The debit card fee driving US banks crazy
theguardian.com
theguardian.com
Say you charge 1000 customers using a Visa/MC debit card an average of $50 per month each. Use a flat rate processor like Stripe/PayPal (2.9% + $0.30 per transaction) and you'll pay $1750 a month in fees. The interchange rate would only be $235 a month in fees. My merchant account provider charges 0.04% + $0.10 over interchange as their markup, so that volume would cost $355 a month. I have a few other fees to pay with that account, but they don't come close to that 5X difference.
For my SaaS businesses, regulated debit is 26% of the card mix. Flat rate processors are making a killing on their debit markup.
Square still charges 2.75% on debit cards. Stripe, 2.9% + $0.30. They are making a killing on debit cards.
If and when the processor market catches up with interchange regulations there may be a material impact on these companies' revenue models. (Square is already trying to diversify beyond basic processing.)
http://ink.hackeress.com/2014/12/crowdfunding-is-too-expensi...
Treating everything by default like it's a credit card transaction is _the_ glitch in the matrix... these companies are not "like" a cartel... they are a cartel.
The screenshot in the article is from my friend's campaign to raise money for her dog that got hit by a car in AK.. We surveyed everybody, and they all donated with cash from their bank accounts (debit). Nobody put their donation on a credit card. Nobody does that.
Somebody should do one of these graphics for The Oatmeal's Exploding Kitten kickstarter campaign... Stripe has already made over $250K on this project alone (more profitable than 95 percent of Kickstarter campaigns).
Also worth noting that Square Cash uses debit, so they're actually losing >$0.21 every time you send money with it.
Stripe definitely has a large gross margin in all cases. Even AmEx. However, one thing to bear in mind with both these guys is that the easier they make it to sign up and process payments with them, the easier it is for criminals to run fraudulent transactions through them, which they ultimately eat.
That really isn't the case in the UK, certainly, and I don't think it's normal practice most other places - or am I wrong?
Is this actually normal over there? Would it be practical to bank with a bank based in another country?
I know everyone's going to roll their eyes, but how does this financially compare to transfers via Bitcoin?
In UK the interchange for most EMV debit cards seems to be 0.08 pounds - 12 US cents, about half of the US level.
Lots more people pay bills and rent by check though.
The only time I use check is for in-person things (when I don't have the cash); or for small school things (field trips, teacher gifts, etc.) where I don't want to send my kid in with actual cash.
There are no fees for normal usage, in the last seven years with the previous account I paid one fee (international transfer). The new bank gave me £100 as a 'reward' for switching to them.
I didn't receive a chequebook, but I haven't used one for years.
Almost nobody uses checks anymore. I do, but I'm old and cranky. ;)
Actually, the only time I use a check is to pay rent because check or money order is the only way my landlord accepts payment. Apparently there is something called "e-checks" or something but writing out a check once a month isn't a pain point for me.
And it was required to write out a check (or money order) to get my US passport.
At least, several of them keep sending us cheques as payment for our products, even though we keep asking them to use wire transfers :/
Electronic payments in the US are painful and slow. They often don't work at all on weekends, and certainly don't have the 2-3 hour speed of the "Faster Payments" system in the UK (which is often borderline instant).
Banks actually intentionally make it a real pain in the butt to send money to another bank, and stupidly easy to send money between accounts linked at the same bank. Last time we needed to set that up it took almost an hour, because of how they confusingly set up the UI and naming. Then the payment took a full 7 day week to arrive in the other party's account.
Plus in the US you have to have $1500 in a savings account (almost 0% interest "savings") and pay in your pay cheque and jump through a million other hoops just to get a free current (checking) account. So you'd assume the fees would be lower and customer service better? NOPE. Fees are higher than the UK, and CS is worse.
Everyone keeps saying "join USAA!" but unfortunately they closed the loophole that allowed non-military to sign up for a checking account right before I could. So no dice. Traditional banks are just horrible in the US, just awful, it cannot be overstated.
If something is wrong or fraudulent (such as, say, exploiting a race condition in how transactions are handled) it's much much easier to arbitrate or reverse everything in-house.
I'd wager a lot of people here have--one time or another--written a bit of code saying "sleep X seconds to be safe", or "wait until you confirm Y had no errors". Same kind of idea.
I don't see your point? I didn't say it was hard to get a free checking account, I said they make you jump through hoops and open a bunch of related products so they'll waive the $10-15/month fee.
That hasn't been my personal experience. I've never had to jump through hoops or have a minimum balance.
I'm just sharing my experience which is apparently different from yours.
Oh wait... I had to pay a one time $5 fee to join one of my local credit unions.
They don't have brick and mortar offices, but I don't miss it.
A while back I even found someone offering business accounts for free.
