Relevant: due to Ohio v. American Express, merchants are generally unable to steer customers from using a particular card. For example if a merchant accepts Visa at all, the merchant has to accept all Visa cards, not selectively choose the lower-fee cards; the merchant also cannot tell the customer to use Discover instead to save costs and only use Visa if that's the customer's only card. This anti-steering provision is originally invented by AmEx and now all four major networks have this requirement. And the SCOTUS just ruled that anti-steering provisions do not violate anti-trust regulations. So the only possible recourse is to outright stop accepting a particular payment network.
AmEx was one of Warren Buffet's earlier investments, and a proof-of-concept of investing in companies with defensible moats. This ruling comes 55 years after his initial investment, and the moat feels as deep as ever.
Later businesses have perfected the art of winning the customer relationship and solidifying their lead with hardball terms for vendors (Walmart), merchants (Amazon), advertisers (Facebook/Google), developers (Apple/Google) and contractors (Uber).
To bring in another PayPal toe-in... Peter Thiel made some waves when he said the whole point of being a business is to create a "monopoly." His definition of "monopoly" is more similar to Buffet's "moat" than the legal definition of "monopoly."
There's something very valuable in those guys' intentionally provocative choice of words.
This isn't science though, where someone discovers a thing and now it's known. Moreso, it's the current terms of the conversation. Imo, these are positive contributions.
> His definition of "monopoly" is more similar to Buffet's "moat" than the legal definition of "monopoly."
There isn't really a difference: the whole point of a Buffet “moat” or a Thiel “monopoly” is avoiding commoditization and competition, which naturally tends to drive sale price down to marginal cost eliminating profits. That is, they are about retaining pricing power.
Pricing power is also the key test for the existence of legal monopoly, since the existence of pricing power indicates that there are no actual substitutes in practice, even if there appear to be alternative products in the same descriptive market.
Honestly though, even the trust-bustiest of onlookers probably wouldn't call everything Buffet considers "moat" a monopoly. I buy fairy dishwashing soap. If the supermarket doesn't have it, I like the supermarket slightly less. If it's 10% more expensive, I still buy it. Home brand dishwashing liquid doesn't have this advantage.
That's a moat. It's not really a monopoly though, just a "relationship" with customers.
It's not a question of liking moats or not. Nobody has found any other routes to scale quickly. The moat is fundamental to producing the kind of scaling we see today.
But how many moats there could be in world (or in any given market) ? Furthermore which should ask on which side of the moat are we and if it's good for us to be there.
It's a competitive world full of highly ambitious people. As long as the only tool they have to create/expand/defend their empires is moat building that is all they will robotically do irrespective of the cost.
The pressure on them to do so is massive. And it's the easiest thing for them to do. So they do it.
Ofcourse things constantly collapse. Ask Genghis Khan, the East India Company etc etc And after collapse everyone stands around like Alan Greenspan saying wtf happened?
It has been asserted elsewhere in this HN discussion that Visa charges merchants higher amounts for transactions with higher-end rewards cards.
Assuming this is true, and these anti-steering provisions prevent merchants from discriminating, what prevents Visa from issuing cards with 200% fees? What's holding the cash back level at a mere 1-2%?
Competition with MasterCard, Discover, and Amex should hold them back from doing this, because at such punitive rates merchants would definitely stop accepting them.
Some of the Amex fee changes will likely have been as a result of a nudge from the EU ruling that includes their double-branded cards (e.g. British Airways AmEx) in the 0.3% fee cap in Europe which previously only affected visa and MasterCard.
Visa actually does that from time to time, though not to the degree you suggest :).
Here is one example from Australia, where 15 years ago I worked on credit card pricing and product design...
When Platinum cards were introduced to Australia, the banks agreed to a high interchange rate for Platinum and an offsetting reduction in interchange on other cards. I forget the exact interchange rates; they were on the order of 150bp (1.5%) and 50bp, giving a weighted average around the then regulatory cap of 65bp.
My bank was ready for this, so we moved most of our high-spending customers to Platinum ("in recognition of their status") and reaped a windfall from the higher interchange. Part of that was used to fund more loyalty rewards on Platinum. But most was pure profit...
Over time, regulators got wise to this, and reduced the overall interchange rates to the minimum (possibly 35bp in Australia now). Essentially in Australia it is enough to covers the scheme running costs and disputes/fraud. Loyalty has to be funded in other ways (annual fees, cross-subsidies from other customer revenue, points caps, reduce value of points, making it harder for customers to redeem points, etc).
This means customers in shops are no longer paying the cost of loyalty schemes even if they pay with cash.
(Amex operates under slightly different rules from Visa and MasterCard because the legal relationship between the merchant, scheme, issuing and acquiring banks and customer is not the same. That is why Amex can often offer better rewards that Visa/MC in regulated markets like Australia, UK and Europe)
They charge what they can get away with, and generally they can, or rather could, get away with the higher rates. A couple of percentage points was worth it if it made the sale, especially if there was a high likelihood that your customer only had that one method of payment. Now almost everyone has multiple cards, and many retailers are pushed to much lower margins, so we see the results that we see.
The conservative-controlled court has generally ruled that a contract is a contract is a contract. A contract may void all rights and it may override the laws of the sovereign States. Contracts are the ultimate tool to subrogate rights into someone elses hands.
Once you understand that you can accidentally sign away human rights, a corporation signing away its "right" to speech under corporate personhood also makes complete sense.
If the credit companies have their way, no, they ban different cash/card prices in their take it or leave it terms.
Some regulators have disagreed, but in most places the card lobby won out because cards impose tax transparency, so the higher prices shifted to consumers also translate to higher tax receipts for the government.
The charge is to the merchant, not to the customer. In general, the price marked on the good factors in the credit card fees, because almost everyone uses credit cards. So, if a buyer uses cash or a debit card, he should always negotiate for a 1-2% discount.
Edit: To clarify, some U.S. merchants do charge a "credit card fee" or enforce a minimum charge amount to all customers using credit cards for their purchases. I have never seen one charge a surcharge only to Visa users or only to Amex users.
In Australia the government put in legislation to cap the maximum credit card surcharge that a merchant could charge the customer to the actual fee that they pay on the card.
When I was there I remember things like $10 or $20 minimum and also anywhere up to 5-10% surcharge for paying with a card.
They basically banned the $10 minimum. It isn't all in favour of the CC companies though. They are limited in what they can charge vendors for each transaction, which is why credit card churning isn't worth as much money in Australia as the US.
" On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general."
> Employee time and frustration they didn't come up short
To add to this, back when I was a retail cashier in high school, there was also the threat of having too much money in the register. Either by negligence, due to miscounting a customer's change, or of outright malevolence (by doing the same). Before I even began training at the register, I was told by the store manager that if the cash in my drawer at the end of my shift was over the amount that the transaction history specified I should have (I believe this was > ~$5 lifetime? It's been a few years so I'm foggy as to the exact figure) that I would be let go.
Now, I don't mean to bring this up to debate the point one way or the other, just that it is yet another friction to managing cash as opposed to credit cards.
It’s an indicator of skimming gone awry. When I worked at a bagel shop, a common transaction was $4.03. Seeing cash coming out, the cashier would subtotal (sending the ticket down to print), and cancel/no sale the transaction.
Not really. 2% on your gross is a lot and any standard commercial policy will cover cash on hand.
50% of the country is broke, 80% live pay check to pay check.
Many working minimum wage, low income bracket do not have bank accounts.
The idea that cash is ‘hard to operate’ is a stretch, we’ve been exchanging currency for as long as commerce existed. If you handle enough cash to need an armored truck, you are far above most businesses in processing.
There are a few places in NYC that do not take cash, and they exist in their own micro economy revolving around serving lunch.
I spoke to dell today. 2% margin is even worse on larger amounts. They will provide 3-6 month interest free loans just to keep me from swiping the AMEX. We are talking about 200k worth of hardware.
