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Forget Google, time to end the Visa-MasterCard duopoly (medium.com)
1100 points by CM30 11 days ago | hide | past | web | 523 comments | favorite





I am reading so much incorrect information in this thread it’s maddening.

The card network (Visa, Mastercard, etc) do NOT make money on Interchange.

It’s hard to have a healthy dialogue on this topic if folks don’t understand the basics of how the card networks generate revenue.

Below is a decent primer.

https://www.investopedia.com/articles/markets/032615/how-mas...


I mean, technically no they don't. But that's just being pedantic. They charge the bank based on gross dollar volume, and the bank gets the money to pay for that from... interchange fees. The more volume the bank does, the more they pay and the more they get from interchange fees.

Interchange fee pricing is set based on how much mastercard charges the banks, so while technically true, the interchange fees are basically set by mastercard's pricing.


Interchange fee pricing is set based on how much MasterCard charges the bank

That’s not true though, or at least is a massive oversimplification. In the US, interchange fees are extremely inflated to allow banks to recuperate the rewards they give out to distinguish their card offerings from one another. The 2% cashback has to come from somewhere.


>In the US, interchange fees are extremely inflated to allow banks to recuperate the rewards they give out to distinguish their card offerings from one another. The 2% cashback has to come from somewhere.

And that's a bad thing, because it's essentially the poor subsidizing the rich. People who aren't able to get credit cards (or the "good" cash back credit cards) tend to be worse off financially than people who do.


+100! In Europe, they've limited interchange fees to a reasonable maximum. Banks can still make money, but don't offer crazy credit card rewards to the rich. I was sad to not get the rewards I was used to in the US, but happy that it was the greater good for society.

Also, with interchange fees at 0.3% and total card fees <1% for many shops, it's actually cheaper for sellers to accept cards than cash.

This has always struck me as one of the more blatant and out-in-the-open financial inequalities in this country.

It’s also a fake one. As the other commenter said, the credit card system came about bec cash was very expensive to use for stores. They were passing along those costs to consumers, the fact that that’s now inverted by some stores (cash discounts) is only doable bec of the prevalence of credit cards.

Stores need to accept cash regardless, so there’s still some minimal added costs to using cash, but even with the offered discount it’s less than the credit cards...

however if stores stopped accepting credit cards they would quickly find themselves drowning in the same costs that credit cards were invented to avoid.


At least we don't have hyperinflation. That's even worse for the poor. Though to be sure I agree with you. We really need to fix this, but it's not going to happen. Right now we're paying an enormous -unprecedented?- political attention tax that is starving lots of important issues of oxygen.

I think that's an oversimplification, because credit transactions tend to be 20%+ higher ticket sizes than cash purchases. In a way, the credit card surcharge baked in is something of a volume purchasing incentive. Further, the networks do explicitly permit cash discounts on card transactions, and always have. Merchants tend not to offer them, though.

> credit transactions tend to be 20%+ higher ticket sizes than cash purchases. In a way, the credit card surcharge baked in is something of a volume purchasing incentive

Funny you mention that, because that’s yet another case where it’s expensive to be poor. If you’re living paycheck to paycheck, barely making ends meet, you likely don’t have the cash flow to stock up on a sale. So rather than buying 18 months worth of TP when there’s a sale + coupon on the 64 pack, you are buying the 4 pack at regular price that costs twice as much per unit.


A recent development: "Tap to pay" enabled transit systems are driving large increases in transaction volume.

It's a way around the truth in lending laws,* to make interest rates appear lower than they are.

Instead of 2% cash back for some, they could just add 20 percentage points or so to the interest rates of everyone else. If you think this is unfair, you're really just saying that interest rates are applied unfairly. But it doesn't sound like that's your actual thought process. Is everyone who pays higher rates subsidizing those who pay lower? How do you know?

*This is not my original idea, but something I read somewhere.


That’s not really how credit cards work though. You only ever pay credit card interest if you carry a balance from month to month. Cash back doesn’t just reduce your effective interest rate; your effective interest rate can already be zero simply by virtue of paying the full balance due every month. And the credit system does literally nothing to discourage this behavior; in fact, the credit scoring algorithms incentivize it.

The money for cash back comes from transaction fees. It would have to. People go out of their way to find ways of maximizing their return from these kinds of systems so any cash back scheme that could be too easily gamed would fall prey to these people. That actually happened once, albeit to a “merchant”. The US mint used to let you buy $1 coins, online, with a credit card, for $1 each and free shipping. You could literally buy your entire credit limit’s worth of $1 coins, deposit those same exact coins at your local bank branch to pay your credit card bill before it came due, and straight up profit from the cash back.


There are costs associated with accepting and securing cash as well.

Isn't that the fault of the credit system though? Those who have access to more credit (or have better credit) are able to take advantage of these offers.

and that's why this is called systemic inequality - the inequality is built into the rules of the system.

Do you think it’s not fair for credit card issuers to try to attract customers that have a higher value to them by offering rewards? Regardless, approvals are mostly based on credit history and not wealth. I was a low income earner for years but paid my bills and credit cards on time so I could get any card I wanted.

Lots of CC bonuses have a minimum spend specifically to filter richer customers.

The problem is not that the company is trying to make money, it's that this market has become an oligopoly with too much pricing power. With the prevalence of credit card purchases this is a tax on every transaction in the economy. Even people that don't use a CC pay a price set for those that do.


In the EU, interchange fees are capped at 0.2% of transaction value for debit cards, and 0.3% for credit cards.

This has indeed meant that rewards and cashback credit cards have largely disappeared (with the exception of Amex, which operates outside the interchange system?).

Rewards/cashback cards that do still exist are typically tied to specific retailers, with whom the issuing bank has cut their own deals.


AMEX is a three-party system, whereas Visa/MC are a four-party system. The difference is that AMEX themselves issue their cards, whereas for Visa/MC it's the customer's bank (on license by Visa/MC). Since the customer's bank sets the interchange fee, a merchant can't possibly know what it's going to be before the transaction.

With AMEX the merchant does know the exact fee structure and can therefore decide to accept or not to accept AMEX ahead of time. That's essentially the argument why the fees for AMEX were not capped.


Sounds like a Pyramid scam

> with the exception of Amex, which operates outside the interchange system?

Right, but try using Amex in Europe.

Outside of major international hotel chains, or where you can do your purchase online through Paypal, you may as well not bother asking if they accept it.


Outside of major international hotel chains, or where you can do your purchase online through Paypal, you may as well not bother asking if they accept it.

It's very interesting to hear that.

When I first started traveling to Europe, having an American Express card (or even better, AmEx travelers checks) was the best way for an American to pay for things. It's even written into some classic books and movies.

My how things have changed.


I think it differs a great deal between countries in the EU. I'm Swedish and I have an Amex card and most of my friends and colleagues use Amex as well. I use it for about 85% of my spending each month. The only places in Stockholm that don't accept it are smaller coffee shops, restaurants that don't get that many tourists and mom and pop stores.

