Hacker News Reader

Comment by unreal37 | Hacker News Reader

How about the fact that the banking system charges huge fees for the use of their networks and technology? Do you mind paying 4% more for all your purchases because the retailer has to take credit card fees into account? Do you mind paying $15 to send money to relatives overseas? Every time you want to transfer money from one place to another, it costs you way way way more than it actually costs because of marketing and profits.

This is disruptive technology. Credit card companies and international money transfer companies are panicking right now.

View on HN

Credit card companies do not charge 4%. I worked in credit cards about a decade ago, so unless the marketplace is less competitive now than before, I assume this still holds true. Furthermore, the fees that do exist are not necessarily passed on the consumer, but taken out of profit. Prices can only be arbitrarily changed if demand is inelastic. None of the companies taking Bitcoin are taking it directly -- they are all paying fees -- and none of them are passing savings onto the consumer. Finally, no I don't mind paying a small percentage (1-2%) for paying with a convenient method that gives me 1% cash back and consumer protections like chargebacks. Its a service.

> Do you mind paying $15 to send money to relatives overseas?

I very rarely have to do this, and when I do $15 is a fraction of a percent. And certainly, its worth it in comparison to dealing with the Bitcoin ecosystem to get my money INTO Bitcoin and then out on the other side. So no, I don't mind.

Now you may be saying "Well when everyone uses bitcoins in the future these problems won't exist, and furthermore..." Yeah but if bitcoins get market penetration then banks and other services can adjust prices to compete.

> This is disruptive technology. Credit card companies and international money transfer companies are panicking right now.

Everyone throws around the word "disruptive" on this site, but seldom is it really true. I keep an eye on the Bitcoin ecosystem because it is interesting, but I've seen literally nothing offered that appeals to me over existing services. When Bitcoin provides me with real, significant value, then I'll think about buying in.

Also, its amusing how its advocates claim that traditional finance companies are "terrified." I've seen absolutely ZERO evidence of this. Its more of the Bitcoin community's lack of reality.

> "Well when everyone uses bitcoins in the future these problems won't exist, and furthermore..."

Question: What would happen if literally everyone started using bitcoin? Could the system handle that much of a load?

As currently implemented, no, because network traffic and disk size scales at O(n) with the number of transactions. There is currently a 7 transaction/sec limit in order to avoid the blockchain ballooning in place. The fact that Bitcoin is really a decentralized, shared ledge means that scaling horizontally is difficult (and is not possible with the current implementation).

There was a video linked on Hacker News about the scalability issues by a well-respected researcher a while back, but I can't seem to find it. I'm not intelligent enough or well-versed enough to say whether the issues are insurmountable or not. I do know that some very smart people are working on Bitcoin, so they very well may be. I'm only speaking to the current system.

> Credit card companies do not charge 4%. I worked in credit cards about a decade ago, so unless the marketplace is less competitive now than before, I assume this still holds true. Furthermore, the fees that do exist are not necessarily passed on the consumer, but taken out of profit.

This isn't entirely accurate. Most credit card companies now tack on a 30c + 2.9% surcharge for processors that do fewer transactions than some arbitrarily defined limit, well known to most small companies as the "PayPal tax" because they started doing it first and the credit card companies realized they could get away with it too.

And it's usually passed completely on to consumers, because eating it as a business owner with a low-margin business is pretty damned hard, and because the little guys are doing it, the big guys get away with doing it too.

Or haven't you heard about the recent record profits being made by Mastercard et al?

> This isn't entirely accurate. Most credit card companies now tack on a 30c + 2.9% surcharge for processors that do fewer transactions than some arbitrarily defined limit, well known to most small companies as the "PayPal tax" because they started doing it first and the credit card companies realized they could get away with it too.

Wasn't aware of that. We charged flat percentage rate, and added to the processor I think it was 1.5% or so. But like I said, a decade ago, so maybe I'm just wrong on that point and forgot.

> And it's usually passed completely on to consumers, because eating it as a business owner with a low-margin business is pretty damned hard, and because the little guys are doing it, the big guys get away with doing it too.