>Some 50.8 million households or 43% of households can’t afford a basic monthly budget for housing, food, transportation, child care, health care and a monthly smartphone bill, according to an analysis of U.S. government data released this month by the United Way Alice Project, a nonprofit based in Cedar Knolls, N.J. that aims to highlight the number of people who live in poverty.
The big one there that jumps out at me is "child care", in terms of things that are somewhat discretionary (in the sense that stay-at-home parenting is a thing). And at $10-30k per year per child depending on where you are in the US, it's a pretty large-ticket item.
Well let’s take me. Stay at home parenting... assumes I make enough money to cover her, the child, and her retirement, and medical. Which is 70-80k that she is providing right now. So We either take an 80k hit or 30k hit.
It’s pretty simple these days. I’m pushing a household income of close to 200k and I haven’t been on vacation in 3 years.
I could make a shitload sure, drop the wife, move into a studio and eat ramen.
If there's even a single 70-80k income involved, then I expect that household is no longer in the "can’t afford a basic monthly budget for housing, food, transportation, child care, health care and a monthly smartphone bill" bucket, unless it's insisting on living in a specific location with very high housing costs.
All I was saying above is that I am not surprised that a large fraction of households _are_ in that bucket as defined in the United Way report, because child care is expensive. And I expect the fraction of households in that bucket would likely be a lot smaller if "child care" were not being included in basic life necessities.
I am not going to comment on your personal financial situation; you are obviously a better judge of that than I am! I certainly know people with 200k household incomes who also have significant fixed expenses (student loans, medical expenses, whatever) that lead to them not having as much disposable income as one might think. But that's not really related to the United Way study.
I'm going to assume they grossly overestimated when creating that number. Their aim is "to highlight the number of people who live in poverty". I think I am technically "poor" by a number of standards because I don't have any money in a savings account because I prefer higher yield investments.
Methodology described here [1] if you want to go beyond assuming their result is essentially a lie. In the per-state data [2] you see results like 31-32% below ALICE in the Dakotas, but 47-49% in NY and California. If one wanted to present a partisan hit piece to encourage establishment liberal/"Great Society" safety net policies, this would appear to be the opposite of what you would want to produce.
I wouldn’t buy things with cash if there where a half way decent debit card or similar I could replace it with.
It needs to have real transaction authentication so I don’t have to deal with fraud and it needs to decline transactions when I actually don’t have enough money in the account (instead of charging $40 in fees.) That’s it, but no one seems to offer that so I use cash instead.
Chime? If your balance isn't enough to cover the debit charge, the debit charge is declined, no fees. And you can enable/disable the card in app. And it's part of a fee free ATM network, app finds the nearest free ATM or cash back business.
That sounds almost like what I'm looking for but it sounds like you still have to share an ID number (enough to pull money from the account) with everyone in order to use it.
I can't parse "share an ID number". Anyway, it comes with a debit card with an associated bank account number with ABA so you can do direct deposits to it, and use it for EFT payments to pay bills that don't accept cards. I use the Chime card with locally owned merchants to keep their processing fees down, and as a way to track discretionary spending.
I have a Citicard that generates one time virtual card numbers for online payments. It's a really neat idea but with a painful interface that makes it impractical. I'd like to get a virtual number for each merchant that has a user configurable credit line and can be used multiple times. That way I'd have a unique card on file with each online merchant, with its own credit limit set by me.
Yeah but those costs are more or less fixed. The only way to reduce them is to stop accepting cash entirely.
Also just because cash has costs doesn't mean credit card fees aren't insane. They could be close to 0% if they implemented real security to reduce fraud, and there was actual competition (vendors were allowed to pass fees on to customers).
The EU legislated down card interchange fees to 0.2/0.3%. I imagine that helped drive the strong adoption of EMV/Chip+PIN and 3DSecure you see in Europe
No, you typically transfer cash from a store once a day, and if 95% of your transactions are card, then you now have only 5% of your takings in your till at the end of the day.
The costs of counting and banking cash are proportional to the amount of cash you take - but the costs of CCTV cameras to point at cash drawers and the driver hours for a single daily armoured car collection are the same regardless of how much money is involved.
The costs you mentioned, though they sound physically imposing, do not approach the 2% gross on all transactions charged by card issuers.
In addition, with cash, there is another abstract (collective) benefit. It is anonymous. An entity can neither trail a single dollar bill as it moves through individuals, nor arbitrarily prevent certain individuals from spending. Electronic forms of payment are less free and less secure from a very broad social standpoint.
Going "cash-less" is a growing trend in the restaurant world. I know several restaurant owners that are moving that direction for the reasons you listed. Time is one of the biggest ones, you have to have someone (normally a manager) dedicated to cash management before opening and after closing.
>> Time is one of the biggest ones, you have to have someone (normally a manager) dedicated to cash management before opening and after closing.
When I eat with a group of people, it's very common that I'm the only one who pays cash. It's also very common that taking care of my bill is the fastest of them all. It's easiest on the wait-persons time. But since the owners generally fuck over the wait staff anyway, it's no surprise that they don't care about their time.
In America, paying with cash is so much faster because of the still way too common and outdated process for credit cards:
Bring bill to customer > walk away while they review > return to collect card > go to fixed portal to run transaction > return to customer with receipt > walk away again > return to collect receipt with tip amount
More restaurants need to start adopting handheld terminals for waitstaff, which reduces the whole process to 1 step and makes it faster than cash since they do not need to go fetch change.
My wife an I frequently eat at a couple places that have touch-screen terminals (I think called Ziosk?) on them. While you're eating, you can use them to order drinks or pay to play tablet games, but you can also pay your bill without any interaction with the wait staff. They're quite the time saver.
Little story: I actually saw one employee at a fast food joint brazenly dig into the till and take a 20 out and put it into his pocket right in front of me. He wasn't a cashier but just someone that assembles the food product.
I once got a call from a co-worker shortly after midnight saying that when she'd cashed up her till, she was twenty down, so then she cashed up my till again (even though I'd done it before leaving) and I also was twenty down.
Didn't hesitate; called the area manager and told him the facts and nothing more. Never saw her again. Don't skim from your co-worker's till.
Outside the US merchants almost invariably encourage the use of cards. Zero places here are cash only (not even a hot dog stand) but tons are explicitly cash free. [edit: in some places.]
The big savings come when you have zero cash to deal with. Then you have no counting/change/armed transport/security issues at all.
Since 2015 Berlin taxis (note this doesn’t apply to the rest of Germany) are required by law to accept EC cards and at least 3 different credit card networks (which in practice means Visa, MasterCard and AmEx). If the reader is not operational they‘re comitting a misdemeanor. Best advice is to not pay and ask them call the police if disagree - usually the machines magically start working again.
Why are the drivers lying about it? The fee they‘re paying is relatively high (about 3%, but it‘s somewhat offset by a 1.50€ surcharge) but more commonly they‘re are either trying to avoid taxes and they‘re using someone’s taxi without holding a license themselves.
Denmark is pretty much only cards, but debit cards at this point, well above 80% for retail is card payments.
I normally have a few may 100 to 200DKK in my vallet, because the credit/debit card system do still fail. I haven't run into anything in the last few years where I could pay with card or mobile payment.
Between my debit card and Mobilepay, I haven't used cash in nearly 2 years living in Copenhagen so I finally ditched my leather bifold wallet and made a slim card holder out of an IKEA bag. It's only been a month or so, but so far no regrets.
It’s come to the point where I wouldn’t even think twice about ordering a hot dog in a stand with no cash on me. It’s 99.99% chance that they accept card, because if they didn’t they couldn’t sell a single hot dog as no one has cash.
Well. yeah if you aren't using any app to get a taxi, maybe. Still 90% of Taxis in big cities take card for sure. Even the more sketchy ones have the card machine, but it always seems to "not work" when needed...