You could probably get by here with just an Amex card and cash, but I keep a backup card for the places that don't accept Amex.


I think it used to be that way, but it's slightly better now. I live in London. I have a friend who has an Amex and a normal card, and will always try to pay with the Amex first to rack up reward points. The only time i see him pay is when we're in a bar or restaurant together, usually independent places rather than chains, and i would say Amex is accepted over 70% of the time.

It’s accepted in a lot of places here in NL. I have a Dutch amex. Aldi, Jumbo, Hema, all accept it.

https://www.americanexpress.com/nl/voordelen/shopping/


There are still a few non-Amex cards that offer cashback with any retailer, although the amounts are small; e.g. Capital One (0.5%), Barclaycard (0.25%).

"The 2% cashback has to come from somewhere."

Yes, but in reality, the program comes from an upside down approach to overcoming the obviously anti-competitive practices that VISA/MC use to forbid retailers from offering discounts for not using VISA etc..

You can't say "Get 2% if you use cash instead of VISA". (Notice that nobody ever advertises that?) Because VISA doesn't allow it.

You also can't say "$1.99 + 20 cents processing charge" - no, the price must be listed including charges. (Notice that nobody every does this?)

But you can possibly find ways to give points, or 'cash-back'.

Until now ... [1]

VISA is now saying that even such 'cash back' rewards programs are a violation of its rules.

Have a look at the press release - it's positively Orwellian:

"In order to maintain a level playing field" -> "In order to avoid all transparency and maintain our hidden monopoly" we require that nobody can take steps which highlight the how our transaction fees are embedded in the price.

These are pretty blatant anti-competitive practices and taking them on is tantamount to taking on the entire banking system. It's not going to happen.

There would need to be an 'outside disruptor' like the Word Processor to the Typewriter kind of thing.

[1] https://www.pymnts.com/visa/2018/non-compliant-cash-discount...


The outside disrupter was supposed to be Apple Pay, but that didn't work and now Apple just issues credit cards (through Goldman Sachs). Visa/MC has such a monopoly stranglehold that getting kicked off their Network is tantamount to going broke. There are esoteric options aka Bitcoin, money order, check, but if being able to accept credit cards makes this drastically more difficult. (Ask the legal cannabis industry how it's going.) More modern attempts at disruption - Zelle/PayPal/Venmo are totally at the mercy of the banks. Who are quite happy with the status quo.

Apple Pay charges a fee as well. It also isn’t a payment system but a tokenization system similar to the chip on credit cards. Zelle was created by the big bank which is why you don’t see it at the small local banks. None of the competitor banks(fintech) have zelle support and I guess this isn’t their choice. They have to move money by ach with is much slower.

Any payment/money movement system needs a license and you’re still bound by federal rules on AML and KYC. It makes it hard to support the cannabis industry. AML laws will force you to report large cash movements.


The outside disrupter was supposed to be Facebook currency and I am glad it didn't happen as Facebook has enough power already and this would starting to go in WeChat direction.

The vending machine in my Apartment bldg has a sticker saying that credit card price is $0.10 more than the stated price and to use cash/coin to get the stated price. The machine does not accept bills or coins.

I should add because I cannot edit my comment that some of these parameters have changed in the last few years, however, it various by jurisdiction. Also, the universal incumbency established by these players was deeply entrenched before such programs were relinquished.

You can't say "Get 2% if you use cash instead of VISA". (Notice that nobody ever advertises that?) Because VISA doesn't allow it.

I see this all the time. * At more than one bookstore, the dry cleaner, markets, my current and previous landlord, my accountant, and pretty much every gas station since the 1990's.

* Pre-quarantine. Now I don't see anything.


There are cases, where the person you're interacting with isn't likely to be audited or doesn't have a direct contract with the payment processor.

Gas stations I find weird, in general. How did they get that exception?


>Get 2% if you use cash instead of VISA"

Some gas stations where I live have a "credit" price and a lower "cash" price.


That's because US federal law no longer allows credit card companies to forbid cash discounts.

The above poster was incorrect.


In Germany lots of places just don’t accept any cards besides Visa and MasterCard just because of the seller fees.

I've also seen a number of gas stations in ND that have a $10 minimum for cards. This also carried over to some grocery stores.

> You can't say "Get 2% if you use cash instead of VISA". (Notice that nobody ever advertises that?) Because VISA doesn't allow it.

> You also can't say "$1.99 + 20 cents processing charge" - no, the price must be listed including charges. (Notice that nobody every does this?)

We see these a lot in Australia. I wish they'd enforce the same pricing here for cash and card — I don't like to carry cash around, and I hate it that I have to pay a surcharge when paying by card.


We see a lot of those in Australia because the ACCC took on Visa/MC and won.

https://www.accc.gov.au/consumers/prices-surcharges-receipts...


In Australia, there are two environments, the Visa/MC networks, and EFTPOS. EFTPOS is owned by the AU banks and is AU only.

A Visa or MC credit or debit card txn go via the Visa or MC networks.

An EFTPOS txn goes via the EFTPOS network, it's much cheaper.

In AU, the fees are regulated and must be disclosed to the user as an extra charge. Most businesses much prefer the EFTPOS network because it's much cheaper.

Until recently, the contactless environment didn't support EFTPOS, so it always used the Visa or MC networks. Same applies to Google and Apple Pay.


I remember being charged 5aud for paying by card at a hostel, being Swedish this was a very weird experience. While I do like the anonymity of cash, cards are very convenient.

Well, there is a cost when you use your card.

If there is no price differentiation, this just means everyone has to share the cost, rather than the people who choose to use it


> I don't like to carry cash around, and I hate it that I have to pay a surcharge when paying by card.

So you think your use of a credit card should be subsidized by people who pay in cash?


This used to be the case, but it isn't anymore.

https://en.wikipedia.org/wiki/Expressions_Hair_Design_v._Sch...

Plus, plenty of gas stations show a cash/credit price on their signs.

The merchants are no longer allowed to block this behavior.


That's applicable to legislation, private contracts can still require no surcharge.

Interestingly, in Japan most electronic shops (like Bic Camera or Yodobashi Camera) have a point card where you get 5% not directly as cash back but as "points" that you can use any time for a further purchase.

But that's only if you pay by cash, you don't get any point by paying by card.


Yodobashi offers a 5% discount if you pay with visa card. Combine that with the 8% tax free deduction if you hold a temporary tourist visa.

> You also can't say "$1.99 + 20 cents processing charge" - no, the price must be listed including charges. (Notice that nobody every does this?)

The place I went to yesterday for lunch did this. This is in Silicon Valley. I believe it was a 3.9% credit card fee.


You never see that in Europe. What you see is shop owners claiming their POS is broken.

