Payment fees matter more than you think
cuencahighlife.com
cuencahighlife.com
Visa and mastercard innovated in an era where payment settlement was notoriously difficult and expensive but they've used their monopolies to entrench themselves in (by negotiating deals with merchants and bribing consumers with points) while the rest of the world moves on towards "layer 2" payment systems that are much cheaper and efficient.
I don't need fraud protection and the ability to charge back when lunch at a restaurant, I just need a skimmer-resistant payment method (which a phone is).
Also my entire point is that I don't need a card, paying with an app would be acceptable.
All of them are happy to receive cash or interac (Canadian debit infrastructure) or even e-transfers in some cases (Canadian venmo). But they'll say an extra $1-2 charge if you want to pay by credit card.
Maybe I'm just remembering badly, but I don't remember encountering this twenty years ago; back then the rules were clear that you either didn't accept credit payments, or you did and it was the same price as cash.
My memory is in accordance with yours
It also included a number of other valuable consumer protections, such as forcing card issuers to provide clear advance notice of interest-rate increases.
The financial-system reforms were some of the Obama administration's most valuable.
A sensible business owner increases the base price a little to offset card fees instead of bothering customers with these details and losing sales.
Credit-card issuers in the USA are a textbook example of a consumer- and retailer-harming monopoly.
However, with cash one needs to have / has / has to pay for:
* a more complex register * a person who takes more time to do the transaction * someone who counts the register at the end of the day to ensure it matches * someone who drives to the bank to deposit the money (at random times) * additional insurance * a bank account which probably charges for these cash services
If you don't count time, then cash is better.
And also, in Europe, if you as a business prefer cash, we all know it means that you make X, but you only report X/2.
That said, I expect the cost of taking cash does scale to some degree with how much of it you take. Obviously you still need a cash register, but if only 10-20% of your business is cash, maybe it only needs to be reconciled and emptied out every second or third day? And it's a faster and lower stakes process if there's less in it? Insurance is cheaper as well if the total loss is 1/10 what it would be if every dime was passing through there.
That's where they get new clients, and most of the rest of their sales go to loyal repat customers who know them already.
Try to tell them how they could capture a large part of those new customers themselves by investing in their own presence - very little money in comparison - and they start complaining if they have to pay any monthly fee and complaining about card fees to receive payment.
You have to spend money to make money, and any money you spend to get out of the claws of third party platforms is usually money very well spent. But small business owners don't want to hear it.
Merchant agreements didn't allow surcharges until 2022: https://www.cbc.ca/news/credit-card-surcharge-faq-1.6610356
You must be online [0] to process the transaction and you can’t refund/void unless the card is present. Which means if you call in later with an issue, we can’t refund you remotely, you have to come back into the store to do a refund.
[0] I know this may seem strange to some of you, but restaurants don’t always have stable internet. Most do, but there a long tail of locations with flakey or slow internet. And business owners are not always willing to pay for 5G backup.
From the consumer side, I don't use it all that often for purchases just because I'm aware of the interchange fee tax on cash purchases so I try to maximize the value of my credit cards: 3x Avion points for grocery spend on RBC ION+, 2 Aeroplan pts/$ for dining on Amex.
As far as a requirement to be online, given the nature of debit that doesn't surprise me; the whole point relative to credit is that no one has to trust you to pay a bill later. If offline transactions were possible then it would just be a credit card by another name.
The refund thing surprises me, but I expect that has to do with preventing some fraud scenario, maybe like an inside job where an employee issues remote refunds to a confederate? Overall it seems like the design of the system is fairly conservative and that's reflected in the much lower fees; the whole point is to not have to have whole armies of people answering the phones to help grandma get back $50.
Anyone can pay to anyone instantly free of Charge. Only limit is it's limited to ~ $1000 payment. The QR code can also be dynamically created by POS terminals containing the total bill amount as well, so upon scanning the amount is auto populated in the payment app, you just have to enter the security pin.
And since it's a Govt. Project, its not limited to just one app, there are lots and lots of apps working on the same system. There is even a VISA/Mastercard credit alternative : RuPay that works within the system.