That is common with taxis for some reason - probably transaction fees, processing lag time or tax evasion. I know some cities had to pass "broken" card readers are free laws to discourage taxis that claimed to accept cards but really don't.
My MasterCard is 2% cashback (through points, but that just means I batch it), but has an annual fee of $150 for two cards, and a minimum household income. I need to spend $7500 on the card just to break even, but if I funnel nearly all my expenses through the card I can net $1000 or more a year.
These "rewards" come from the merchant, in the form of higher fees, and because the merchant can't discriminate prices between credit/cash (probably in the CC t&c somewhere) then if the merchant wants x% profit from me, they're earning >x% from someone paying cash.
I have an American Express Blue Cash Preferred, with a $95 fee, and a Fidelity Rewards Visa, with no fee.
The AX card rebates 6% on groceries, 3% on gas, and 1% on everything else. The Visa pays 2% on everything else. No silly quarterly schedules on changing categories of spending.
Therefore, groceries and gas go on the AX Blue, and everything else goes on the Visa (which used to be an AX card, oops, AXP!). And, of course, both cards get paid off in full every month.
If you travel for business a lot, there are a dizzying assortment of deals. But I no longer do, so the above seems optimal for me.
As someone who declared bankruptcy from credit card debt in my 20s and now makes a comfortable six figure income with no debt and who heavily uses rewards cards, the fact that this scheme is just a massive transfer of wealth from the poor to the wealthy disgusts me and I wish they’d do away with it. There are so many ways the wealthy get rewarded with more wealth and the poor get charged for being poor. It’s an absurd system.
This sounds very weird to this european.... but that's probably because fees here are capped at 0.3% and AFAICT there's not really such thing as a cashback card.
If you're looking for cashback cards, you may want to look around again on Money Saving Expert. They are definitely available and without a fee. They aren't huge percentages, but if you're only other choice is an airline card and you don't travel enough to make use of the miles, may as well get the cash.
Heck, when MBNA recently lost all it's airline business, the card they switched you to is actually quite decent. A bit of cashback and free Mastercard rate foreign transactions.
> If you're looking for cashback cards, you may want to look around again on Money Saving Expert.
I'm not really, but I did do this earlier. Looks like there are about half a dozen available in the UK, only two appeared to be fee-less, the best one being the ASDA Visa which gave 1%.
Some recent rules appear to have caused basically all rewards credit cards in the UK (other than American Express-issued Amex cards with a fee) to be withdrawn from the market - particularly those offering airline miles.
Then it shouldn't "sound really weird", since you know the regulation is fairly recent, that cashback cards existed in the UK, and that America doesn't necessarily have the same regulation.
It sounds really weird to me because it's been quite some time since I've heard such cards advertised at all, I thought they had gone out at least a decade ago.
Here in The Netherlands you basically can't use credit cards for offline purchases. Everyone uses the European debit cards with chip/pin. The fees are very low too, it's cheaper to process than cash is.
Debit cards in The Netherlands are almost exclusively MaestroCard, which is why it's so difficult to find a place that accepts credit card. It's also why The Netherlands developed it's own national online payment system - people didn't have a lot of existing options.
The supermarkets process the transactions as cash on the credit card. I paid something like 5% in fees because of that (on a UK VISA card, about 15 years ago).
I spend significant amounts of time in Europe each year (multiple months) and some of my US credit cards don't charge foreign transaction fees and also earn cashback on transactions done in Europe. I'm wondering who is losing money here - the merchant or the card issuer?
The cap only applies to European debit and credit cards used at an European merchant. It also doesn‘t apply to business cards or three-party schemes like AmEx or Diners (unless they‘re co-branded, due to a recent court ruling).
Based on this, I believe it‘she merchant who‘s picking up the tab here.
Most credit cards in the UK offer cashback cards, at least amex does.
I am not aware that fees are caped. In fact last time I checked the fees from payment processors (like barclaycard) for a transaction online was in the region of 5%.
Interchange fees are capped, but the fees your payment processor charge you are not - it’s just that the payment processor makes more money now. (If you’re not a risky customer, you should be able to get that way down now.) However, Amex until recently qualified for an exemption from those caps, hence being able to provide a useful cashback scheme.
For that matter, there's higher flat cashback percentages available if you are paying an annual fee and funneling the majority of your spend through that card. Specifically, the Alliant Cashback Visa Signature is at 2.5% with a $59 annual fee.
The Alliant credit card is a great investment if you need to pay estimated taxes: The cheapest IRS payment processor charges 1.87% to pay taxes via credit card, which is much less than the cashback that you receive from Alliant.
By paying $500 for a card last year, I was able to net at least 1.5k in additional savings. As long as you remember your point systems and use appropriately its a great system. To get the benefits most require travel or some other expenditure
amex platinum offers rewards that easily pay back the cost if you travel. 2 cards, $450 ($300 + $150)
$15 uber/month/card
$200 in airline fees
Automatic hotel and car rental upgrades
more...
Not sure what country you live, but I live in the U.S. and I happen to have a MasterCard [1] and Visa [2] card which both offer unlimited 2% cashback with no annual fee.
In Denmark we have a national payment system called Dankort. All issued Visa cards also work as Dankort. Transaction fees on Dankort is one tenth of visa, and all payment terminals default to Dankort. This saves Danish retail a lot of money while still ensuring they we can buy stuff online and when traveling using visa.
To be clear that’s due to laws in Denmark that require its acceptance and granting it a particular monopoly status?
I’d be curious what the issue rate between the Dankort & the Kroger Plus Card. It’s conceivable that Kroger has the market heft to do with selling power what Denmark did with law.
As context Kroger employees about the same number of people as 1/10th of Denmark though I have no idea how that translates to ability to change card usage.
In New Zealand we have a similar network, EFTPOS. It’s not mandated by law and business could (but don’t) opt to only accept credit cards. However since it has no per-transaction fees for either party in most cases (some low-volume personal and business accounts have per-transaction fees) it’s reached near total market penetration.
To be clear it’s not a single network, there are two networks that fully interoperate.
Unfortunately we don’t have any regulation on credit card fees, so both credit cards go up to 2% and debit cards take over 1%. This has made the banks (who own the largest EFTPOS provider) reluctant to upgrade the system to support contactless and online transactions, both of which are possible with the technology.
You can't safely inconvenience all your customers even if you're at Kroger's scale. Walmart is extremely eager to kill you if you're Kroger, to gain market share in groceries. It leaves no safe opening to upset a large share of your customers: many will go across the street to Walmart.
Acceptance not required by law and no mandated monopoly.
The card was introduced in 1983 and the law which helped the card stated that they could not charge any transaction fees to the consumer.
It became popular with the consumers because there is no difference between cash and the debit card. It was popular with retail because it was cheap to handle.
Consumers would typically get the card for free from the bank. If you wanted it to work as a VISA card abroad as well - then you would typically pay $31/year. Points, percentage, milage and whatnot are virtually unknown.
Many retailers opted only to accept this card because the international cards where more expensive (but available!).
Unfortunately regulations are going in the wrong direction. The banks have now gotten their saving by handling less cash - so now they're pushing for more fees.
A brilliant construction which could have been a great stepping stone for a true cashless society now slowly turns into a "same same". It goes to tell - never let liberals near infrastructure.
There where agreements in place to ensure reasonable costs. This made it cheap to use. And it was so popular it surely did make a profit.
Then the big banks realized they where helping the smaller banks and even more profit could be made by themselves. Hence a lot of lobbying for a "liberal" market.
We still have the card. But slightly more expensive. Not sure for how long. I do not look forward to a future with global players setting the rules on "market" terms.
This isn’t the full picture. It’s true that we have a national payment system called Dankort, but I think it’s debatable whether or not it’s saving retail money and it’s certainly possible to get a VISA card that isn’t tied to your Dankort.
There are pros and cons to every system. The Dankort is very consumer friendly, and it’s cheaper than credit cards, but it’s not cheaper than debit cards and the Dankort itself isn’t really a true credit card nor is it a debit card.