You were always allowed to offer cash discounts. What you weren't allowed to do was impose credit card surcharges. That was recently eliminated.

I find it pretty nuts that the person who chooses the payment method doesn’t pay the charge. I always try to pay with cash if I can help it.

You’re correct in 99% of cases. Somehow gas stations can advertise different prices for cash.

Since Jan. 27, 2013, all retailers have been allowed to charge a fee for using credit. However, there are a lot of rules which are hard for regular retailers to follow, but easy for gas stations to follow, which is why you mostly only see it at gas stations.

Like some kind of virtual coin.

The ability to purely make transactions is trivial - you can just use a debit card. The value of credit cards comes from other factors like fraud protection, SCI compliance, actual credit, etc.

Sure, but the base rate comes from MC/Visa. Precessing credit cards is a low margin business. It's basically a race to see who can charge as close to the MC/Visa rates as possible.

This isn't really about Visa-MasterCard, it's about a darling like Stripe charging 2.95% because 3% is customary.

People will freak about their customary rent/take being threatened. They gotta come out of the woodwork and justify the charge... somehow. A HN proxy battle!


They want to eat too.

And these technicalities matter a lot. They make, in some cases, the difference between legal an illegal. Not understanding them leads to wrong conclusions.

So formula wise it would be something like this?

d = dollars t = transactions count

I(d,t) = Interchange total profit/cost to a bank from fees in and out F(d) = scaling function for interchange returns based on cash pushed through as an arbitrary function G(t) = transaction cost function based upon arbitrary scaling.

I(d,t) =F(d) - G(t)


I agree with the OP that we need to be informed in order to have the conversation.

But..... You have the main point here. The whole premise of monopolies is that monopolies dominate bottlenecks, and use them to generate outsize revenue and protection from competition.

Facebook doesn't make money directly from whatsapp. It can be used to generate data for FB's main advertising business. Most importantly, it helps maintain facebook's dominant position in social media. That position is revenue generating.

I agree that understanding the mechanics are important. But, we can't keep treating monopolies as innocent of monopolistic practice until proven guilty. The reason we have antitrust in the first place is that monopoly positions lead to monopolistic practices. We need to assume monopolistic practices exist in the case of a monopoly. When one monopolistic practice (eg amazon marketplace or adwords) has been proven in court, this should be treated as proof of monopoly, not a standalone violation.

Same with the CCs.


True, also in many EU countries credit cards do matter much less. For example in Germany card payment is normally done with EC cards (girocard,vpay,etc), including NFC based payment. For long term recurring payments SEPA is common, for one time payments simple bank transactions over online banking. This includes online payment for services like Amazon. Oh an not to large local payments (e.g. restaurant) are also very often done in cash. Credit cards are only needed for a German person in two cases: Travel and non EU online shops (but which often have pay pal through which you can use your EC card!!).

EDIT: Warning in some German cities (e.g. Berlin) you will find a lot of cash only restaurants, mostly due to high costs of payment terminals not being worth it due to most people paying with cash anyway. Like the a local restaurant from where I live they bought a payment terminal it broke in some stupid accident no insurance want's to cover so now it's back to cash only.


Hi, fellow German here. I know that "EC card" means "girocard" in the common vernacular, but if we're talking about payment systems, I think it's important to be correct.

These cards used to be called EC card, however MasterCard now has all the rights to the EC brand. In fact debit MasterCards with EC branding are starting to pop up now.

You either want to speak of "girocard" which is our own payment network or "debit cards", which includes the likes of Maestro V-Pay, but also some Visa and MasterCards. In the same sense, you don't need a credit card for most online shops, you just need a Visa/MC (some will only take credit, but most will take debit).

And as for PayPal: they don't use your "EC card" either. PayPal offers to process the charge by way of direct debit, which is (now) a SEPA process and totally unrelated to any debit or credit card you may have. It just so happens that girocards list your SEPA account info.

/rant. Sorry, this is just one of those things that gets me.


I just want to present a counterpoint to your claim that in the EU, CCs matter less: there are countries in the EU like Sweden where cash is virtually non-existent. Basically everything is card-based here, I've even seen panhandlers who accept electronic payments in Stockholm.

Paying by card is common, paying using a Credit Card not necessarily. I'm French and I'm semi-ashamed to admit that when at a store abroad the clerk asked me "debit or credit?" for payment I had to ask him to explain to me what this quaint exotic incantation meant.

When I finally understood how that system worked I also finally understood this weird trope in American movies where a character has a half a dozen credit cards in their wallet, and they burn through those as if it were free money for some reason. That never made any sense to me up until that point.


Counterpoint, my partner got very sick and I burned my savings then borrowed money from every source I could, including credit cards. I knew I was accepting awful terms, but they gave me money and that’s what I needed at that moment and it was the only way I could get it.

I’m not asking for pity, I knew what I agreed to and I’ll pay it but sometimes high interest revolving credit (credit cards ) only choice you have.


That's not really a counterpoint. You had a rare situation and would have taken money from anywhere I guess

As long as it's not a pay day loan everything is fine. If you need liquidity then credit cards are a perfectly sane option. What I never understood though is why you would use a credit card when you don't need to borrow money, which is how most people use them.

How the customer settles with the card issuer is not really relevant here. Many US card transactions draw from a checking account instead of a line of credit, but from the merchant's perspective it is just like any other Visa or Mastercard.

The fees for debit transactions are much lower, though.

Debit card (bank card) transactions in the US require a PIN. Credit cards require a signature but most gas stations require a zip code.

It would be nice if the US had PINs like Europe does for credit cards.

I make around $1500-$2000 a year in cash back from my credit cards and $195 in fees. 6% back for groceries, 3% for gas, 3% on online shopping, and 3% for restaurants. All my household utilities and bills are run through my Delta card to collect miles and a $200 yearly voucher.


> It would be nice if the US had PINs like Europe does for credit cards.

Some cards do offer this feature, all issued by credit unions as I recall. Spokane Teachers Credit Union, First Technology Federal Credit Union, and State Department Federal Credit Union are the three I know off the top of my head. Target's MasterCard version of its REDcard also has a PIN but you cannot apply for that card directly.

(I have cards from each of them, except SDFCU, and have considered getting that one simply because it would be a chip-and-PIN Visa card and I don't have that particular combination.)


I have six CC , my total AF for them is $2500. Every year I got at least $6500 back from using those cards. Not to mention travel insurance, car rental insurance and purchase insurance which comes with those cards and it's worth at least $600 a year.

> Paying by card is common, paying using a Credit Card not necessarily.

Care to expand on that?


Here are the statistics for Denmark.

"International Credit Card" are a small fraction of the total -- under 5%. The vast majority of transactions by number and value are by debit card.

(The national/international distinction is between Dankort, the Danish card payment system only used on most debit cards here, and the foreign companies like Visa and MasterCard.)

https://www.dst.dk/en/Statistik/emner/penge-og-kapitalmarked...