Is it actually proven that the costs are passed on (i.e. that the price would be lower in absence of credit cards)? Because, again, in theory that only works if the demand has enough inelasticity.

> Is it actually proven that the costs are passed on (i.e. that the price would be lower in absence of credit cards)? Because, again, in theory that only works if the demand has enough inelasticity.

Go buy something at your local No Name Shoppe and compare it to what you were paying 3 years ago. Adjust for inflation. Be shocked by the random ~3-4% cost increase.

My best personal example is the place where I play Magic the Gathering increasing the price of packs to adjust for the processing fees (and struggling to do that for fear of sending the regulars back to buying packs online, which would shutter their business permanently).

>Go buy something at your local No Name Shoppe and compare it to what you were paying 3 years ago. Adjust for inflation. Be shocked by the random ~3-4% cost increase.

That wouldn't give actual data though, just anecdote. I'm interested if theres anything out there with a bit more rigor.

Furthermore, the claim is that prices were passed on across the board, not just at small businesses. Was there a 4-5% increase universally, or just at Ye Ole No Name Shoppe?

> My best personal example is the place where I play Magic the Gathering increasing the price of packs to adjust for the processing fees (and struggling to do that for fear of sending the regulars back to buying packs online, which would shutter their business permanently).

Doesn't that support what I said? They had difficulty raising the price, because people could just buy the cards elsewhere.

Anyway, I'm interested to further have this conversation, but getting back to the original argument, I think the only way Bitcoin could actually solve this problem is if the merchants dropped credit cards en-masse. Most credit card agreements stipulate that you cannot give discounts if they do not use a credit card. Then the question becomes if enough customers would be willing to forgo their cards for Bitcoins to make it a good value. Even at a theoretical 4%, I'm not sure I'd be willing, unless the Bitcoin ecosystem DRAMATICALLY improves.

>unless the marketplace is less competitive now than before

I would say it probably is since Walmart, etc, al just won a class action lawsuit saying Mastercard and Visa were violating federal anti trust laws

http://www.nacsonline.com/Research/FactSheets/IndustryIssues...

Retailers said these actions caused merchants to pay excessive fees for credit and debit transactions. As a result, card companies settled the case and agreed to pay back damages, temporarily reduce fees and establish clear and distinct visual as well as electronic markers for identifying a credit from a debit card carrying a Visa or MasterCard logo.

>the fees that do exist are not necessarily passed on the consumer, but taken out of profit.

buhahaahaaaaha. That is so laughable.

Have you been to a gas station in the last couple years? There isn't a single one in a 2 mile radius of me (out of at least 5) that doesn't charge more for paying by credit card.

http://www.forbes.com/sites/beltway/2012/05/09/gas-station-o...

The card fees gasoline retailers pay are staggering. They are on average the second-highest operating cost for gas retailers (higher than rent on their stores). The fees were more than $11 billion last year – 87% higher than the entire industry’s profits. That makes six years in a row that the industry paid more in card fees than it made in profits. Those fees add an average of 7 cents per gallon to the price of gasoline sold in the United States and the fees have been exploding. Between 2004 and 2011 while the price of gasoline went up 80%, card fees increased 180%

http://www.nytimes.com/2013/12/20/business/an-easing-of-rule...

Currently, many businesses do pass on to consumers so-called “swipe fees” — which are said to generally range from 1 to 3 percent of the transaction — by building them into the price of the goods and services they sell. That means all customers pay, a system that some contend amounts to poorer consumers subsidizing affluent holders of premium rewards cards.

“To maintain the fiction that Amex and other issuers offer free rewards, retailers had no choice but to inflate the prices they charge to all customers,” said Gary B. Friedman, the lead lawyer for the plaintiff companies in the American Express case.

http://www.sltrib.com/sltrib/opinion/56143496-82/fees-card-c...