The fees are low because they are regulated by legislation, but at the same time, the fees are making the company that currently owns the bid to issue and control the Dankort a lot of money from their monopoly.
One of the major downsides is actually the cost to retail. Accepting Dankort transaction is actually expensive, costing a store 20.000dkr a year per terminal. Which is why kost smaller retailers have turned to the mobile pay app.
The major upside is that a Dankort works everywhere that isn’t a tiny/indie store, and that it had relative low fees for consumers. Of course Denmark being a tiny country of 5.5 million people and no real geographical challenges as far as size go, helps a lot in that regard.
Because anything reaching the courts that would benefit individuals at the expense of some big industry, seems to always end up with consumers getting the short end of the stick. That’s at the core of so many US issues.
Outside of north america and UK the line between credit and debit is much more muddled - you may have "debit cards" attached to a current account that has a significant overdraft limit; you may have "credit cards" that have 0 credit limit and must be prepaid; and there's no major practical difference and no legal differences (unlike, say, USA).
As are all the national payment networks. Interac is a bit different from the others though because I don't think cards usually support both Interac and Visa/Mastercard, while in the European systems they usually do both, with terminals defaulting to the national system and using Visa/Mastercard if necessary.
This seems like a missed opportunity for Google Pay and Apple Pay. Before smartphones and NFC, it would've been too much for every merchant to make their own card, nobody is going to carry that many cards.
But imagine if Target, Walmart, Best Buy, etc. made store cards and they all integrated with Google/Apple Pay. When a customer enters the store, the app could automatically pick the right card. Google and Apple just needs to be cheaper than the rates charged by Visa/MC/Discover/Amex.
For example, I have a Target Redcard. Why isn't this card integrated with Google/Apply Pay? They've already setup the financial infrastructure to extend credit to customers. It should be a small step to add this to Apple/Google Pay.
Target's RedCard is a significant advantage they've built over all their competitors. They don't have to pay the fees, customers get a discount, and they get easy access to the data on your purchases. I'm surprised more retailers don't do it.
It's easy to forget too that the history of credit cards was that they started as store credit cards, and centralized and inter-operated from there. When credit cards first started you would have one per store only usable in that same store.
(Also note how gift cards/stored value cards/"prepaid credit" cards recently seem to be following a similar trajectory. It is somewhat fascinating.)
Or just a new payment system in general, based on asymmetric cryptography and message signatures. I'd love to generate a key, enroll the key with my bank, and have them authorize transactions signed by said key. This would be similar to have you enroll an ssh key at GitHub.
The problem with the credit card number system is the lack of authentication. Anyone you pay with a credit card can take a picture of the numbers and go spend wildly online.
So many merchants do have their own cards, many offer incentives better than available rewards cards, but managing more than a handful of accounts quickly gets very tedious. Especially if you move, or change your checking account, or otherwise need to notify all your accounts.
Banks could innovate here. Such as offering credit accounts shared by store cards. That would simplify billing and account management. The concept of credit accounts and store cards could be completely separated. Signing up for a new store card would be just pointing it to an existing credit account.
In Australia, despite the credit card companies and banks fighting tooth and nail against it, it's legal for merchants to charge credit card fees and the fees have to be proportionate to the actual merchant cost.
Plenty of places charge no fee for Amex. Usually bigger ones like Woolworths, Coles, David Jones, etc.
I use it whenever I can (for the frequent flyer rewards), and I expect quite a lot of people do since they do billions in revenue over here (but unfortunately have managed to pay no tax in Australia for several years according to investigative journalist Michael West [1]).
Oh, I used to use Amex here myself, but no-fee Amex acceptance really is limited to the thousand pound gorillas who can extract the best rates for themselves. Then the banks gutted consumer earning rates and I got tired of swapping between Amex and Visa in Google Pay, so I changed to a Visa with slow but steady points everywhere.
I hate credit card fees as much as the next guy, but to be fair my credit card was the only way I could pay for things in Asia since I just lived there for 6 months. If I had used cash, the only ATM near me stole my friends debit card, and multiple people I know were robbed and pick-pocketed. My credit card insulated me from those risks, which I was fine paying an extra 1% for.
Now that I’m back in America the risk is far less, but what alternatives in America are there? I hope the payment apps/wallets become universal but we definitely aren’t there yet.
Yep. The US is reasonably safe in this regard, but I’ve had credit cards skimmed a handful of times. These cases were dealt with with little more than a quick call to custom service, but had it been my debit card that was skimmed, it would’ve been bad news.
For this reason I carry only a small amount of cash (just enough for cash only bars/restaurants) and never carry my debit card. My primary payment method is credit card with an increasing percentage through Apple Pay.
My own experience is that the United States is an extremely risky place to use a credit or debit card, and it's the only place where I've ever had a credit card skimmed (from living and travelling around Europe and Brazil) - three separate times. It's also the only place where I could almost never make contactless or chip+pin payments, and had to swipe and sign.
Typical card transactions now use chip with no pin. They maybe collect a signature electronically (but I think this may be mostly to make the customer happy).
Echoing the other Europeans replying, a single person getting skimmed a handful of times and you think that's safe?
For context, not one person has ever mentioned to me that their card got skimmed here in the UK in the two decades since I've been an adult. They occasionally warn of it in the newspapers, but I've never heard of an actual case of it happening.
As I understand it, most western European countries have had chip and pin for a long time before the US did. I first saw it in Holland about 25 years ago, and in the UK it's been the norm for almost 15 years.
Do debit cards also issue chargebacks? That’s when you disagree with the service you’ve been provided with by a merchant and you call your credit card provider (usually a bank) and issue a chargeback, resulting in a full refund usually (they tend to side with the customer). You can’t abuse it too much but I know people who definitely abuse it for what I’d consider trivial disagreements.
As far as I know chargebacks are not misused in the same way around here.
But yes - it is available for "remote orders" with the debit card. But only for phone, mail and Internet orders. Not from a physical shop using pin code.
My personal guess is that it is tied to good consumer protection laws. We do not need to misuse chargebacks as we have other avenues of regress. You further more need to have your documentation in order when asking for the chargeback. They do do not offer blanket chargeback. You need to document your case and that the vendor is not cooperating.
Important caveat: If the receiver went bankrupt the bank cannot help you - you Will have to take it up with the executor.
Reasonably safe is relative. My bank here in Denmark recommends blocking your VISA or MasterCard upon return from the US, or simply have them issue you a new card for use on your trip.
An alternative like you said is with payment apps. One example I have seen in public is with Venmo, although there are drawbacks like no fraud protection and delay in bank transfer. Latter is solved if you solely use your bank as a settlement layer and Venmo as the application layer — that is, conduct all internal transactions on the app and only settle when you need to trade with a person outside the app.
A lot of problems would go away if all merchants (voluntarily or by law) explicitly charged their payment costs to the customer. Both for card and cash transactions, because cash handling isn't free either.
The customers using high reward cards would then soon discover that they are just paying for those rewards themselves, and the free market would quickly push everyone to the most efficient payment systems.
> A lot of problems would go away if all merchants (voluntarily or by law) explicitly charged their payment costs to the customer.
At least in the US, the contract the retailer signs with the CC processor to be able to accept CC's explicitly bans passing the card fees on to the customer as a specific line item in the receipt.
Which really translates to the merchant increaseing their prices by 1.02x to compensate for the 2% (avg. estimate) fee the cards charge. So the customer still pays, but they do not directly see what part of the price goes directly to the payment network.
Nothing, anymore, in the US at least. A court case a few years back resulted in retailers having the right to offer an "X% off if paying with cash" discount to customers.
But they are still barred from doing the reverse (line item for X% more for CC transaction on the receipt).
Why not extend that out further. Explicitly charge their delivery costs, their production costs, their management costs, their payroll costs, etc, etc?