Card != CC. The point is that in EU there's less motivation to use credit cards than in USA because the situation is better for payment cards that are not credit cards. If you refer to Sweden, I believe that the split there is that something like 40% of the cards are credit cards, and the majority are not.

Likewise in Australia. The only difficulty I've found using a debit card in recent years is when renting a car: with a debit card, they generally want to put a "hold" on the account for a few hundred dollars.

I can't get a credit card anyway since my income isn't high enough, and I wouldn't want one because they charge annual fees in Australia.

Banks in Australia run their own payments system, so it's possible to pay by card without going through Visa / Mastercard. Some cards issued by banks don't even have the Visa / Mastercard affiliation, but I think the Visa / Mastercard debit feature is needed it you want to make card-not-present transactions online.


There are a number of credit cards in Australia that do not charge annual fees. Many require being linked to an active transaction account, but not all.

They generally don't have any kind of linked reward points structure, but that's not a huge loss as most of those got nerfed after the ACCC changes a while back (see elsewhere in these comments).


As a Swede, I thought the CC number would be lower. Most people my age never had a credit card.

I do have a Visa DC and a MC CC for redundancy if my bank is down, most people I know doesn't even get why.


You are correct, credit card transactions are about 18% by number and 25% by value.

https://www.riksbank.se/en-gb/statistics/payments-notes-and-...

(Seriously, people, these kind of statistics are extremely easy to find. No need to make them up!)


I have a DC and cc from the same bank.. not sure if it gives much of any redundancy, but it was the best deal on a cc I could find.

It's a bit balkanized, with Swish taking the place of Venmo in Sweden, and other local variations elsewhere.

Here in Portugal its "Multibanco" network that is used. That's why "MB way" got that "send money thorugh phone numbers" in 2014, and worked with every bank without commissions.

Very few people even have credit cards.

Places like restaurants and groceries still usual demand something like "minimum 5/10€ to use card", but those signs are disappearing.


> It’s hard to have a healthy dialogue on this topic if folks don’t understand the basics of how the card networks generate revenue.

same for so many finance and legal topics

you should see the stuff people say in cryptocurrency land, you can even agree with their technology but still be surrounded by the weakest arguments


This is one of the reasons I generally stopped paying attention to the cryptocurrency world.

The number of voices with an accurate understanding is far outweighed by the number of people with some kind of personal and ideological axe to grind about (insert some combination of one or more of: government/regulation/inflation/economics/etc) and from my perspective the whole scene got increasingly wild.


George Selgin sometimes writes on cryptocurrencies. He knows what he's doing.

Though I mostly read him for his writings on eg the private mints that solved the British small change shortage during the industrial revolution. https://www.goodreads.com/book/show/3392302-good-money


I wonder if this could be done intentionally. It's cheaper to make a view popular with a niche, disliked group than to make the opposite view popular with a large voting bloc

I wouldn't say intentionally, there is solidarity around frustration with domestic and global banking systems, but they've just evolved from a limited view within the community.

Well they "do not" in the same sense inflation is "not" a tax on anyone holding cash, right?

One way or another every fee must be absorbed by someone that pays.


No, it's that the wrong "they" is used.

Interchange goes to issuing banks, not Visa/Mastercard, and that's a big part of why the system is so stable as any competing scheme with a lower interchange will not be offered to customers because it won't be as profitable for the issuers. And, if needed, they can use the whole interchange amount for marketing and cashbacks to make any new scheme uncompetitive, because if it has lower interchange, then it can't match that without losing money.


And the someone that pays is ultimately the consumer. They are the ones all of this is for and produced by.

The article does not indicate that VISA/MC makes their money directly from the 'interchange' but it's perfectly valid to indicate that VISA/MS are in fact the lynch-pin of the credit card 'system oligarchy'.

In particular, it is they that are able to set rates for transactions, and do anti-competitive things like ban e-retailers from offering relative discounts like 'save 2.5% if you use cash' etc..

It's absolutely an ancient cabal banking network, that would be disrupted in any normal, competitive system.

2.5% of a transaction considerably too much, were there efficiency, it would be less than 0.5%.

Edit: monopoly->oligarchy


>> It's absolutely an ancient cabal banking network, that would be disrupted in any normal, competitive system.

The fact that banking wasn't a cabal led to the creation of Visa & MC, they provide the function of operating a deliberately independent interchange so competitive banks can work together without having to talk. The fact they havent been replaced isnt due to a lack of "normal competition", its just a system that has built in network effects (but is sticky unlike most social networks).

Dont get me wrong - banks love cabals! Thats why domestic switches (led by central banks) are replacing the scheme networks in most countries for domestic transactions with the domestic switches being linked for international transactions, pushing Visa & MC out.

>> 2.5% of a transaction considerably too much, were there efficiency, it would be less than 0.5%.

I think your wrath is misdirected - that 2.5% may be stated in a Visa/MC press release, but it doesn't actually come from Visa or MC! The banks set interchange through the schemes. You add in 5000 different schemes thats not gonna change the fact that your bank is going to try to get the best bang for their buck if they "acquire" merchants or "issue" cards.

The porn thing is linked too, banking is a heavily regulated space, easy to put pressure on. Acquiring banks get in trouble easily, they rely on schemes to blacklist anything which could land them in hot water. Even if there was no MC/VISA banks would still be paying random service providers to operate blacklists. The only difference would be that it would be cheaper. And typically thats not a good thing.


Banks are a cabal, that they needed VISA/MC was merely a need to 'standardise' a transactional network.

The evidence that they are an oligarchy lies in their power to set prices. Which points right to the definition of what a monopoly is.

If such systems were truly competitive, and we had say, 5 completely different systems that were truly competitive, the price would not be a total of 2.5%. The price would be set by the market, not the providers of the service and it would be much, much lower than 2.5%.


( MASTER Card Ha! They are both making a SLAVE out of you.

I don't get it -- Amex and Discover are still providing healthy competition, so the "duopoly" the author complains about seems to be largely irrelevant. Competition between cards is thriving and consumers benefit -- witness the miniscule transaction fee the credit card companies keep after paying your rewards back of 2% to 5%, when you pay your bill on time.

The article's main point is that such large companies are a cybersecurity risk, and that the government should regulate/nationalize/globalize payment infrastructure.

Unfortunately, experience tends to show that governments would be far worse at providing secure, low-cost payment services. Also, credit cards already are highly regulated when it comes to consumer protections.

So, this article is just not making a lot of sense to me.


The article (particularly the linked tweet) somewhat addresses your point: Amex and Discover may offer a superficial degree of competition for consumers, but banks have to obey Mastercard and Visa's rules even when it comes to offering bank accounts to merchants, otherwise they (and therefore all their other account holders) can't participate in the 80% of card transactions that are on the Mastercard and Visa networks.

