Stripe Raises New Funding and Partners with Visa
nytimes.com
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eWay is still 2.6%, hopefully that changes too.
So thanks Stripe for your awesome API & team.
Whilst I'll happily congratulate Stripe for the investment, I don't myself see it as a good thing. With Stripe having investments from both Visa and AmEx they have little incentive to challenge the current fee structure. Stripe processes its payments in the US through a strategic deal with Wells Fargo, who have a substantial (> $1 billion) investment in Visa, who in turn have an investment in Stripe. Do any large retailers or merchants have similar investments in Stripe? I don't believe they do.
If you're a merchant I wouldn't see Visa and American Express investing and taking equity in Stripe as a good thing. These are companies that have every possible reason to keep credit card fees as high as possible and prevent regulation from reducing them (which is exactly why Australia's fees are much lower - they're regulated).
I like Stripe as a company. I think they do great stuff. But a Stripe that's received investment from the card networks is a Stripe less likely to make disruptive moves to break the monopoly card networks have today.
The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards -- much of which then, in turn, gets passed to consumers in the form of rewards. So, whether it costs more depends on your definition of "cost" -- but Visa itself does indeed incur much higher fees in the US (since they're paying more to banks). To a large degree, it's just a different equilibrium.
That aside, I'm one of Stripe's cofounders. We're not beholden to credit cards: Stripe was the first major payments company to support Bitcoin; we support Alipay; we support ACH. We funded Stellar. And we have more in the works.
But we should acknowledge that credit cards are by far the dominant instrument today. The purpose of this partnership is to help build products that improve the experience of accepting credit cards on behalf of the businesses that use Stripe. (And there sure is plenty of improvement possible there!)
I think it's fair to call Stripe out on this because you position the 2.9% as a "it's not our fault, it's the payment instrument, we're happy to pass on savings if you use alternatives like Bitcoin etc." But you are not passing on the very significant savings of debit cards.
How significant? Whereas credit card cards are in the ballpark of 1.5-2% plus 10 cents, major debit cards are just 0.05% + 21 cents.[1]
That's right.. 0.05%.
So why is Stripe charging 2.9%?
[1] Visa interchange rates: http://usa.visa.com/download/merchants/Visa-USA-Interchange-...
If the rationale for this is simplicity then why break out Bitcoin or ACH? Why not just fold them into the blended rate too? Of course it would defeat the whole point of them.. Just as this defeats the whole point of Durbin fee regulation.
Durbin has positioned debit to fill the role that Bitcoin has failed to: a low fee consumer payment method unburdened by reward programs. It's about as cheap as Bitcoin, but it has near universal adoption already, basic consumer protections and well oiled rails.
I seriously doubt merchants would find breaking out debit from credit too complicated especially if the rate was significantly lower. I'd understand doing a blended debit rate that combines regulated and exempt debit cards, which I'm guessing would come in well below 2%. Merchants would go bonkers for that! But blending debit and credit in the post-Durbin landscape makes about as much sense as blending Bitcoin and credit.
One price for credit, one price for debit, one price for Bitcoin.. That sounds pretty simple.
So... Is it really simplicity driving this, or is it the fear of the credit fee crossing 3% if you broke out debit? To be honest I hope it's not that you're secretly hiding a big profit center in regulated debit markup because that would not be so transparent.
[1] http://www.federalreserve.gov/paymentsystems/regii-average-i...
But it is good, I think, to be a little skeptical about vertical integration - which isn't a bad thing per se, but you do have to wonder whether investments by the established card networks will have any impact on Stripe's ability to disrupt the space and work to benefit the merchant, rather than the bank (or both!). It's really good it sounds like that's not the case.
> The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards
Whilst this is true, it's also true that until 2008 Visa was owned by the issuing banks, and since Visa IPO'd the banks have maintained significant investments. So I don't think it's quite as clear cut as "the banks vs the networks". They have a somewhat symbiotic relationship.
I think it's pretty clear that there's no appetite in the US on either the banks or the networks to reduce interchange unless forced to by regulation. And I think that's going to happen one day just as it did for debit cards, and it will be really interesting to see how the payment processors react to that - whether they lobby against it, or for it.
Thanks for the kind words about Stripe!