Eventually we'll just clamor for merchants to just put a single price tag on everything and not worry us about how much of each item is going to all of their various costs.
Because those other costs aren't avoidable by customer choices, and they don't go towards "reward" programs that distort the payment market and push everyone to high cost systems.
Edit: If you really believe the freemarket is the best to determine what is the preferred mode of exchange. Then decentralized currencies are inevitably going to win out, especially if they're equally accessable. (Meaning no need for extensive tech knowledge or expensive mining rigs).
A currency that has a built in UBI and virtually no transaction costs is going to be attractive to consumers. And merchants will eventually gravitate towards it more as they see it enables consumers to consume more.
That's why Kroger is willing to turn you away -- they don't want to pay for your rewards.
In a business where profit margins can be a thin 1 - 2%, losing some customers that cost a 3% transaction fee while driving others to cheaper transactions can be a net win despite losing business.
Though I suspect that Visa will blink first before other retailers decide to do the same.
I wish credit card fees would come down, they're ridiculously high and increase the price of doing business, which increases the prices you pay for items.
Most people that care get a substantial portion of those fees back (either as cash or rewards). So in reality, those fees are a tax on the poor, the un-creditworthy, and the financially illiterate.
Most places that the poor (at least in rural areas) shop at offer substantial discounts for paying with cash. There is typically the "cash" price and the "card" price. At a liquor store, a 44 dollar bottle paid with card is 39 dollars cash. A haircut at the local barber is 13 dollars cash or 15 dollars card.
>At a liquor store, a 44 dollar bottle paid with card is 39 dollars cash
The credit card fee is not 12.8% to 15%, that isn’t even a convinence fee. That’s your liquor store not reporting sales and not paying taxes. That’s a big reason why some businesses won’t take cards.
I don't ever assume malice when there is a simpler answer, besides this store is prominent and at the border so they wouldn't be that dumb. The simpler answer is they give a small discount on cash, and a small markup on card purchases to really encourage cash. They are a deregulated liquor state (so they don't have a state ran "Liquor board") which means they can offer much lower prices than just across the border. And I am sure the owner just prefers to go down the street to his or her local branch and say hi to the teller and just deposit cash. Some people just like to do things the old fashioned way. My barber is the exact same way -- he doesn't take card at all, only cash.
You know, people from the US say that a lot but in other countries like germany where >75% of purchases are cash and a lot of stores are cash only, this doesn't seem to be a problem at all...
I think Germans genuinely enjoy paying taxes. One need not look farther than Germany's close neighbors (Italy, Greece) to see that many people do underreport cash revenue.
Sure but I think the argument is that because those merchant fees are unknowable no one can make intelligent choices around them. The disadvantaged are obviously more impacted but it’s possible that all of us not in credit card employ or shareholder are taxed. A prisoners dilemma sort of thing.
We know generally what the rates are and the statement above is accurate: "Most people that care get a substantial portion of those fees back (either as cash or rewards)"
Do you really? Maybe it's country-specific, but in Australia there are no programs which give you that many benefits. Likely the best are the airline points, and even then they don't cover close to the payment processing fee total.
There's been a recent change in Australia, the Reserve Bank put a cap on the maximum interchange fee credit card companies can charge in Australia (capped at 0.8%). As a result, many of the cards that earned the best rewards have been scrapped. I had an AmEx card that was good for earning airline points, the bank cancelled the card after the Reserve Bank ruling.
Besides the various more complicated rewards systems, you can get 2% cash back on a few cards, although 1 or 1.5% is more common. 2% is most of the transaction fee, in some cases more.
Seriously, dealing with cash is a hassle, especially on a self-checkout. Arco has tried the same nonsense and I avoid them at every turn, because it requires me to a) have cash and b) stand in line to pay , rather than it taking a moment to swipe a card.
Kroger has most likely done the math with their Kroger rewards program (which has historical payment data), and has determined most people won't care and will switch to debit or a non-Visa CC network instead.
They’re also trying to push Walmart Pay as well. At their scale, it’s worth it.
Despite the pain, I still think Walmart should’ve acquired and rebranded a bank, and offered financial products. Would do wonders for the unbanked, while keeping their transaction fees down.
Laws can be changed.
An entity like Amazon can lobby for a change.
Donate money to politicians likely to vote for a change.
Call for a change on the editorial page of the Washington Post.
Remember, once upon a time, there was but one phone company. Then the law changed...
Interstate/branch banking was illegal. Then the law changed.
Amazon could probably set up a members-(i.e., customers) only credit union without too much difficulty.
That was deregulated by the Gramm–Leach–Bliley Act in 1999 and likely led to the subprime mortgage crisis. It permitted the creation of the "too big to fail" superbanks.
I was able to find the law I was thinking of, and it was passed in 1956, so not terribly recent, no.
Apparently it's because the BHCA defines banks as entities marketing both checking accounts and commercial loans, and Discover Bank makes no commercial loans and is thus not, under the terms of that law, technically an actual bank.
(Also, apparently the BHCA restricts banks from operating across state lines, too.)
> They’re also trying to push Walmart Pay as well.
I wonder whatever happened to that digital pay system pushed by WalMart that was supposed to be on the level of ApplePay? There was a lot of chatter about it around the time of the release of ApplePay, but I haven't seen much about it since. It was some weird transaction process, open the app, present QR code, do something else on app, re-present QR code or something along those lines.
Don't fall for that crap. That's the profit after their much-higher, per-item profit came in, they spent it on all kinds of stuff, and then reported the lower numbers publicly. The actual markup on non-sales items at these big retailers can easily be double or more of the cost. It varies product by product. The corporate offices of each waste tons of money on all kinds of non-production people and fancy projects. They might also do payouts like dividends. The resulting pennies on a dollar of profit in final report echo'd endlessly is basically a PR ploy to benefit them in various ways.
They do want to decrease any costs they have, though. The credit cards charging a percentage of revenue instead of retailers' profits or card companies' transaction costs + reasonable profit is ridiculous. Companies like Walmart and Kroger would love to cut that difference out. Given Kroger's growth and low-profit strategy, my initial guess is that blocking Visa would probably be a dumb move on their part. We'll see.
Thanks! Then I take that part back. I do know they, Walmart, and Target spend piles of money on bullshit, though. Kroger was doing the worst by far last survey since they were severely cutting stockers beyond what every company in this area was.
They do, but different cards on different networks have vastly different fees.
The consumer using Visa SuperRewardsPlatinum probably doesn't know that it's costing the retailer more than other cards when they use it.
The originating bank does though, which is exactly why they chose that network in the first place. The market is opaque and doesn't lead towards lower fees and greater efficiency.
It reminds me of super-expensive "we'll pay your insurance deductible" auto glass places which used to advertise on TV all the time. Inflate the cost, and give the consumer a kickback.
Correct. The fee will vary within a network based on all sorts of things. There are low-rate carve outs for low-margin products (eg gasoline), discounts for "card-in-hand" transactions, and higher fees for premium cards.
Ohh.. so it's saying Visa CPS Retail vs. Visa Rewards Traditional vs. Visa Rewards Signature vs. etc. are different. Interesting, thanks, I didn't know that. But if I'm buying two of the same product (obviously -- I'm not talking about two gas vs. groceries here) with two different cards, both of which are from the same network and the same "kind" (by which I mean the categorizations listed above, like two that are both "Visa Rewards Signature"), then the merchant will pay the same fee, right? i.e. it's not like the mere fact that one pays 1% cash back and one pays 2% cash back could possibly result in a different charge to the merchant by itself if they're both (say) lumped together as Rewards Traditional?
This is avoiding and completely missing the point of my question. I was not asking whether card fees can vary based on how the card is processed. I was asking to precisely what extent they can vary based on the card itself. Please re-read my entire question above.