If you're a bank who wants their business customers to receive payment via Mastercard, you are not allowed to give a bank account to or otherwise handle payments for anyone on the MATCH list, otherwise Mastercard will shut off your bank's access to their network completely, probably putting you out of business. There is little transparency about how entities end up on this MATCH list. The article does not propose an exact regulation, but the end goal would be that a single company can't arbitrarily shut people out of most of the financial system.


I have seen many stories of legal and legitimate businesses for things like weed (legal in the stores location) and legal porn sites getting their merchant accounts shut down because the payment processors just don't want them to deal with it leaving cash as the only option.

Weed is still federally illegal in all locations in the US.

Good point that perhaps "regulation" is not a good thing, and that the most free, common payment method is the decentralized one: cash.

People laugh about bitcoin, and the implementation surely has its drawbacks, but the idea of a decentralized digital payment system is alluring.


The hard reality is there’s a high rate of fraud and chargebacks in a lot of these types of businesses. It’s a tricky one for the merchants to manage but things like 3DS2 should help, maybe, if they ever sort it out properly...

I see your point from a merchant perspective. A thought: Why don't merchants in high-risk categories such as porn, gambling, etc. use debit transactions instead? Where they wait for funds to be transferred into their account and settled before providing goods and services.

CC rewards seem like a indirect regressive tax. Wealthier consumers who can afford to pay on time and have better credit ratings are subsidized by poor consumers who actually use the "credit" part of "credit card".

And, you would be correct, in a sense. Wealthier consumers benefit disproportionately from CC rewards compared to less wealthy consumers:

Paper from 2010 showing this: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1652260

News article with a good summary: https://www.reuters.com/article/us-usa-fed-wealthtransfer/cr...


+1 for actually supplying sources!

tldr: >> ...the lowest-income household ($20,000 or less annually) pays $21 and the highest-income household ($150,000 or more annually) receives $750 every year.


If people didn't spend money they don't have the problem you describe dissolves. No one has to use credit cards and being financially literate is an individual responsibility.

If companies weren't allowed to offer predatory lending towards financially illiterate the problem you describe dissolves, this is actually much easier to implement than individual responsibility.

Ah yes, the old "let's block stupid (poor) people from accessing financial instruments for their own good" argument while at the same time having legal gambling.

predatory lending != lending.

Predatory lending generally refers to companies like payday loan companies and cash advance companies which feed off of forcing people to continuously borrow until they can't borrow any more.

Lending should absolutely be accessible to everyone in some way or another, especially in a world where a transmission failure can lead to a lost job if you can't afford to fix it right away.


Hey, if you want to argue that gambling should be more restricted, then go ahead.

It is highly restricted in many places.


The actually financially literate know how much more buyer protection you get with a CC than with any other form of payment.

And why is that? It's a beautiful example of regulatory capture that led to credit cards gaining advantage over other payment methods.

Such protections should either be scrapped or extended to cover all methods.


> Such protections should either be scrapped or extended to cover all methods.

You are free to invent a payment method and provide all these protections to your customers. Why would you want to remove protections that CC companies are providing to their users?


> financially literate is an individual responsibility.

Is being able to read and write an "individual responsibility?" How about the ability to communicate in a language at all? What about any other basic core skill that would make a person capable of learning more things to make them "productive?"

"Individual responsibility" as it pertains to these topics is at best a misnomer, if it even names an existent thing at all.

Surely you don't think it's ok for, say, a Company Town to exist? Can you extrapolate from there why it's not ok for credit card companies to bamboozle less educated Americans for money?


I would encourage you to frame your disagreement with statements and facts. Asking questions expecting the reader to draw the same conclusion as you isn't a useful discussion mechanism. Especially when the reader doesn't agree with you.

I'm not sure what the relevant facts would be around an extremely value based argument of who is responsible for educating a society.

I guess we could look at the general fact that education is one of the better investments to increase a nation's GDP, bit I'm more concerned with the ethics than the money.


Here are some facts: https://nces.ed.gov/naal/kf_demographics.asp#3 , about 14% of adults in the US in 2003 had little to no reading skills.

Yes, I realize you’re not being genuine, but those are all your responsibility to do/learn. Although everything you mentioned is what you should learn as a child, so we have a moral/social code for parents and the community along with some help from schools to teach these basic principles.

I could follow your argument if the card issuers weren’t transparent in their pricing and terms like payday loan companies. However, the interest rates are laid out very clearly several times as you apply and are approved as regulations demand. I’m all for education but at some point you have to let people do what they want with their money.


I am being genuine.

I'm not sure the country has taken the necessary step up in early education to even have the population have a baseline understanding of what interest rate is. I didn't learn that anywhere in elementary, middle, or high school. I had to figure it out on my own.

I don't think that's acceptable. I think that leaves our population vulnerable to predatory companies, who have a disproportionate ability to lobby the government to allow them to stay predatory.

I envision a capitalist hellscape where the population is kept purposefully reapable.


You mean to tell me all my woes in life aren't some form or another someone else's fault?

I'm ignorant to CC companies' financials. But I would have thought their revenues are driven by transaction fees, which end up ultimately getting passed down to the buyer through higher prices. Would be interested to learn more though about CC economics. It would indeed be sad if CC rewards operated like a regressive tax, as you say.

If you have poor credit, you get a crappy credit card: low limit, high interest rates, no rewards.

If you've got great credit, you get a high limit, slightly-less-astronomical rates, and all the rewards.

The cost of the rewards is (as I understand it) mainly carried by the transaction fees, spread out over all purchases everywhere. So you have pointless price increases for people who /don't/ use credit cards (like me) or have poor credit, and the benefits of that 'tax' going to users with good credit (ie, rich people). So, yeah, it's a wealth transfer to people with better credit.


I had poor credit at a point in time. I "bought" a credit card to build my credit by putting a deposit. After 1 year of on-time payments I was able to graduate to a credit card with cash back. The system didn't feel punitive to me, and honestly, I had poor credit in the first place because I was irresponsible while in college.

You just described a scenario in which you were systematically bilked for at least a year —- paying full retail prices, which presumably paid for full transaction fees, which in turn did not pay you any rewards —- so you could graduate to the privilege of being allowed to purchase a consumer line of credit that reduced the level of punishment to something merely appropriate.

There are relatively few businesses in the world that can rip someone off for a year, then allow them to pay a more reasonable fee in exchange for guaranteed business, and still have the consumer claim that the system “doesn’t feel punitive.” The whole thing is kind of brilliant.


Of course, the system is designed to encourage you to be irresponsible in college.

It can get way worse than revenues being driven by interchange fees. Banks like Wells Fargo and Capital One operate like a classy pay-day loan company, targeting sub-prime customers who are more likely to not pay on time. I'd recommend reading this for more info: https://newrepublic.com/article/155212/worked-capital-one-fi...