Ask any business owner who accepts credit cards about swipe fees and you'll get an earful. Every time a customer pays with a card, up to 4 percent of the sale goes back to the banks and credit card companies. Considering that the average profit margin for most retailers is 1-2 percent, these fees drive up prices and make it harder for small businesses to expand, hire more workers or even stay in business.

Merchants can't comparison-shop or negotiate swipe fees the way they do for other expenses. It's a take-it-or-leave-it deal and every bank agrees to charge the same thing. If merchants accept cards, they have to accept the fees, which can be raised at any time.

In fact, credit card swipe fees have more than tripled in the last 10 years even with new technology that should be driving costs down. And, swipe fees in the U.S. are higher than anywhere else in the world, even though we have the highest volume of card transactions.

In 2011, merchants paid more than $50 billion in swipe fees. For many retailers, these fees are their fastest-growing expense and their second-highest operating cost after labor. Business owners have no choice but to build some of these fees into their pricing, making everything consumers buy more expensive no matter how they pay.

To make matters even worse, merchants have no idea what the fee will be on any transaction until their bank statement comes at the end of the month. Visa has more than 60 different fee categories, and Mastercard has more than 240, but the fee isn't printed on the card.

http://www.nj.com/times-opinion/index.ssf/2013/03/opinion_hi...

Opinion: Hidden credit cards swipe fees are costing consumers, businesses billions

> How about the fact that the banking system charges huge fees for the use of their networks and technology?

Yeah that sucks. But the only thing that's going to change this is regulation, not non-existent competition.

> Do you mind paying $15 to send money to relatives overseas?

Most of us don't have relatives overseas. And for the most part, if we did and we were sending money over seas, it'd probably be in denominations that make $15 a pittance.

> This is disruptive technology. Credit card companies and international money transfer companies are panicking right now.

This is hilarious and bullshit. Nobody's panicking. I doubt if most bankers even know what Bitcoin is. If they were scared, they'd go to their favorite lawmaker with a quarter billion dollars and tell them to make Bitcoin go away, and guess what? It would - "Silkroad"-style shutdowns would happen to all the Bitcoin companies, the value of bitcoin would plummet and this shanty economy would disappear overnight.

Total Market Cap: $ 12,947,277,234 http://coinmarketcap.com/ I think they're going to need more than a quarter of a billion...

What does the market cap of bitcoin have to do with the cost of getting government to legislate so that it isn't viable?

nothing at all, cost doesn't matter security of the software is all that matters

Good luck finding a congressman to buy who will accept bitcoin as payment.

Bitcoin hash difficulty rises to ensure the block rate remains relatively stable at 1 block every ~10 minutes. Meanwhile the block reward falls exponentially. By definition then, it requires that other variables change such that mining remains profitable for someone to survive, otherwise all incentive of maintaining the blockchain collapses. Sure, you could argue that mining will reach a state of neutral ROI just to serve the public good... but guess what, there's a fee system in the protocol that will ensure that probably won't happen.

The 'but banks charge fees' argument just doesn't hold water long term. Blockchain resources are finite, and all indications are solving Bitcoins long term scalability problems (in terms of number of transactions per second) is still quite hard.

Unless the value of Bitcoin grows with hash difficulty and the inverse of block reward sizes, fees will rise in the Bitcoin network. It's naive to think it'll be a free ride payment network forever.

As far as I can tell the payment industry is about hiding the fees. To consumers, credit cards seem not to have any fees because the merchants pay them. (This is why they can give you cash back.)

Accepting Bitcoin is a different way of hiding fees. It's somewhat difficult to compare prices to USD because you have to do the exchange rate calculation yourself. Merchants could easily charge a small premium for Bitcoin transactions and consumers can't easily tell if the deal is slightly better or slightly worse. As a result, there's little incentive to give a discount for Bitcoin since it's unlikely to get more sales.

The fees are still there; they're hidden in the bid/ask spread for exchanging bitcoin for dollars.

So yeah, this is "innovative" and possibly disruptive but only in the same way as other financial innovations that seem to give you a good deal while actually charging more.

Reply on news.ycombinator.com