Variable interchange fees range from 0.05% for Visa Debit Cards(Big Banks) to 2.4% for VISA Infinite for most merchant categories. Fees vary by card type and also merchant type.
dataflow, have you considered that just possibly the reason people kept "avoiding the question" and "giving you irrelevant answers" is maybe - just maybe - not out of some inexplicable desire to intentionally waste your time, but is actually because they misunderstood your question, because it was in fact very unclearly worded?
This is frustrating. Again, you guys are avoiding the question. I don't understand why you guys are doing this. Not only does it waste your own time and mine to be answering a different question than the one asked, you're also repeating a point others have gotten across already [1] [2]. Could you please, please actually read the question? I had very clearly and specifically asked about the same kind of card (which, lest you found the word "kind" unclear, I explicitly gave an example of: assume both cards are "Visa Rewards Signature"), for the same product, with the same merchant, processed in the same manner, etc. The only difference I am focusing on is the card perks (which, again, I gave an example of lest it was unclear: 1% vs. 2% cash back... or 5x points vs. 3% cash back, or whatever you can imagine) or perhaps the issuer (Citi vs. Chase vs. whatever). Somehow you guys are ignoring everything I've asked and repeating to me how merchant fees are different based on the card type (debit vs. credit), card kind (signature vs. regular), merchant (big vs. small), product (groceries vs. gas), etc... yes, thank you, I understood that part already [2], and I was very, very explicitly not asking about those:
> if I'm buying two of the same product (obviously -- I'm not talking about two gas vs. groceries here) with two different cards, both of which are from the same network and the same "kind" (by which I mean the categorizations listed above, like two that are both "Visa Rewards Signature"), then the merchant will pay the same fee, right? i.e. it's not like the mere fact that one pays 1% cash back and one pays 2% cash back could possibly result in a different charge to the merchant by itself if they're both (say) lumped together as Rewards Traditional?
> the same kind of card...where the only difference was the card perks
The same card means the same perks. You're describing two different cards. They may be similarly branded. But they're different cards to the interchange and different cards (from a rewards perspective) to the consumer.
If you think someone is "avoiding the question," it might be you're miscommunicating.
No, you're not reading what I wrote. I said the "same kind of card", not the "same card". I clearly said by "kind" I was referring to regular/Signature/whatever. We have two cards that might come from different issuers (maybe Citi vs. Chase), and/or have different points or cash back or other such perks for the cardholder (maybe 2% cash back vs. 5x points), but we assume both are Visa Signature credit cards, processed by the same merchant, in the same manner, for the same product, at the same (approximate) time, in the same location, by the same person, for the same person, for the same price, etc... and I'm asking if they the merchant can be charged different fees for these cards. These are, clearly, not the "same card". Is this clear?
> different points or cash back or other such perks for the cardholder (maybe 2% cash back vs. 5x points), but we assume both are Visa Signature credit cards
Visa Signature card with 2% cash back ("A") is a different card from Visa Signature with 5x ("B"). They're just similarly branded. The text or design on the card is independent from the card itself, which is defined with an alphanumeric code within the interchange system.
In short, a merchant swiping A may be charged differently from the same merchant swiping B.
Thank you, this finally addresses what I'm asking about. It's definitely surprising. Do you happen to know of any merchants are charged fees differently in this respect, or do you just mean it's possible from a technical standpoint?
Oooh boy. I think I might return some confusion to you. I don't think the fees would vary between two Visa Signature cards, if the issuing banks decided to deliver different perks. To the merchant, and the processor, they're both Visa Signature cards, and will be priced according to the fee schedule agreed upon.
> To the merchant, and the processor, they're both Visa Signature cards
"Visa Signature" is a marketing term. In fact, two cards with the same perks and branding could have different fees. There are something like 300 kinds of interchange fees that are always being negotiated between lots and lots of parties.
The one example I know is tied to the WaMu-Wells Fargo merger. WaMu's cards were rebranded as Wells Fargo products. But old interchange agreements remained. So two identical-looking cards, with identical perks, would swipe differently for a merchant. The only clue to the customer would be the different bank identification numbers (the first few digits of a card).
"Visa Signature" is used in the interchange fee schedule [1] to set the price. It's not just a marketing term (though obviously that, too).
If you look at the four columns in section C, there are four rates. Signature Preferred, Signature, Traditional, and "All Other".
If I sign up for merchant card processing, and select a plan that varies the rate I pay based on card, then I'm given a fee schedule like this [2]. The holographic logo on the card matters. If it says "Visa Signature", then I pay that rate. Regardless of how the customer's issuing bank decides to perk their cardholder.
This is one example. I gave a counterexample. Usually, branding matches to card type. But not always. The question was can they be charged differently, and the answer is yes.
This is a interesting discussion -- and I'm seeing a subtle point here that's getting lost. If I understand your merger example correctly, you're suggesting that a card that is now marketed as Visa Rewards Traditional, for example, may still truly be a Visa Rewards Signature card underneath from before the merger (or whatever the prior classification was).
However, what I find important here is that the card still is, in fact, categorized by those classes, and that categorization is merely misreported to the consumer. As far as the merchant is concerned, though, it really is a Signature card that was swiped(/inserted), and that Traditional vs. Signature classification still really is the only thing determining the rate -- i.e., what the card's perks or issuer are still cannot affect the fees once the merchant knows whether the card is truly a Signature or a Traditional card. See what I mean?
A card is “really” a collection of contracts. A bunch of cards are collectively referred to as a “card type,” for merchant billing purposes. It’s nice when that aligns with the card’s marketing, but nothing requires it. Each payment network has its own conventions, which have changed over the years, and are constantly interacting with hundreds of layers and parties. Nobody prioritises keeping brand and type name correlated.
Banks regularly change perks and rates, and when they do, they tend to renegotiate payment fees. Remember, there are like 300 fees. So in these renegotiations, some cards may end up one way and some may another. These are classified as whatever and life goes on. The “real” thing to the merchant is the mapping from card to type. The “real” thing to the bank is the fee flow. The “real” thing to the customer are the branding and perks.
> The “real” thing to the merchant is the mapping from card to type.
This is exactly what I'm trying to understand: how specific/granular the "card types" can be. Maybe another way to ask it is the following: is there a pre-set list of "card types" with pre-set merchant fees provided by Visa/MC/etc. that issuers must choose from (whether Rewards Traditional vs. Signature, or something else) and that merchants can expect, or do issuers get to come up with their own distinct "card types" that result in different fees for the merchant?
> is there a pre-set list of "card types" with pre-set merchant fees provided by Visa/MC/etc. that issuers must choose from (whether Rewards Traditional vs. Signature, or something else) and that merchants can expect, or do issuers get to come up with their own distinct "card types" that result in different fees for the merchant?
The latter. There are presets for smaller institutions. But these fees and labels are negotiated and renegotiated between big banks and payment networks.
If JPMorgan wants to call their cards with a prime last two numbers KOOPA and pay Visa 1¢ extra for all KOOPA swipes, that would be valid. Nobody does this. Because marketing terms--at least initially--tend to correlate to the perks the issuer is giving cardholders, and thus tend to correlate with the issuer's costs. But that's all.
I’m admittedly not an expert, but everything I’m reading is clear that, for example, “Visa Signature” means something with respect to the interchange fee. Do you have any links that show how the fees would vary between two cards with the same “Visa Signature” logo on them?
Haha, yeah that's what I always expected, and that's why some of us found the claim surprising (and hence why I'm trying to drill down into it). I can see it being technically possible, but from a practical standpoint, it would be very surprising for me if it actually happens.
> At what point should you start to suspect that the issue is not on the client side, but the server?
After I see myself being at least quoted accurately? I repeatedly wrote "same kind of card", and I was quoted as asking about the "same card". That is my fault?
Yes! Visa/Signature/Infinite have different fee schedules, by a large margin.
I was once at a smaller restaurant and they didn't want to take my Amex for fear of fees, little did they know my Visa Infinite had an even higher swipe fee.