> Whilst this is true, it's also true that until 2008 Visa was owned by the issuing banks, and since Visa IPO'd the banks have maintained significant investments. So I don't think it's quite as clear cut as "the banks vs the networks". They have a somewhat symbiotic relationship
This is not really the issue. Yes, Visa was owned by banks (so was MasterCard) but they have always taken between 5 and 10 basis points of each transaction (it is not like the fees came down after becoming public). The interchange is high in the US because they ABA and other groups lobby aggressively to keep them that way. Also, given the prevalence of credit cards in the US, the networks have been able to negotiate aggressively with the merchants. When Visa introduced their Signature card product, they increased the fees arguing their product does not have a 'fixed limit' so consumers will spend more which will help the merchant so they should pay more in fees. Amex makes the argument even more so and that's why their interchange tends to be in 3-7% range -- most merchants are not smart enough to do the math and say their customer segment is not really the 'typical' Amex segment and if they don't accept Amex, the customer would have just used a Visa / MC instead. So these rates prevail.
If you ask me why rates are different across geographies it really comes down to the will power of the govt. to set the terms. Most emerging economies see Visa / MC as a threat as their entire country will become dependent on a foreign entity to process payments. They generally tend to set pro-consumer regulations (but largely to annoy Visa / MC/ et al.).
To my knowledge only in the US (maybe Canada) where it is illegal for a merchant to discriminate against a credit card user. After a lengthy lawsuit, the networks and the merchants settled that the merchants can give a 'discount' on cash transactions but cannot put a surcharge on card transactions. The math is the same but the psychology very different.
I wish the rates are fixed amount per swipe and not a % of the transaction amount. Why should it be? If the networks operated seamlessly and allowed new entrants, it would have been like today's cloud computing pricing (almost a commodity) but alas we get only IBM style pricing.
I hate credit card companies from the bottom of my heart but until there is another payment vehicle that is just as convenient it will be stupid of any entity not to partner with such providers.
Absolutely agree. The EU determined that interchange is illegal and now caps it at 0.2% for debit and 0.3% for credit (yes interchange, not scheme fee). After a transition period of course. And surcharging now becomes illegal again as the fees are that low.
http://europa.eu/rapid/press-release_IP-15-4585_en.htm
> I hate credit card companies from the bottom of my heart but until there is another payment vehicle that is just as convenient it will be stupid of any entity not to partner with such providers.
Banks will never get their shit together and the lack of a global clearing standard will mean we'll forever have to rely on payment schemes.
Since when? Obviously you know more than I do, but the top result on Google for "stripe ach" still says you don't.[0] I am halfway through building a platform that requires both CC billings/refunds as well as ACH debits with Chargify and if I can do everything through Stripe it would save me several hundred dollars a month.
[0] https://support.stripe.com/questions/plans-or-suggestions-ab...
What would be a game changer for Stripe is to have ACH processing in the realm of 1-2 business days instead of the 5-6 days it currently takes. This would probably require some fancy exchange of money between accounts behind the scenes, but if they can pull it off it may be worth paying for.
Also, though it's US$0.25 a tx, it's actually on the order of US$0.15-0.20 at some other places. But for us our volumes are low, and their API makes it worth it.
Ahh. I have a question. If I use Paypal, not in the traditional Paypal way, but strictly as a credit card processor (paypal pro), they provide discounts at relatively low volumes:
$0 to $3,000 month - 2.9% + $0.30 per transaction
$3,000 to $10,000 month - 2.5% + $0.30 per transaction
$10,000 to $100,000 month - 2.2% + $0.30 per transaction
But, Stripe sticks to it's guns at 2.9%, unless we're doing $1 million+ a month. Seems odd. Do you ever plan on discounts for volumes like shown above?
Either is fairly easy to integrate, and if you're running an out of the box ecom package, likely already done for you.
I could probably get slightly better rates with an actual merchant account, but it's a confusing road to go down, with lots of intentionally overcomplicated models.
My biggest beef, as a seller, with cc processing, is the unfair nature of chargebacks. We don't get many, but the system is so biased towards the buyer that buyers can (and do) get away with straight up fraud. My second beef is the scam of rewards and miles cards. The "rewards" are funded entirely on the backs of the merchants.