The QR is a URI with the ID, amount and maybe other stuff. It's a client-side implementation.
RuPay sure "works within the system" but is pretty much useless for international payments/subscriptions. Not really a VISA/MasterCard replacement.
(I don't know anything about UPI, but in Indonesia we use a similar system)
Its just a URI.
upi://pay?pa=payeeID&pn=payeeName
this is why QR codes, especially ones with complicated encoded uris, are a security problem. they're very hard for leypeople to audit before doing the wrong thing
It is not how any of this works. But sure, keep up the uninformed fear mongering.
Client only talks to the payment service provider server which checks attestation, And only those few approved PSPs can talk to the NPCI server. And only the NPCI server can talk to banks.
The core code used by all the PSPs is the same, there is a common SDK that they have to use to be approved. There is a common test suite for the server side as well, that each PSP has to pass for certification.
PSPs like Google pay that aren't banks themselves, are called TPAPs, and they have to first partner with a willing bank. And you get TPAP client -> TPAP server -> partner bank server -> NPCI in the chain above. This is mostly for regulatory reasons.
Client side security though, relies on
1) app when registering sends an SMS to the bank, the bank uses the telecom-network side ID (and not the number in the SMS body), and checks that this number is attached to the bank.
2) play integrity/device attestation
Attaching a SIM to a bank requires in person KYC, so does buying a SIM.
So to break it you need
1) play integrity exploit on the targets phone + getting them to actually install your app and getting your app on the play store Or 2) a SIM swap attack on the target, which involves KYC/biometric forging/in person social engineering at the telecom providers shop.
Even if you SIM swap, the bank will check with the telco if you recently got a new SIM and restrict high value transactions for a while. The telco themselves will have a cooldown period. Some banks you can make you do in person KYC again at the bank's side. My bank requires this when you replace SIMs.
Similarly when you change phones, you get stricter limits for a while. Because the device fingerprint changes (with the SIM being the same).
You can do all that and get... 1000$. And there are per month limits, etc, which you can tweak yourself with your bank.
Of course there is the purely scammer route, where you scam someone into paying you money, authorising it themself. For these things there is usual risk-based stuff. The payee name you as the scammer give the victim has to match the one in your scammer bank account. And merchant payments / individual payments are differentiated, so the user gets visual indication that they are paying a person and not a company. And so on.. here obviously it is defense in depth and not cryptographic defense, since the user is the one authorising.
1. Static QR codes displayed by the vendor have the problem you describe.
2. Dynamic QR codes are time limited, have the amount embedded in them along with the destination. These are the ones generated by websites or POS terminals for payment. Most people will only use these at a POS terminals, pay and move on.
Fraudulent websites have used static QR codes but I'm told one can dispute the transaction and the amount is usually reversed in a couple of days.
I guess Tencent are making their profit from the interest they earn on the money that was transferred into them that just stays in people's Wechat wallets in effectively a parallel currency.
Revolut works similarly. You don’t pay any fees on transfers to other Revolut accounts, but you do for other bank accounts.
Does it? I'd be surprised if it does in the UK at least, as all banks do free transfers to every other bank in the UK via Faster Payments. I thought it was the same in the EU?
> If the card processing cost is 4 percent of the sale price, the fee amounts to $6. That $6 is not 4 percent of the profit; it is 12 percent of the merchant’s margin.
Sure, but merchants are raising prices overall together with all their competitors, or charging more when using a card. Credit cards aren't taking away 12% of merchants' profits that they'd keep otherwise.
Also, credit card fees are not 4%, they're 1.5-3.5% with an average of around 2.3%.
> The merchant may pay little or nothing per transaction, the funds usually arrive immediately and no physical terminal is required.
But what's missing here is fraud protection. It's more like debit cards than credit cards, and debit card transactions are much cheaper in the US too (more like 0.7%).
Now that it's increasingly common for local merchants to implement a credit card surcharge (so non-CC users don't have to pay more), and a large percentage of credit card fees come straight back to the user as rewards (e.g. a 2% cash reward), it's not really clear that payment fees matter all that much in the end. See:
Fed Data Shows Economics of Interchange: 86% of Fees Fund Rewards Programs: https://www.pymnts.com/news/loyalty-and-rewards-news/2025/fe...