Wealthier consumers also have more to gain on the luxury perks offered by cards. If you value 5 star hotel stays and airport first class tickets then you get more of the "value" back from the card fees. But actually with chase you can get a lot of those fees back on non-luxury redemptions too, but you'd still have to be rich enough to travel.

It's not government. The same incentive structure for businesses matches better to loyalty cards.

Are they?

Visa/Mastercard charge merchants 1-2% interchange fees for each transaction.

I'd guess that people putting $20k a month on their Visa (I know a few that do) are paying for themselves with the interchange fees.


The vast majority of that fee that merchants pay goes to the bank, not Visa or Mastercard. And a vast majority of what the bank gets in that fee goes back out to the card owner in the form of rewards. You see merchant fees of 1-2% because that is pretty close to typical rewards paid out on credit cards.

There's a bit of misunderstanding in your statement. Most of the money made by companies in payments systems comes from transaction fees, not from interest. When companies offer you better rewards, that's them competing to have you use their credit card rather than the competition's.

Sorry to tell you but that's not true. Literally the top Google result says the contrary:

> "Out of the various fees, interest charges are the primary source of revenue." [1]

Yes, credit cards charge a large transaction fee, but wind up refunding a large portion of that back to the consumer in the form of rewards, so these days that's not the main source of profit.

[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma....


It's not though. No one is forcing you or anyone else to sign up for credit cards - it's a choice, unlike taxation.

It's not optional, though.

I still have to pay the higher transaction costs even without a credit card, because the credit card companies require that vendors have the same prices for card or cash, resulting in higher prices for everyone.


I've seen stores (e.g. electronic stores) offer reduced prices when paying in cash vs. credit card. Is this law only in the US?

Reduced prices for cash used to be against the Visa/MC merchant terms. They lost a lawsuit over it, but it's fairly ingrained by now.

You'll see cash discounts at some gas stations, and the occasional small coffee shop or takeout place will have a $10 minimum, but otherwise it's gonna be the same price most places.


Will you go to jail or pay a fine if you don't use a credit card? No?

Then it's nothing like taxation and it is optional.


Think of sales tax. You have the option of paying it or not buying things; it's not optional.

How would you pay for things online, many of which are not available in person? Or stores/airplanes/services that don't accept cash?

Debit cards? The other option is to use a Credit Card but pay off at the end of the month. Why is that so difficult? That’s literally like a Debit card except for the additional “buffer” of safety and security from your bank account.

Every debit card I've had has still involved a credit card company in some way - they've all had the visa logo on them.

I can't think of a bank that doesn't use a card that works as a credit card when it comes to online transactions.

They're still visa or MasterCards though...

Everyone in Europe uses debit cards. You don't have debit cards in the US?

It's a plastic card, it is issued by your bank, it's still using the visa/mastercard network, but instead of credit, it is tied to actual funds in your bank account.


> "No one is forcing you or anyone else to sign up for credit cards - it's a choice, unlike taxation."

Tell that to the increasing number of shops that no longer accept cash.


Is this really a thing outside of SF? I haven't seen any cashless stores in my city yet. In fact, 3 of my favorite restaurants are still cash-only.

Strange, about 2y ago, on our visit, there were lots of places in SanFrancisco who didn't accept cards.

you can't rent a car without credit card, they won't accept debit card or even debit VISA/MASTERCARD, it has to be full on credit card

I don't know anyone personally that owns a "credit" card. Virtually nobody uses them here in France and I think in the rest of Europe, it's always debit card. Never had an issue with renting cars.

It is a common issue for French people renting cars outside of France - search on Google, there are hundreds of angry people who ended up with no car because agencies in other countries refuse debit cards (debit immediat)

>Virtually nobody uses them here in France and I think in the rest of Europe,

Definitely not the case here in the UK, credit cards are very common.


Other than renting a car or a hotel room, it seems you can conduct most if not all of your affairs without a credit card. Credit cards can be relegated to those limited transactions.

Most of the large car rental companies in the US will let you rent with a deposit on a debit card.

The governments must step in and ban interest altogether. This is only fair, and will force banks and businesses to transact morally with customers.

Every time I pay for something in cash at a store, I’m paying for those 2-5% rewards, even though I won’t partake in them. This happens because the credit card companies, by dint of their crushing market power over small retailers, can force stores to charge identical cash and credit prices. I suppose a well-functioning competitive market would fix this problem, but weirdly enough Amex and Discover don’t seem interested on competing to offer a better deal to retailers.

Credit card fees and rebates are such an amazing example of how systems can fool human beings. The entire system clearly could not exist in a frictionless, well-functioning marketplace —- but people seem hard pressed to actually figure out how the whole thing works. It’s kind of brilliant.


> I’m paying for those 2-5% rewards

Well.. you're paying a 2-5% higher price, but the merchant gets to keep all of that; it's not as if they have to also pay that fraction into their transaction processor.

> I suppose a well-functioning competitive market

You ever see retailers that offer a discount card? Like, spend $50 here get $10 off in the future? Typically they'll only offer those for cash transactions. This is why.


Anecdotally, I have never once seen those discounts limited to cash transactions in the United States

In a properly competitive market the merchant doesn’t really get to keep it. Presumably they set their prices to a value that is X% higher than where they would normally set their prices without the need to pay transaction fees. If exactly half their business is paid in cash/debit and half in credit, then X might be set to something like half of the excess CC transaction fee. Then the credit card customers get to split up all of those rewards amongst themselves, and the cash/debit customers get nothing.

So get a rewards card. Some percentage of the sales taxes go to support programs I don’t agree with or use. And I can’t escape that. However, one could start a cash-only store if one wanted.

You are also ignoring the cost of cash. Theft and cash handling isn’t a zero cost. Why should I, as a credit card user, be forced to subsidize losses due to cash handling? We could also talk shoplifting as well; policies that don’t punish shoplifters means I get to subsidize that as well. We could go on and on and ultimately it gets absurd. If you don’t like the price, go somewhere else and the market can sort it out.


> Why should I, as a credit card user, be forced to subsidize losses due to cash handling

How about the store gets to decide what to charge?

Most stores seem to believe that credit cards are more expensive, which is why they try to offer discounts for cash.

So the facts do not back you up.


You shouldn't be forced to subsidize anything. That's the whole point. At a minimum: the government should recognize the market power imbalance between card processors and small businesses, and ensure that the stores can set their own prices appropriately. If cash or debit is genuinely more expensive, let stores reflect that fact in their prices offered to consumers -- rather than prohibiting it via a contract they can't say "no" to.

Imagine if companies charged 2-5% less because they didn't have to fund CC company marketing tools like cashbacks.

That is common. My grocery store, my bodega, my doctor's office, my dentist -- they all offer a 5% discount for paying in cash.

Obviously not everyone does it, but it's certainly not uncommon.