Did I miss that announcement? Because accepting e-checks has been a huge request from our clients. I just went through the documentation again but I have not been able to find how a person can pay through ACH. Would you mind pointing me in the right direction? Thanks!
How is it going anyways?
I know literally zero about credit cards beyond what I know as a user, but I can imagine a couple of reasons why that would be plausible, ranging from "There is more credit card fraud in the US" to "The market for credit card rewards in the US is more aggressive, and a 1.75% fee is a net loss for many US rewards cards". Can this really be dismissed out of hand like that?
And most transactions are online authorized anyway and issuers run real-time fraud detection systems.
In Australia the bank pays Visa.
So yes, I think it costs Visa that much extra to process a payment in the US. Clearly so.
Also, in Australia a Visa transaction is handled by Visa, while in the US the transaction is handled by the card issuer. In Australia we get Visa/Mastercard cards with our bank's barding on it, in the US you get the bank's card with Visa/Mastercard payment clearing.
At least that is how I understand it. All I know is that each Visa debit/credit transaction costs me $2.50, while EFTPOS costs me nothing. Same card, different button on the EFTPOS terminal. PayWave is Visa, not EFTPOS. Pay that $25 tank of petrol with PayWave, get slugged 10% in processing fees :(
Yes, actually, it does. Payment processors like Stripe (technically, an ISO) and its merchant acquirer partners must pass through most of their fees as interchange to the bank which issues a card. Those fees are much higher here in the U.S. versus Australia, where they are regulated.
A typical U.S. payment processor charges ~2.3%, of which the processor retains 0.5%, 0.1% goes to Visa, and the remaining ~1.7% goes to the card issuer. (This averages out card-present and card-not-present sales across all sizes of merchants, and is just a rough estimate, so no judgement on Stripe's fee level, which is reasonable for a simple blended rate for e-commerce.) All of the processor's product development, marketing, operations, profit, etc., have to come from that small 0.5% margin. (That said, it's still a good business, with 50% margins at scale.)
What's best for the merchant is what's lost in much of these discussions. The continued fragmentation of the industry has left merchants struggling to navigate necessary customization and even more difficult documentation; although Stripe has led well in this area. Since accepting alternate payment methods and the ability to switch processors is prohibitively difficult, competition is artificially constrained - leaving "fees as high as possible". That's why we're building http://accepton.com Would love to chat: jonathan [at] accepton {dot} come
Do they? Consider Brazil or the Netherlands, countries where the dominant way to pay for things online is by direct bank transfer. In the case of the Netherlands, iDEAL represents 54% of online transactions and offers instant transfer out of a customer's bank account at virtually zero cost to a merchant.
Compare that to Visa in the US, where you get your payments several business days later at a substantial fee. What valuable service is Visa providing? They're not. I don't believe you'll be able to find a single large merchant in the US who thinks Visa provide anything approaching a valuable service.
They're providing value to consumers. Here are some of the features I love about my credit card:
- Purchase protection; I feel totally confident in buying anything, even from sketchy sites and strange stalls, because if there's a problem Visa immediately reverses it
- Rewards: I have hundreds of thousands of miles from credit card rewards. This represents literally thousands of dollars in value the cards have provided me.
- Concierge: I sometimes have my concierge serve as a VA.
[1] http://bmimatters.com/2012/03/19/understanding-visa-business...
Take the laissez–faire attitude in government, with a sprinkling of corruption at the highest levels of the financial industry, and you get merchant costs that you have in the US.
Wow, what a claim, right?
Let me ask you this. In what industry in the history of the world's economies can prices (such as those that banks / credit cards charge merchants) remain so stable in a truly competitive environment?
Let me help you. The answer is NONE.
I was not diving into VISA's market power, their ability to price their services, nor other politics.
Perhaps not on micro-scale, but on macro-scale it's certainly arguable that over priced goods extract value from an economy unnecessarily. In a way perhaps this sort of tactic can have negative overall effect on economy, and thus create negative value.
Otherwise it would seem the word "value" has no real meaning.
If this were a drawing, total value would be a summation of cost to provide the aervice (C), price to the customer (P) and benefit to the customer (B). Value captured by VISA is P-C and value captured by customer is B-P.