And they’re much lower than that in the UK and EU. Even the smallest UK retailers can pay as low as 1.6% or 0.8% + £0.02. The big guys who are running billions of £ are paying 0.5% or less.
(These apply to in-person transactions, accepting cards on the internet typically costs more).
That depends on the market. Suppose you're selling something which has a substitute available for the same price, so the customer will buy whichever one costs less by any amount, but the substitute is in a different market where the payment is in the form of a bank transfer or it's a tax deduction etc., or the substitute is paid for in time rather than money.
Then none of the sellers accepting credit cards can raise the price because otherwise the buyer would go to the substitute.
And all markets are like that to some extent. For some the seller can't raise the price by a cent without losing 100% of their sales. For others, raising the price would "only" cost them 5% of their sales... but that's still 5% of their sales gone, and all the same fixed costs to cover. And, of course, in the cases where the price goes up, now it's the customer eating the fees, which is fairly nefarious when it's being subtly hidden from them.
> Also, credit card fees are not 4%, they're 1.5-3.5% with an average of around 2.3%.
Stripe is 2.9% + $0.30. For a $10 transaction, that's 5.9%. For a $3 transaction it's 12.9% -- of revenue, not profit.
> But what's missing here is fraud protection.
"Fraud protection" is is independent of the fees. You're making the case for that yourself -- if 86% of the fees go to rewards programs then they could be reduced by 86% without affecting "fraud protection", and the rewards programs are a wretched thicket of dark patterns and unpaid interest scams taking advantage of people who are bad at math or too short on time to configure them efficiently, on top of a tax on lower income people who don't qualify for them.
It's also not clear why "fraud protection" should cost anything. The bank has no meaningful way to investigate a low dollar amount he-said she-said and the high dollar amount ones should be going to the actual court system, so why should they have anything more than a set of rules (e.g. which transactions are eligible, how long you have to file a dispute) under which you can make a request to have them flip the bits back in their computer for free?
Not really, and it doesn't at all if you get charged a markup for paying with a credit card. Places selling similar items tend to accept the similar common payment methods.
> "Fraud protection" is is independent of the fees... It's also not clear why "fraud protection" should cost anything. The bank has no meaningful way to investigate a low dollar amount...
All of that is completely wrong. Fraud protection costs real money. Investigations do happen, and cost the card issuer money. I've had values of $20, $250, $2,000, and $6,000 all eventually reversed. The courts are not set up for disputing chargebacks, and if they were then we'd all be paying more taxes to hire a lot more investigators and judges.
The point is that sometimes the alternative isn't a similar item.
Suppose you're a restaurant. The customer can either pay you to make food or buy it from the grocery store for 1/5th as much money and then spend the time to make it themselves. If both you and the grocery store were to raise prices by the same percentage, your price increases by five times as much as the grocery store price, because the time cost of preparing the food themselves wasn't taxed by the credit card companies. So if you raised the price, more people would stay home instead of coming to your restaurant, and then you have to do the math on whether the reduced sales volume or the reduced margins will hit you harder, and sometimes it will be the first one and you have to eat the second one.
> and it doesn't at all if you get charged a markup for paying with a credit card.
Also not true, because if you do raise the price then demand goes down, so instead of making lower margins you make lower sales.
Moreover, customers have a finite amount of income. If some amount of that is going to the credit card companies then it isn't going to the seller of whatever they would have bought if they still had the money in their pocket. Which sellers are getting screwed by that the most is a complicated question, but it's definitely somebody.
> Investigations do happen, and cost the card issuer money.
But how is the investigation worth anything? The bank doesn't have the capacity to do a real investigation.
Suppose you order some electronics, pay $5000, and then tell the bank that the seller sent you a brick instead of the electronics you ordered. How is the bank supposed to know who is lying? It could be a fraud by the seller (they actually sent you a brick) or by the buyer (you're trying to get refunded for goods actually delivered) and the bank has no way to know.