On the other hand, there are also a lot of costs associated with handling cash. The expense of tracking bills and coins and going to the bank every day is not insignificant. So it's pretty easy to argue that there's no reason for cash discounts either, because handling cash can actually be more expensive than handling cards, particularly when you're doing it for only 5 or 10 percent of customers.


That's a little different. They offer discounts of 5% because they then don't report the income and don't pay taxes.

The CC companies are only taking 2.5%-3.2%. If they're offering a 5% discount for cash - it's almost certainly tax evasion.


You're forgetting the percentages are on top of a ~$0.30 flat fee (though obviously this varies).

So if you buy a $2 Coke, it's not a $0.054 fee (2.7%), it's $0.354 (or a whopping 17.7%).

Maybe my dentist evades a few taxes, I dunno. But people buy cheap things at the bodega, so it probably is closer to the actual fees.


If the merchant doesn't offer the same cash discount for debit cards, then it's tax evasion. Debit card fees are a few cents, and the only reason to offer a big discount for cash, but not debit cards, is to not have the transaction on paper and hence evade taxes.

Also, chargebacks are a cost to merchants. In many cases, merchants will have money clawed back until they prove that the charge was not fraudulent. This requires keeping copies of receipts, signatures, etc. So, the true cost is far higher than just the transaction processing fees. Remember, the credit card companies make the rules and decide who gets to keep the money in a dispute. The merchants have to decide if they will accept credit cards because customers demand it or if they will go with cash only and lose out on potential sales.

There are payment standards like UPI in India and mobile number based banking , which offer transactions for very less or no cost ( mostly debit driven )

UPI is great and so is NEFT, many other Asian countries are in talks to replicate these successful models in their own countries.

Also, India came up with RUPAY which is a great answer to VISA/MasterCard monopoly. But somehow it didn't catch up in usage I think.


Indeed, let's imagine. I'm guessing that the increase in seller revenue and decrease in consumer price would sum to... somewhere between two and five percent.

No one cares about numbers like that. That's way, way below the convenience threshold for a typical consumer. Most of us, me included, would rather pay an extra 3.5% than fiddle with deciding on which card to use.

Which is to say: the market has spoken. We've settled on the duopoly not because it's a trap but because it actually maximizes utility. The uniform convenience of "credit cards just work" has quantifiable economic value. And it turns out to be somewhere around 2-5% of the transaction.


Businesses aren’t required to accept credit cards.

But it obviously hinders their business if they don't, in the US at least. Even most food trucks typically have Square terminals (or similar) for card transactions.

Which leads me to believe that it's generally worth it for businesses, despite the "fees".


So, Europe?

I don't get it -- bringing up Amex and Discover is like bringing up Bing and DuckDuckGo when people talk about the Google monopoly.

I was curious if this was true so I looked it up. AmEx + Discover have 20% - 25% market share depending on the metric you care about. Bing + DDG have 8%

https://wallethub.com/edu/cc/market-share-by-credit-card-net...

https://gs.statcounter.com/search-engine-market-share/all/un...


The stats are all over the place. This report says Amex + Discover is ~11% of US purchase volume in 2019. https://nilsonreport.com/publication_chart_and_graphs_archiv...

The article references [1] which says,

"Visa holds a 60% share of the credit and debit card market, followed by Mastercard with 30%, according to Ellis, with American Express far behind at 8.5%."

That puts Discover + AmEx at 10% or so.

1. https://www.reuters.com/article/us-visa-mastercard-stocks/sw...


Except Amex is the highest end card used predominantly by financially secure individuals. Bing is... not that.

Except in practice, the vast majority of Amex users also have Visa/Mastercard just in case (e.g. Visa/Mastercard users are close to a superset of Amex users).

Also it’s like bringing up search alone when talking about web.

In reality an intermediary called “payment processor” handle all CC brands in single system and they are the ones enforcing ideological punishments to merchants.

Like there’s web search and web browser, card networks and payment processors both should be brought up.


> In reality an intermediary called “payment processor” handle all CC brands in single system and they are the ones enforcing ideological punishments to merchants.

Yes, payment processors enforce the rules, but don't typically make the rules.

As I am sure you can imagine, this can result in plausible-deniability-type finger pointing ("we don't make the rules" / "we're not responsible for the rules being misapplied") when an organization is cut off.


Amex and discover maybe popular in the US, but rest of the world still has a duopoly. I'd say 90%+ cards in India are visa/mastercard.

India also recently introduced RUPAY which is an alternative to VISA/MasterCard duopoly. Don't know about the success and usage of that though.

As someone who has never used visa or mastercard and only discover for credit cards (I do have a visa debit card) I second this sentiment. There is no duopoly from my vantage point.

But since the retailers can't offer discounts for cash transactions, people who pay with cash are being over charged and subsidizing those fees.

That really depends on where you live. It seems pretty confusing because (a) federal law made surcharges for using a card legal under a 2013 settlement with Visa and MC, and (b) there have been a bunch of federal court cases, including a 2017 Supreme Court case, that invalidated some state laws that prohibited surcharges.

Interestingly, even now that many merchants are allowed to offer a discount for using cash, most don't because they've likely figured out (a) if they lose just 1 sale in 30 it's likely a net negative for them, plus (b) people are likely to spend more, especially on impulse purchases, when using a card, and (c) there is just a sense that it can be annoying to customers to have to pay more for using a card, taking away from customer goodwill.


Retailers can offer discounts for cash transactions, per the Durbin Amendment to the Dodd-Frank bill of 2010.

https://en.wikipedia.org/wiki/Durbin_amendment


It depends on where you live. 10 states have laws that prohibit or restrict discounts for cash transactions: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Some of those restrictions have been invalidated by federal courts, but I was somewhat confused about which states were affected.

Perhaps this is explicitly allowed (you did say restrictions) but in Kansas it isn't uncommon to see gas station signs displaying a cash price and a card price.

I have definitely personally seen many instances in which you get a discount paying in cash in California. Maybe they get away with it because they technically frame it as charging extra for paying with a card?

Weird, because in three of those states (New York, Texas, and California) I have used cash to get a cash discount in the last year.

I imagine it's because of lack of enforcement?


All three of those states I believe had their surcharge bans invalidated by federal courts. Texas' law was declared unconstitutional in summer 2018: https://faq.sll.texas.gov/questions/9631

Well, after trying to negotiate cash discounts ~25 years ago on a couple fairly significant purchases for me (furniture) I gave up and joined them... By carrying a discover card, which at the time was just about the only cash back card in existence (the only one I knew about).

So, I still favor the discover (despite now being part of Morgan Stanly?) for most purchases, but when its rejected I fall back on a MC with a cashback program.

That program pays for my computer hardware...


> But since the retailers can't offer discounts for cash transactions

Citation needed.


Sure Amex and Discover provide alternatives but if you want to start a credit card company you dont get to tag team with those two at all as far as I can tell. Which I think is a bigger problem. If you as a bank want to start your own credit card you have to go for the most supported provider to even attract potential credit card holders.