Are you sure it was "fear of fees" rather than "not having a contract with AmEx"? I would assume Visa's agreements wouldn't let them just refuse your Infinite, since it would defeat the point of the card if they could just refuse the high-fee ones. (Just a guess; I don't know how it works.)
Merchants do discriminate against card types. Some merchants will take Visa debit and not any other visa cards. Some will charge extra like Venmo and Verizon if you use anything but a Visa Debit. Some subscription merchants won't let you use non-reloadable prepaid card especially if they offer a low amount trial and its also against the merchant agreement to charge a non-reloadable prepaid card with the recurring flag which subscription merchants set to get better success rate on auths.
Debit cards and credit cards are obviously different beasts though. You might as well be comparing cash against credit cards. Nobody expects them to be treated equally. The question was, can/do merchants discriminate against different types of credit cards from the same network (such as regular vs. Signature Rewards)?
There is debit, prepaid, prepaid non-reloadable, business credit, business debit, government/purchasing, payroll, credit cards(gold, signature,infinite) in the US. Add international and there's a lot more like Electron(travel debit). It even gets more complicated because debit can be broken down to durbin and non durbin. You can actually get debit cards that give you rewards that charge at credit card level interchange rates.
If you're talking credit cards, I don't know anyone that discriminates against the different types but it is very possible because you can get that info from the PAN.
> I don't know anyone that discriminates against the different types but it is very possible because you can get that info from the PAN.
Yes, this was my question, i.e. I'm wondering if merchants can be charged different rates for the same kind of card (e.g. for Visa signature credit cards coming from different issuers or having different perks) consistent with contracts/laws/other practicalities, not just from a strictly technical standpoint. (Any what the relevant reasons might be.)
The merchant absolutely pays different fees depending on the card. A Visa platinum card will cost more for the merchant than a basic, non-rewards card. Regardless of scale, different types of merchants also pay different fees.
It's going to depend on how the retailer's contract with their merchant account works. Your mom and pop store may just pay a higher rate, and a high txn fee and call it a day. Simple contract.
For a large retailer like Kroger, there's no way in hell they're leaving all the interchange discounts on the table.
Those are the rates paid by the processor to the bank. They're not the rates paid by the business to the processor.
Per VISA's website:
"Merchants do not pay interchange reimbursement fees—merchants negotiate and pay a “merchant discount” to their financial institution that is typically calculated as a percentage per transaction."
It seems logical that VISA doesn't want merchants to be able to determine per-card costs, since this keeps merchants from trying to optimize their fees.
See the sibling reply, the statement led me (probably like you) into thinking that merchants can be charged differently based on every minor aspect of the card, where they seem to say it's only different depending on the broad classification of the card in that interchange (regular "Visa" vs. "Visa Rewards Signature" for example).
Grocers are being squeezed from all sides. Walmart and Target are spending lots of money to take dry goods market share — they will spend $8 to ship you a little box of onion dip. Costco and BJs pull in families.
Amazon is doing all of the stuff they are doing.
Kroger is bigger, but lacks the scale of the giants. And most grocery stores are regional affairs whose footprint is limited by their distribution network and who cannot raise money because why would you when the competition is a behemoth like Amazon who can lose billions to get market share.
Good? I hate the asinine secondary market of "points". Just don't take the money in the first place and then we don't have to sort out how I can reclaim it somehow.
The economics of it isn't just handing you your own money with a couple arbitrary hoops in the way. There's a portion of cross-subsidy from cash, debit, and low-rewards credit card payers, along with capturing some of the merchant's efficiency gains of using cards over cash (harder for employees to steal, no need for armored cars for cash pickups, etc).
I think you would be surprised at how little cash many places need to operate with in the presence of credit cards.
Consider a front desk at a hotel. Thousands of dollars a day in transactions occur via card, which would warrant frequent drops into an expensive safe if they happened with cash. With cards they pretty much only hold a trivial amount to deal with sundries that isn't worth protecting beyond a simple envelope to a back-office.
Credit cards dominate many industries in the US to a point where cash management is now trivial because the daily amounts aren't worth any employee losing their job over or a criminal risking robbery punishment for.
That hotel is still doing cash accounting though. If there isn't much at the front desk, how about the bar? The restaurant?
A business that has any type of daily cash accounting is still going to need to balance the register at the end of the day, reestablish change to open with, have arrangements for transport, &c. Bad employees can still pocket a tenner on occasion.
Sure, some smaller places with barely any cash probably just lock the drawer and call it a night.
I can't find the figures now, but estimates of cost of cash handling is far far lower than the 2-3% of swipe fees.
If you put down your loss due to clerical errors, theft, etc. of handling cash at around 1%, increasing the amount of cash will also increase your loss. Credit cards and other electronic payment methods, won't have that issue.
Not really. Banks really dislike creating systems where it is possible for them to lose money. And by law, if you pay your credit card statement in full on or before the due date, you get charged zero interest.
The interchange fees charged to merchants roughly covers rewards. It's why Visa et al charge higher fees to merchants for processing higher-tier rewards cards. Interchange fees don't cover all the other overhead of running a credit card system, but they do cover rewards.
Interest payments cover the fixed costs of running a credit card system (and then some). Payroll, marketing, offices, return on capital, etc. An additional marginal purchase usually generates enough in interchange fees to cover the rewards earned on it.
Or just work the system - I made around $6000AUD from points in the last 12 months. Its pretty minimal work. Sign up for card. Fulfil requirements to get sign-on points then cancel and move onto the next card. Your credit rating takes a bit of a hit but recovers over time.
If you don't cancel and instead just downgrade to a no-annual fee card it should help your score. I am not sure how it works in Australia, but average age of accounts plays a large role in US credit rating calculations.
If you have regular rewards card, like 1%-1.5%, sure. But if you have 3% or 5% (I don't know of any card that does it on taxes specifically, but there might be ones where it fits some of the categories) or if you need to fulfill requirement like "spend $X000 in N months and get tons of points" then even with the transaction fee it might actually be a pretty good deal.
Not 5% for everything, but "5% in our store" are common (Amazon, Best Buy, Lowes, etc.) and of course tons of cards do categories, so I can't exclude the case where however the service is classified (I have no idea... is there a category for government payments?) it fits one of the categories. In fact, some card might even run it as a promotion - with suitable limits, it's no more expensive than any other 5% deal...
Well I kind of hoped I could pay IRS directly rather than through a middleman, or get a clear, no-loophole guarantee of some sort that they would do nothing with my SSN other than transmit it to the IRS. (Or through TurboTax, which I've unfortunately already used anyway, meaning they already have my info.)
I love points. I get to fly first or business class internationally all the time, and it's all pretty much paid for by rubes that subsidize my travels.
I love the points as well, though I typically fly economy. Combine the credit cards with airline shopping portals which give you bonus points for things you were going to buy anyway, and the points go so much farther.
So you hate getting something back for choosing one payment method over another when there's no indication that retail stores would lower their prices if credit cards (and their transaction fees) were wiped out?
> there's no indication that retail stores would lower their prices
Competition will lead to that. It doesn't happen immediately, it happens in waves. These are called price wars. When that happens, they try to undercut competition at every possible turn, and having lower payment processing fees allows them to go lower. Who wins a price war? The consumer.
Yes: points are ridiculous. The fact that credit card fees are passed on to cash payers is ridiculous. Visa and Mastercard are absolutely minted. Where does that money come from? You and I.
(and: why does competition not work for Visa and Mastercard as well as it does for retailers? Because the feedback loop is much longer. Intractable, in practice. Choosing one retailer or the other is a clear signal we can send. But are we going to choose merchants based on payment processor support? As for merchants, they're stuck in an oligopoly. Competition is gone, leading to this unhealthy market.)
There is some indication of that - gas stations have seemed to be leading the push here, with "cash-only" prices, but you'll also see places with CC fees or minimums (as much as the providers try to crack down on this).