--------------------
A farmer asks an engineer, a physicist and a mathematician to build the most efficient fence around his flock of sheep.
The engineer builds a square fence around the sheep and says "That's the best I can do".
The physicist builds a circular fence, then says "That's the best I can do".
The mathematician smirks and takes a meter-long length of fence, wraps it around himself and declares triumphantly "I define myself to be outside!"
Can't wait for some competition to come to Poland. (for the record market price for currency conversion is way below 0.5%).
I just don't get the obsession? Why would anyone ever want debt? We have money to pay for stuff, why not use your money instead?
They work globally, for values of "globally" which include "most parts of the first world which you, as someone in the middle or upper middle class, are likely to find yourself in." You can take a wee little bit of plastic issued by a small bank in central Japan and buy dinner in Prague or take a cab in Portland.
They are the cheapest way to access short-term credit, which is an astoundingly useful thing to have available. Poor folks in the US pay through the nose for it; middle class folks pay an amount between "It's literally a we-pay-you-to-access-it situation" and "A relatively modest APR in the teens, which -- in real terms -- means you can borrow $2k for an unanticipated expense without anyone judging you and it will cost you ~$25 a month." (Examples of unanticipated expenses can include medical expenses, car repairs which are necessary to continue one's employment, responding to sudden family emergencies like e.g. a parent's stroke while you're a student living in another state, etc.)
A credit card amounts to a no-haggling 1% discount on all your spending.
They create an instant, durable record of all spending, which is very useful for e.g. businesses or individuals who are attempting to budget better.
Why would anyone ever want debt?
I get the mindset behind this; I was terrified of debt growing up, for family/cultural reasons. I've matured a bit in my relationship with debt as a businessman. $100 in interest is not morally different than $100 in SaaS expenses. If it allows you to grow the business faster than you would be able to from your cash flow, than it's not a particularly difficult decision to borrow.
For the record the same middle/upper class Westerner, if dumped in the global south, will be able to pay for things with credit cards. You can pay for some hotels in Africa with credit cards. You can pay for expensive restaurants there. You can go to an ATM and withdraw money to pay for things that need cash.
To help start building a credit history so that if/when you do want to borrow more for some reason you've already established a history of successfully repaying debt.
Plus don't forget that the discounting of future cost v money now doesn't just have to be financial. A reliable car and debt repayment now versus saving up whilst running a clunker (with its associated running costs) can have all sorts of related negatives.
Is that really necessary with a 25-50% down payment?
A 50% down payment in many places in the United States, would mean foregoing home ownership until one was in their 30s. Depending on the market the person is in, (and, of course, the current interest rate, which right now is at historic lows) - the person would then end up spending more money on rent than they would have by purchasing a house and instead paying mortgage+upkeep+insurance+taxes.
(there are several incentives, tax deductions, cheap loan insurance, etc)
In a decent housing market, one of the things people consider when choosing a house/making an offer is how large of a payment they can make each month. Feed that payment into a 15 year loan on 60% of the purchase and you end up with a much different level of buying power than if you feed that payment into a 30 year loan on 95% of the purchase (and thus one way of thinking says that you can expect higher prices in general when 30 year loans on most of the principle are easy to get).
> Is that really necessary with a 25-50% down payment?
It's not necessary at all. First of all, a car is not going to be adequate collateral for half (or three quarters, or more) of a house. If it is, you are spending way too much on your car.
And yes, 50% down payment is untenable for the majority of people in the US, even those with upper middle class incomes. Hell, when my wife and I bought our first house we used the FHA and only had to make a 3.5% down payment. In our low cost of living area that meant our down payment was less than what I paid for my first car (which was a decade old when I bought it). No collateral was necessary for that, either.
Most people would agree that the most intelligent way to use a credit card is to treat it as a debit card and never incur a balance. Instead, you'd pay each month's bill in full. This way, you pay no interest on your debt; in fact, you are effectively incurring zero debt. Moreover, a lot of credit cards offer rewards programs in terms of cash back or "points" as a percentage of your expenditures. With some mixing and matching of cards, you can easily get 2-3% cash back on your aggregate purchases, or rack up some free airline flights.