Whereas the police could do things like place other orders with the seller and investigate whether any of them come in as bricks, investigate the delivery driver to see if it was them rather than the seller who swapped it out and then see if they can recover the merchandise, etc.
> and if they were then we'd all be paying more taxes to hire a lot more investigators and judges.
The premise of the criminal justice system is deterrence. If the government is willing to spend $50,000 investigating a $5000 fraud, and as a result the fraud doesn't happen because the fraudster expects to be caught and go to jail, the government doesn't actually have to spend the $50,000 in the large majority of cases.
Whereas if all that happens to a fraudster is that the transaction is reversed by the bank 90% of the time, they're turning a profit because they get to keep the money the other 10% of the time and no one puts them in jail, and then you get tons of fraud.
So why are we trying to get the banks to do this at all? They have no real investigative powers and essentially no meaningful information about who did the wrong.
Now, would it be nice to not overpay at the first place. Technically we could re-implement the whole thing (instant payout, fraud detection, etc.) like Brazil or India did. It would bring more than $100B back to the US consumers every year, that could be spent elsewhere.
86% is small?
Monopolistic practices prevent competitors charging less from arising.
I know that the banks are trying to build a payment solution on top of this technology but it's not really getting traction.
I am wondering if there is a way to bootstrap something bottom-up by offering something to merchants that has a clear value prop.
How did Venmo and Cash app get any traction? After all, we already had PayPal. There was already a way to transfer money to your friends.
How did Robinhood get any traction? We already had Etrade and other online brokers.
Processing a Mastercard card is "$0.13 + "Interchange+" + 0.60%" where the "Interchange+" would be 0.30% for EU. So more like €0.10 + 0.90% so for €10.00 product, it would be €1 of fee (1.00%). Much less than here in US, but still not negligible for small businesses that run on thin margins (and 20% VAT).
What many people in Germany want is a payment system that is as anonymous and is as hard to control by some untrusted entitity (both government and banks are very distrusted) as possible and what cash offers. That's basically cash.
Not without reason, in Germany there exists the well-known phrase "Bargeld ist gelebte Freiheit" ("cash is lived freedom").
Any other payment method will not give customers any benefits over those methods. Unless banks are willing to take responsibility for fraud like with card purchases.
"designed to be anonymous for the payer, but payees are always identified"
Why not anonymity for both sides?
The merchant's system displays this code, you open your online banking app, scan the code, select "SEPA INST" (here's the usability catch!) to make the payment instantaneous, and confirm. Within 10 seconds, the money is transferred to the merchant's account. Either the merchant's bank or a third-party Open Banking API immediately informs the merchant's system (e.g. by push notification or webhook), and a receipt is issued.
Everything is already here, but since this system would be virtually free to use, nobody really has an incentive to push it. It costs money to educate the public, and there is no money to be made. Instead, everyone gets paid handsomely by the card mafia.
- you can send money to companies and individuals alike. It's easier to trick people into fake shop payments, a card payment provider requires at least a bit it verification/registration
- it's really hard to dispute/call back sepa payments. The card companies often step in there afaik
You can't dispute or call back SEPA INST payments. But you can't dispute cash payments either. This is just fine for most day-to-day transactions, I don't need insurance when I buy groceries or pay the taxi driver.
If the card processing fees could be added to the customer's bill, it would be in the customer's interest to support a cheaper/free alternative. But since card payments are "free" in the eye of the consumer, why should he be using anything but the most convenient option? And what is more convenient than just touching your card/phone to the terminal? As long as this deal stands, EU merchants will be slaves to the card companies.
We're still orders of magnitude smaller than Visa and Mastercard, but I do believe products like ours (and competition is red hot here, theres so much good choice!) will be good for consumers.
Money should be like a message: free and instant
We're open source btw, happy to show off codebase and review PRs
The only way which has worked for me was actually using g2a with their crypto provider to get a 10$ gift card of rewarble and activate it.
