latter. China was lucky in that it leapfrogged the traditional credit card system since it didn't have that historical baggage.

Instant settlement is an anti-feature.

I don't want some asshole to be able to instantly drain my bank account. If I did, I'd be carrying a suitcase of cash around with me.

You can have instant settlement while still maintaining fraud safeguards (e.g. daily payment limits) and remediation mechanisms (e.g. reversing fraudulent transactions). With modern 2FA and device-based security, this risk is extremely low. Not a risk that justifies a 2.5% tax on every transaction plus all the other disadvantages of the credit-based system.

> lower risk, instant settlement

That's ridiculous. Why should I, as a consumer, care about the merchant's "risk?"

You don't have to, that's mostly a benefit for merchants. Although it does translate to lower prices and greater competition.

I agree the risk transfer is very important, but Visa and Mastercard don't do that (they just facilitate it)

Gotta echo other commenters here. Many people do not want revolving credit, or want to just use it to smooth out balance spikes and for emergencies. The American tropes of carrying a large debt balance or maxing out cards (eg to launch a business) as financial strategies are viewed as somewhere between gambling and fraud by a lot of people.

Visa/MC have built walled gardens which provide many services.

Some of the services include: - Consumer Credit - Fraud protection - Payment network - Discount service (rewards, etc) - Concierge services - Rental/Ticketing services - etc

No one is denying the utility of what they have created. The problem is they’ve built monopolistic walled gardens where these are all bundled together which raises overall costs while also prevents competition.

These services can easily be unbundled (for example in India the payment network is open and cost free, so anyone can provide those other services on top of the payment network).

What has made this far more urgent, however, is that these companies are located in the U.S. which has recently leveraged the power these networks have to attack EU citizens for frivolous reasons.

So even if the MC/Visa business model was perfect, it would be foolish for even American allies to rely on them given the actions of the current administration.

In this response, I detect the typical European tendency of elevating risk over opportunity.

This is not meant as a personal attack, or meant to be defamatory. I am detecting a familiar pattern, that is entrenched culturally.

Further, I identify this cultural trait as one of the obstacles or reason for many European problems.

It’s an opinion I have.

Hmm, maybe for countries with strong consumer protection, yes.

I lost 3 credit cards INSIDE an airplane (hello AirAsia!). I only realized it when I turned on my phone while queuing at immigration and was bombarded with dozens of "Successful transaction" messages. That's ~30min from stepping off the airplane. When I checked my statements, I saw dozens of physical transactions (swipes/taps) with different merchants in different cities from the airport.

All 3 cards have different PINs. All require a PIN for transactions above ~USD200. Yet the banks rejected my disputes because "it's a physical transaction, so you must be the one doing it." Apparently, they all think I could fly to different cities, buy different items, and fly back to wait in immigration, all in 30 minutes.

Lawsuit time! Against your bank.

I had missed the warning that this tech is now widespread. Must have not logged into Hacker News that day

https://www.kaspersky.com/blog/nfc-gate-relay-attacks-2026/5...

But but my CC literally said "it's more secure" (I asked and complained about the contactless feature because it interfered with my transit card)

If my bank did this to me I would immediately drop them.

Isn’t that financial risk of credit cards borne by the banks doing the lending? It’s not really any different to a debit card transaction on a bank account with an overdraft facility.

> For many _businesses_ managing cash flow is existential

Err, no - for _all_ businesses managing cash flow is the _only_ NR 1 crucial thing, because if they dont, they will disappear by tomorrow :)

> - For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for -- credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees.

Their risk is covered multiple ways (as reflected in their profits). You pay an annual fee to have a card. You pay per transaction, you pay for paywave, you pay 21% in interest.

They cover their risk by hitting every possible angle.

They are taking a percentage point or two on the entire consumer payment system.

I think there's plenty of money to back all the activity.

Especially if there are central banks willing to back them

> They are taking a percentage point or two on the entire consumer payment system.

Visa/MC make about 0.1-0.13% of each transaction, not a 1-2%. The rest of the interchange (the vast majority) goes to the issuing bank.

Doesn't it depend on the country? Payments with Visa and MasterCard work very differently in various countires. In Poland you can pay 0.01€ with credit card and the seller will happily oblige. In Germany even few Euros they prefer to be paid in cash.

That's their cut in the US, the market with the highest total interchange fees. In other markets with lower total fees, it's hard to imagine Visa/MC's cut being higher. They do a pretty useful service for a pretty reasonable fee.

Patio11 doesn't name names or give precise figures, but: https://www.bitsaboutmoney.com/archive/how-credit-cards-make...

You're mixing debit and credit cards.

In the EU, debit cards are pretty common, and largely its a network effect. You need to get terminals that are supported by your payment provider.

A lot of merchant terminals are provided by banks, and frankly they are itching to get a sweet sweet cut of each transaction. Not only the information, but the cut of each transaction. Something like 0.2-1.5% of each transaction. (I'm sure mastercard and visa give them a cut)

For Credit cards, the banks/operator already handle most of the risk, and then pay visa a percentage for the privilege of charging usury like rates

I'm not mixing -- if I have $0 in my bank account today and I don't get paid until Friday, I cannot buy food today with a debit card. Being able to buy things today on the promise of future cash flows is a risk-based financial product and risk comes with premiums. (Again: could you solve this problem by having more money in your account? Sure! But there are a lot of downstream consequences of every consumer and business in society operating that way and there are real trade-offs that should be discussed with more nuance than "monopoly hoard ledger boo")

This risk is all covered by the banks, not the interchange networks?

man who has only used the american financial system: the world not singularly using the american financial system is less dynamic. surely there are no counterexamples to this.

That's all the bank's problem, not the network's.

Unlike americans, the rest of the world isn't as addicted to credit cards, and operate on a mostly debit based system already.

In Europe, credit cards for individual use are extremely rare. I've only had one to manage a company expenses account.

In some parts of Europe. Credit cards are extremely common in the UK and Ireland, at least.

A debtless society probably wouldn't suffer as many catastrophic economic recessions/depressions though (usually a result of cascading liquidations/unpayable debts)

Switch? We mostly use debit cards today.

Replacing EM dash with "--" doesn't take away LLM smell.

Your comment seems to miss the point. It is totally possible to enable the first two of your bullet points without Visa or Mastercard, for example banks could just give lines of credit directly to consumers. Indeed, the myriad of loan products is run without Visa and Mastercard.

Yet if the airline goes under, or I never receive the product I bought online, using Visa/Mastercard I'm not left holding the bag.

If I take a random loan with the bank and use those funds to do the same purchases using debit, then I'm the one taking the loss.

You know here in Europe you can just overdraw your bank account anytime without bullshit fees, just with interest that is still way lower than average US Credit Card Interest (around 11%)?

Also bank transfers are easy, instant and free.

> For many _businesses_ managing cash flow is existential -- as merchants they want to be paid as quickly as possible, but as B2B customers they want to have 30-60 days to sell the input goods they've purchased so they can pay for them upstream. There is a premium for that flexibility that gets reflected in processing fees.

Yes those businesses use a bank loan for this, no need for a credit card again.

Thinking that the world doesn't have credit just because they use debit cards is one of the most idiotic things I've read today

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