I actually find this to be a huge moral gray area; the reason that Visa, Discover, and MasterCard can afford to pay out handsome rewards is partly because of the financially illiterate charging more to their credit cards than they can afford to pay off. [1] I don't have the exact numbers on me, but I think interest versus merchant fees was about a 67%-33% split in terms of credit card company revenue. (American Express is an exception because they do not allow you to carry a balance on a lot of their cards; they will report your account as delinquent and terminate service.)
Otherwise, as other posters have mentioned, credit cards offer fraud protection. Cards aimed at people with good credit scores often come with other nice benefits, such as additional reimbursement if an airline loses your bag.
[1] There are valid reasons to place a huge charge that you can't afford to pay off immediately. Emergencies do happen, for instance, and it's really great to have a line of credit for that situation. But then your credit card serves the same purpose as a traditional loan.
That's entirely false. The credit card business model (including rewards) does not depend on debt. Rewards are a fee passed from the merchant to the consumer via the credit card.
As you pointed out, American Express doesn't depend on this at all. Most of their best cards aren't even credit cards.
Also, if credit companies love debtors so much that their business depends on it, why do they court people with good credit so aggressively?
That's correct. Depending on the issuer, it tends to be around 70% interest revenue. Pretty much all of their profit comes from this though! Amex does allow you to carry a balance but their ratio is opposite of others 30/70%.
Ah yes, you're correct; thanks for reminding me. Their (arguably) more well-known cards (Green, Gold, Platinum, and Black) are actually charge cards. I think you're able to explicitly mark a an item you've purchased as something you'd like to pay for over time, but otherwise you are required to pay in full on those cards. The rest are true credit cards, such as Blue and SPG.
From the perspective of a company with hundreds of employees each spending $20k/month - this is effectively a $2mm+ interest free 30 day loan from the credit card company.
Credit Cards take all the fraud risk. If someone fraudulently uses my credit card number, I am not on the hook for any charges. In Canada, at least, the consumer takes the fraud risk for a debit card. (Actually, for Chip+Pin Credit cards, last time I checked, they were trying to get consumers to take the fraud risk as well - not sure if that went through).
Lots of hotels want a credit card, not cash, when you are checking in. Some of then require a credit card, both for reservation, and your stay. I believe that the vast majority of car-rentals require credit cards.
Credit cards in the United States are an effective mechanism for young people to jump start their FICO score, which is important if they ever want to get a loan to purchase a home, (I'm presuming you see the advantage of buying a home with Debt).
Credit Cards, between points and various plans, provide 1-2% cash back on your purchases.
I can load my Credit Card onto my iPhone. I don't know if it's possible to do that with a Debit Card.
Here in Singapore, OCBC will give me an extra 1% on my savings account with their bank (up to $60K - so, $600/year) if I spend $1000/month on my credit card. (And 1% cash back on said card for all expenses.)
With that said - different places have different culture. Here in Singapore, Lots of Taxi's (all of them?) won't take Visa Credit cards, and around half of them won't take any credit cards. Lots of places (all the hawkers that I've run into) are cash only. In West-Coast Canada, Debit-Cards seem to be pretty popular.
But, Net-Net, outside of some of those use cases - I totally agree with you. I don't really see the fascination with credit cards either, particularly now that Visa+Debit cards+Chip+Pin+Smart Phones seem to offer a lot of the advantages of Credit Cards.
What you said before is the key. When your debit card gets compromised your money gets wiped out pretty quickly. Even with limited fraud liability on debit cards, it is still your money that left the bank. With a credit card, you are not on the hook to get that money back -- the bank will put it on the merchant if card was not present or just eat the cost. That to me is the biggest draw of credit cards. Although a normal consumer probably got on to it because of all those rewards and POS discounts.
Assuming you're talking about Wallet (previously Passbook) and Apple Pay, it is possible to do that with a debit card. I use my Simple card with Apple Pay to pay for stuff when I can.
But credit card debt is way overrated. You basically have to have that money anyway (roughly in a month) so that you can pay off the credit card bill. In the average, you can use a credit card to spend your next salary beforehand but that leaves you with nothing to live on the following month. So what you can do with a credit card is rather limited, as if you do not pay off the debt in one month, you're in for some serious interest rates until the balance comes back close to zero again.