I'm also not sure what electronic payments you're referring to (transfers to others?). I deposit money and it shows up instantly. I buy something from Amazon.com via a Visa card attached to my checking account and it shows up instantly on my account.
I transfer money to and from my bank accounts using ACH transfers. It typically takes a few days for those to clear.
I remember buying a computer in Australia with a cheque - it was viewed highly suspiciously. The merchant wanted to call the bank, wanted to know why I couldn't use a card, wanted to hold the computer until it cleared...
(Leaving aside options such as repo, which while feasible aren't really desired) - in the US, without so much as a call to Telecheck or similar, or my bank, I bought a $16,000 SUV with a personal check.
That's atypical in my experience in the US. The dealer has always wanted me to get a certified (may not be the technically correct term) from my bank. Not that it's a big deal; you go to the bank, they put a hold on the amount in your account, and they stamp the check a couple times.
That said, checks still tend to be favored (even if they're issued directly from the bank) for many recurring payments, local service people, individual to individual casual transactions and the like.
I found some statistics, but they don't include debit (or credit) cards, just normal transfers between banks: http://www.paymentscouncil.org.uk/resources_and_publications... .
Looking at "1990 to date", I'm not sure I'm reading the tables correctly. Were there really 265 million cheques processed in January 1990? That's 10 for every household. Last month was 46 million, 1.7 for every household — still seems high.
In any case, it compares with over 620M electronic payments for December 2014.
I probably write 2-3 physical checks a month (housekeeper, random other service people, personal payments for various activities) and another 2 to 3 from my bank. And that's with doing all the automatic payments for utilities etc. that I can.
The numbers show 13× as many electronic payments as cheques, and I can believe 10 electronic payments per person (salary, six or seven bills, couple of credit cards, plus business use).
-Card payment processing for major banks took a regulatory profit hit around 2010. Per transaction fees dropped from $0.44 to $0.21.
-The lost profit from transaction fees has simply shifted to more checking account fees for consumers from things like ATMs and minimum balance/direct deposit requirements to maintain a 'free' account.
Now that I have a decent income and a healthy account, I haven't been charge a fee in years.
Basically, if you are poor you get screwed as much as possible.
This article seems to be off by a factor of 1000 on this number. $1.4 billion in debit card transaction for the U.S. doesn't pass the sanity check ($10 in annual debit transactions per U.S. household??). Source below confirms the number should be 1-2 trillion, not billion.
http://www.marketwatch.com/story/us-2013-credit-and-debit-ca...
That's it?
These fees do fund all the CC infrastructure (terminals, technology, cards, servers, chargebacks, fraud compensations) and the benefits that card issuers give to cardholders, but there's still a lot of space for profit. There's a strong lock-in as most merchants really, really want to accept cards instead of leaving the system, and little competition (the interchange is unified for all banks), so it's almost like a cartel where the prices go down only when/if forced by regulation.
But in general it depends on the place - US has a strong legal difference between fraud on debit and credit cards, but there still is some fraud protection even for debit cards and in (for example) EU the consumer rights for debit cards also includes chargebacks for unauthorised transactions and compensation of losses with stolen/fraudulent credentials above a certain level (100 EUR if I recall correctly); and banks still require a lot of monitoring infrastructure and security people to reduce debit card fraud simply because customer satisfaction requires that the fraudsters don't run rampart.
Of course still room for profit but the above numbers show why merchants are interested in EU fees and security.
> As for the retailers who point to lower swipe fees in Europe, Aufseeser counters that they are so low that “credit card companies are finding it tough to make any money at all” there.
Why should it be easy to make money? Ahh, right, because with the regulations they want, they can.
The reason is very simple: banks are established entities by the government. Banks have very complex, old, and unwieldy ways of doing business. There's a huge chunk of infrastructure feeding and maintaining the existing system: COBOL programs, call centers, technicians, offshore IT, and so forth. All of this was funded assuming that the current status quo would continue. Worse, nobody can really afford to replace all of that crap in-place. Some banks are lucky to get basic UI changes done to their website under any kind of cost control.
Usually, when some new way of doing business comes along, the new guys start from scratch. All their stuff is new and cheap. Customers get more cool stuff for way less money. But that's not how it is with banks. New guys are not allowed. They own the game.
So they're stuck, and we're stuck. Voters can get angrier and angrier and get more laws passed to "stick it to the bankers", but at the end of the day, unless you want to destroy your banking system? Customers have to eat any costs of change. Meanwhile all these neat startups around banking are paying out the ass and taking on huge risks just trying to tinker around the edges. This is what a non-competitive market looks like.
If you think about it, what PayPal accomplished was nothing short of a miracle. Kudos to those guys.
The merchant can also use direct debit, which is almost free (0,05€ for fraud prevention), but leaves him open to chargebacks.
I still don't know why people have accounts at the big banks.