This goes through cycles every few years. We seem to be in the cash discount part of the cycle now. Then stations discover they don't like losing customers who want to pay by credit but are getting "ripped off." Admittedly apps may make things different this go-round.
> They are probably illegal (or against contracts) in most states, but you see them very often.
Minimum purchase requirements for credit cards were explicitly legalized in the US in 2010 as part of Dodd-Frank. Merchant agreements are not legally allowed to prohibit them.
Thanks for share this. It is news to me as that used to be prohibited by the CC.
"2010 law: up to $10 minimum OK. The law says that merchants can set a credit card minimum purchase of up to $10, as long as they treat all cards the same. It also allows the Federal Reserve to review and increase the minimum payment amount."
At this point they should consider investing in their own debit-like card issued by themselves. You prepay it with $100, you get extra 5% loaded on the card, and additional discounts for using it. The retailer saves on per transaction fees since they will have to only pay it once for $100.
This is basically the approach Amazon and Starbucks have taken. Every $25 card reload via the Starbucks app probably adds up to a lot of money in saved transaction fees.
That would make sense. There’s also the customer loyalty factor. I use the Starbucks app a lot (probably too much if I’m being honest), and all of the “stars” and “challenges” definitely work in terms of gamification.
PS you can pry my caramel macchiato from my cold, dead, jittery hands.
I doubt they are able to use that money without it showing up as a loan (oversimplification).
While they get $25 in cash, they also get $25 in obligation/debt to you (eg: they owe you $25 in products). If you don’t use it, after a jurisdiction dependent time, it goes to the jurisdictions treasury (at least in some areas). Or in other words they can’t count that $25 as money they have until you the use credit.
It’s probably more complicated than this as I’m not an accountant.
I know that typically with gift cards the dollars fall into a "deferred revenue" account until they are actually realized as a sale against a product/service tied to an income account. You can say "We have X amount in deferred revenue" but can't actually show it as recognized until certain things happen (VSOE rules for software, etc). In the case of Starbucks I think it would be similar, though I'm not sure if using their app for payment qualifies as a "gift card" in the same sense or not.
I believe there are also different laws in different states and jurisdictions related to "breakage", e.g. some states don't allow gift cards to expire whereas others do, so in the latter you can forecast breakage upon set dates whereas in the former it's a lot harder to do because you basically "owe" a product or service indefinitely.
PS I am not an accountant but I've worked with a lot of them via backend billing systems implementation and development.
Plus upfront payment of the ammount for a potentially unrealized liability. In interest accrual alone they win regardless of how they do their accounting.
Yes. But compare one $25 transaction to six $4 ones over a large population, and even the per-transaction fees alone seem like a pretty decent savings.
The penetration of credit cards into everyone's daily life is already too deep. Let's face it, at this point they already got everybody well locked up. Any attempts to resist from just a few companies here and there are really just futile.
Not really. Smartphone apps can be a game changer since they require so little infrastructure to adopt. Look at Venmo. In Sweden a banking revolution is taking place where an app similar to Venmo that instead was developed by a consortium of banks has quickly gotten mass adoption, recently also including at retail. I bought strawberries from a street stall using my phone.
Due to regulations I think it is difficult to find any fintech which a small bootstrapped startup in the traditional sense. Some bank tie-in is needed. And by that I might be overloading the startup moniker.
My point was that they're still tiny compared to the giants such as AmEx or Visa. And it shows that the old players can be unseated faster than expected.
You might not have visited China, then. If you stay within the WeChat payment network system instead of stepping out through bank interchanges, you see end-to-end payment friction at well lower than 1%. There is plenty of room to innovate yet, and drive costs even lower for this utility, which arguably can be a government-delivered utility at some point in the future.
Maybe this is crazy, but it seems like Google or Amazon could compete with a credit card network with lower merchant fees. Besides being great, it would be great PR.
In the early days of the Republic, individual Banks used to print their own currency. It was all dollars, but it was produced by different companies.
Now our different dollars are plastic or even just ephemeral, the difference being that they may not be universally usable. Something's definitely wrong here.
The article mentions technological alternatives - what are they? There is no way blockchain can fill this void, so .... what can do electronic payment if not the giant card networks?
Many countries have (as yet) free electronic transfer services (Vipps in Norway, Swish In Sweden etc). Originally used mostly for p2p transfers, it’s showing up more and more as an accepted payment form.
Obviously these systems also have costs they need to cover, but there is a good chance they will remain much lower than card fees. The big issue with them is that they are national. Even if every individual and many businesses in Norway have Vipps, you can’t use it to pay in a Danish web shop.
A glance at wikipedia makes this a mobile app that requests transfers from bank account to bank account via a participating bank.
Which is basically replacing visa with the Norwegian bank.
I guess I have never wondered about it before, but i am surprised there is not a international common payment request protocol - "move 100 from a to b". Each bank could have their own gateway but as long as it understood the protocol ...
Kroger bought out a local chain here in Michigan (Hiller’s) that was way better than Kroger and then laid off the Hiller’s employees and killed the chain. I’m never gonna feel any sympathy for Kroger.
> over the $90 billion they pay in swipe fees every year.
> Kroger's revenue was 122.7 billion USD in 2017
That makes little sense and makes me wonder why Kroger does not issue its own credit card. Credit cards are a rent-seeking racket that eat lots of profit. Everyone knows it but no one knows what to do about it.
To be clear, the $90 billion is what all companies pay combined. It's the total market. It is not what Kroger themselves are paying. I imagine that Kroger is paying between $2 and $3 billion for credit card processing based off of their revenue.
I wonder if Apple and others that can generate "soft" credit cards could make this (essentially 1 card per merchant) work pretty easily and seamlessly for consumers. I don't know what underlying infrastructure they have though, are they still heavily dependent on Visa/Mastercard/Amex networks under the hood to do the dirty work or do they have a parallel system?
Apple gets a cut of the intercharge fees that the banks charge (much higher in the US than overseas), but it is not an additional fee to the merchant last I researched.
A lot of the NFC issues were either competing tech, payment networks not being ready, people not understanding their system configuration, _or_ intercharge fees being different for that whole category of fees (not specifically Apple Pay).
When you take things out of context they often don't make sense.
The "they" in the first quote was "retailers." It was not qualified at all, so that should be all retailers around the world combined, from Alibaba to Mom's Bait Shop.
They don't provide any source for that figure, so trust it at your own risk.
IIRC, a recent figure for US interchange revenue to originating banks was around $40 billion a year. (Interchange fees are a large component of swipe fees.)
Our local version of Kroger does issue its own card, but it is a Visa card. I don't know how settlement would work in their own stores, but if you were to use the card at other merchants, Visa would be getting their network fee, which can be like 3% of the transaction.
> These kinds of problems (swipe fees, etc) is where I believe cryptocurrencies shine. Having a fee payment which is reasonable and fast confirmation times would solve this problem immediately removing the need for third parties.
Isn't this precisely where cryptocurrencies have utterly failed with their high fees and long confirmation times?
No need for cryptocurrencies, this has been a solved problem in various countries for literal decades. See Interac in Canada, Dankort (as mentioned by another poster) in Denmark, and presumably others.
There are a bunch of different things you're listing there, but none of them are really accurate:
* Most merchants love Interac, it's far cheaper than credit for them.
* Interac hasn't been "debit only" in a meaningful sense in some years, various banks now issue debit cards with Visa/MC fallback for international/online use.
* The last few years has seen a proliferation of banks offering free Interac etransfers. There's no reason anyone now needs to pay for etransfers or for a bank account.
Simplii Financial (direct banking subsidiary of CIBC) has unlimited transactions, Interac e-transfers, Autodeposit and Request Money, Interac Flash (contactless payments), and supports Apple Pay, Google Pay, and Samsung Pay, and all these features are absolutely free. Maybe you just need to change your bank.
https://www.supremecourt.gov/opinions/17pdf/16-1454diff_6579...