Debt is useful when you invest in something that will produce better yield than the interest on the debt. For example, buying an apartment generally will immediately lower your cost of living (in comparison to rent) and subsequently frees more money to pay back the debt and interest. Thus, taking a mortgage makes sense if you can pay it back in a reasonable time so that the proportion of interest won't accumulate into too high in the grand totals.
Then again, buying a new car with a loan makes no sense whatsoever. The value of the car will only degrade and it might actually degrade faster than the rate you're paying off the debt.
I pay for stuff all the time in the US using a debit card. I've never been declined because it's a debit card.
I don't carry a balance on my credit card, but I still absolutely love it.
Three main reasons:
1. I don't have to "balance" my checkbook and constantly keep track of how much money is liquid. Instead of tracking my checking account's value before making any purchase, I just do a single monthly payment.
2. Security/protection: A merchant screws with me? I'm covered. Something breaks? I'm covered. I don't like something? I'm covered. Credit cards make purchasing totally risk-free.
3. Rewards. Credit cards have provided me with thousands of dollars worth of free rewards.
The rhetoric around debt is a total red herring and totally orthogonal to the use of credit cards. Many premium credit cards are actually charge cards and don't allow carrying a balance at all.
Why would you not want a 3,000 euro interest-free one-month loan? Sometimes you have to deal with bulk expenses that you have the money for, but not the liquidity[1]. In that case credit cards become really useful.
[1] In a recent example I had just moved into a new apartment and had to cover a move-in cost, $2000 worth of IKEA furniture, and $3000 worth of next month's rent in the span of two weeks. All in all some $6000 worth of expenses. It all worked out, but it wouldn't have had I not had access to the liquidity magic of a credit card.
That's sounds more like a charge card, kinda like an Amex. Your bog standard Visa/Mastercard credit card only locks and blocks if you don't pay the minimum repayment amount at the end of the month which is usually around 2.5% of the outstanding balance. There's nothing particularly "american" about this, it's pretty standard around the world.
And everyone I know who isn't American has said the same thing about their credit cards of any kind.
Just save for something and then pay it off immediately. A debit card gives you an accurate and up to date overview of your balance. A credit card is more involved in that.
Having a credit card is much more expensive than just a debit card. Unfortunately, credit card is needed for traveling (maybe more about the Maestro vs MasterCard/Visa difference).
The seller also has to pay significantly more in case of a credit card. Therefore, it is not cheaper (it is just a hidden cost that indirectly is charged to you anyway). In Netherlands they often make you pay if you want to use a credit card.
Credit cards in USA and other regions came first before banking really caught up in convenience so they stuck around as the easiest thing to use. Bank transfers are starting to make progress now too and many debit cards function just like credit with all the protection but still as a direct transfer of funds.
Like most things, you're free to use or not use it. However, it's also easy to get yourself in trouble if you use it wrong.
I also do not understand the obsession with credit cards, but they have some distinctive advantages:
* are more reliably accepted than other means (i.e. no need to convert when abroad, accepted more often than debit cards or ATM cards)
* allow you to make "variable expenses" (i.e. you rent a car with a credit card where if you crash the car you will have to pay X thousand dollars)
* allow you to make large-ish expenses which are difficult with wire transfers (i.e. by that 4K TV Screen while in the shop)
* some places (e.g. Hungary) don't seem to have cheques at all, so either you go outside with a bunch of cash or some expenses (getting that 27" iMac) are really complicated
* not an advantage but: some places (the US?) seem to have a very ingrained culture of personal debt, while others do not
You will be bombarded with 0% Balance Transfer offers and stay away from those unless you are knowledgeable about this game. You make one mistake and everything you gained by doing the BT will get wiped away.
Also, if you travel internationally you should either use a card that does not have foreign transaction fees or just use your ATM in that country -- usually banks give you better rates than the card companies; the card companies typically charge 3% fees for each transaction.
You have a VISA/MC card because there is no other way to clear globally. You have a credit card instead of a debit card because the issuer gets higher fees.
I remember reading other stories on the same line, about visa using shady approaches to frighten people to preserve their monopoly, but a quick search can't bring any up. Search terms are too generic.
Would be great to see the additional features from Cybersource (tax calculation, address verification, fraud management) available with the ease of integration that Stripe provides.