Does your app allow something like this? can I convert any crypto to payment provider which can be accepted from the other side or am I reading it wrong because you do mention PIX, if it can work with PIX, does it work with VISA/Mastercard cards too?
anyway, what this means is that you can send funds to anyone in the world in milliseconds, for free. they can then move the funds to their bank easily
We blocked that card processor, obviously. But the % is very much not constant across e.g. Visa, often every purchase in a day is slightly different, and we can't even tell people what the rate is for their purchase due to a couple layers in between (still figuring out if we can fix that). It's vile, and probably should be illegal to not pass through the cost visibly.
I helped out a friend who owns a deli when he took over from his parents. His dad saw cash as a way to avoid taxation and had some awful payment processor where they paid a high fee and was renting a POTS based terminal - $60/mo to Verizon and $30/mo for the terminal.
Now he keeps one set of books, and raised his average sale by about 10%. Their catering business, which drives profits, are up significantly with online ordering through the POS.
Ditto with a non-profit I was on the board of. Pushing Venmo and Square for donations increased donations by like 30% and reduced shrink at fundraisers. Anyone who claims they can’t afford a 3% fee is going out of business anyway.
See the "raw" rates here: https://www.mastercard.com/content/dam/mccom/us/business/doc...
> complaint: credit card fees are high and maliciously opaque.
> suggestion: have you considered adding another company in the middle?
... do y'all understand that those middle companies profit from being in the middle? that profit comes from somewhere, where oh where could it be...
why on earth would you expect them to improve your income? you are literally buying convenience from them. or is this just thinly disguised advertising?
I guess the question is whether they can distinguish between people who are going to carry a balance but ultimately pay and people who are a true default/bankruptcy risk.
Yes, revenue provides cash flow, not profit. And costs provide the other part, as was already mentioned. But if it increases cash flow without increasing relative costs, it increases profit. Do you think banks would charge fees if they could make more money by removing them? Again, the banks are largely in control of these costs, like the amount of cash back they provide. For example, the federal reserve reports that bank fees account for 1.82% of purchase volume, while cash back programs account for 1.57% of purchase volume. In other words, they make a profit on balance.
You can read the financial statements to get more information. That's where the above numbers came from. They don't generally say "Fees contribute to X% of profits" but they do indicate they are relatively large parts of revenue. For example, JPMorgan lists $5.97B in fee revenue and rewards cost $4.28B, with the difference being profit. So where are the extra costs you are implying coming from that make fees a net cost?
>> Cards don't make money from their fees. They make money from people who fail to pay and then pay the ridiculous interest.
> Interchange fees seem to be a sizable portion of revenue. Discover has listed them as 29% of revenue, BoA at ~$10B annually…
My complaint is that pointing at revenue alone does not rebut the initial statement. That's all. The argument was insufficient, not your side of the argument is wrong.
Saying “revenue doesn’t equal profits” is superficially true but lacking any real substantive claim. It’s like saying “to lose weight you just need to burn more calories than you consume.” True, but a lazy attempt at a retort.
I tried to foster discussion. If profits = revenue - costs, I asked where those costs are coming from that would erode those profits. Yet again, you replied in a manner that limits discussion. Many of us come to HN because we expect higher levels of discussion than the typical Internet forum cesspool, like the guidelines lay out.
If anything, they are benefitted by accepting cards, since they get customers who purchase on credit. Or just in general because many people have less resistance towards making a card purchase compared to a cash purchase.
The drawback is when the US Bank office down the street that hosts the account closed for water damage, it stopped receiving the checks, and it took forever to bounce, so I had no idea that I was not paying my HOA... And this happened in San Francisco, California where the Bank of America and the US Bank are on the same street, a block away...
I cannot wait for FedNow or anything trying to fix this mess.
This is a pretty solved problem.
My BoA still prints checks and mail them to the US Bank across the street when I have to pay my HOA. So yes, why not FedNow... BoA and USBank ?
Lack of adoption probably because it seems to function just as a faster ACH, without any of the UX improvements systems like Pix, UPI, blik, etc have...
Laughable, at least in the USA. It took decades for us to finally get cards with chips in them, and when we finally did... the issuers "forgot" to implement the other half of the equation: PINs.
"Chip-&-PIN" was standard through the rest of the industrialized world for ages, while card companies abetted theft in the USA by neglecting to implement PINs.