The competition between credit card issuers is healthy. It's the payment processor side that isn't (though micropayments seem poised to disrupt the space).

No one uses or takes those.

Having worked in fintech, they're essentially the gatekeepers of any new technology. Have a great idea for a value add in the payment processing gateway? They will not let you on any platform for 4 years while they launch a (poor) competitor at scale.

Sometimes the turn around is quicker, because rather than building their poor competitor they just buy one.

You can’t talk about credit cards in isolation without considering the rest of the consumer finance sector in the US.

A big part of the reasons credit cards rose to such prominence is that the banking and payment rails are so incredibly stupidly designed. The check system and ACH which is the highest volume way that money is sent between people with different banks requires you to give out the secret key every time you make a payment. Plus it takes at least 1-2 days to clear which makes fraud more difficult to deal with.

Interestingly the credit card system also suffers from the first part, your number is printed right there on your card. But they’ve managed to find and/or strong arm ways to reduce fraud on their network, and as a consumer I’m not liable for paying it which is a huge benefit.

The author really lost me at the end though, I don’t see how regulation magically solves everything and they didn’t explain it at all. There is already a ton of regulation in the payment industry. And this comically flimsy underlying system could easily be improved by existing regulators, how about starting with small steps and seeing how that goes? Instead of advocating for throwing out the entire payment system all at once under the very flimsy assumption that the government will do it better.


In Poland there’s really nice pay-by-link (you’re being redirected to your bank website, log-in, they display the merchants data and amount and you confirm it) and basically all the merchants support it. There’s also BLIK, which is a payment app started by a few banks which is gaining traction. This all is super convenient and easy to use.

However, I still prefer to use a credit card, because of the chargeback — the legal protections with credit cards are still higher.

—-

Edit: about “you’re paying the fees” — maybe, but most of the merchants don’t show different price or don’t charge extra for credit card payment. So why not use the IMHO better option if it costs me the same.


"not liable for paying it," but you're still paying it at the end of the day via fees and increased merchant prices

if the merchant doesn't charge a creditcard surcharge, and using a credit card is worth 1€ to me, and costs 1.01€/transaction to the merchant. but only 90% of transactions are by credit card. well, then i am better off paying by credit card, since 10% of transactions are subsidising my 1€.

(strangely, in australia, card surcharges became normalised just before cash payments fell off a cliff. credit card transactions have also declined; it's visa/mc debit that have skyrocketed.)


A credit card costs about 3% not 1%. A credit card is a prisoner's dilemma problem where once anyone uses it, the others are pressured to use it also to cut their losses.

I’d love to see some action here but I’m skeptical. It seems like attacking payment processors is the main avenue that the thought-crime-police use to attack alt-tech sites that don’t play ball with censoring. If there was any mass protest movement to push change here, the media would absolutely flood the public with scare stories about (insert evil monsters here) using payment networks to finance (evil activity here) and undermine the protest movement. It doesn’t help that so many politicians are old lawyers and activists who generally don’t have the technical knowledge to wade through the BS.

I feel like it'd be fine if every single payment processor were individually part of the surveillance-industrial complex, as long as there were enough players in the space that one could get running a service by hopping around between them. For grey-market businesses to succeed, they don't really need air-tight legal protection; they just need their actions to be illegible.

This is basically the situation VPN service providers are in. Yes, in theory, any given provider could be beholden to the state. However, when a new VPN provider can spring up so easily (spin up some DigitalOcean instances, stand up a WordPress/Shopify e-commerce frontend), it's unlikely that any given new player in the space has been gotten to yet by the state (unless, of course, it's a new marque of an existing company, set up specifically to serve as a honeypot for switchers.)


This is a very us centric view. Most of the europe is so much ahead of US in payments that it is funny. There are dozens of alternative payment methods in the Europe. Especially in the Nordics card payments are on a big decline. There are basically two "tracks" to move money - card networks and bank to bank. Most new payment methods use bank transfer as the method of moving money. In the Nordics, every country has a mobile payments system where your bank account is attached to your phone number, any anyone can issue a payment to your phone number and you receive it to your bank account. You can use this also in brick and mortar stores etc. Not to talk about all the bill-payment based companies like Klarna... And how about China? They don't use cards either, just look at Alipay.

Just to clarify, the Danish mobile payment system (cleverly named: MobilePay) is based on debit cards, not bank to bank transfer.

The system that was designed to do bank to bank, without the card systems being involved failed horribly. It was late to market and the launch has horrible mismanaged and covered in unnecessary secrecy. MobilePay had already launched and crabbed a large share of the market, the secrecy was completely pointless and I believe it was partly to blame for the massive failure of the solution.


> Just to clarify, the Danish mobile payment system (cleverly named: MobilePay) is based on debit cards, not bank to bank transfer.

This is incorrect. MobilePay started out as a layer on top of Dankort (Danish debit card), but after gaining sufficient volume they made a deal with all Danish banks to enable direct bank-to-bank transfers (without using the Dankort infrastructure).

The only difference between Swipp and MobilePay is that Swipp started out only supporting bank-to-bank transfers (thus only supporting a few banks) while MobilePay started out using Dankort (thus supporting all banks). And, as soon as MobilePay had sufficient volume, all banks were interested in circumventing the Dankort network.


Yes this is a good point! Same story with Finland.

It's interesting that it uses card tracks to move the money, but the identification and recipient is not based on card numbers, so the card stays anynomous for the recipient.

Mastercard and visa have recently been very open to this kind of methods, and also issuing virtual one-time-use cards. These new use cases for their network are quite healthy to the payments ecosystem.


While it is true that we have more options, I do not agree that non credit card mobile payment options are a primary payment. These still lack a lot of usability improvement in comparison to the now widespread mobile credit cards supported by almost all banks too. So I still recognise visa and their support for Apple Pay helps maintain this power.

Heres to hoping that Apple Pay (and Android) will open up directly to banks or solutions such as Mobile Pay, which bridges to direct bank transfers for member banks and then utilise credit cards as a backup for unsupported banks.


Of course Visa and Mastercard still have a big role, especially in the brick & mortar. But when looking at e-commerce, the share of card payments is 40%. I don't think it is very relevant to discuss "duopoly" and say that they have the power to censor user content - because they don't. If they ban you, you still have many other options. AFAIK the point in the article was that we should break the credit card duopoly because they have too much power. I don't think that is the case here.

Do you think that the credit card companies having too much power is a big problem in the Nordics?


I'm not sure about the other Nordics countries, but Denmark still have its own card solution "Dankort". It's not nearly as popular as it once was, and I would say that most cards are now dual-branded as VISA/Dankort, where the card will work as a VISA card, if Dankort isn't supported.

Our politicians and banks probably don't see it this way, but having a local alternative can help keep MasterCard and VISA in check. If they become to expensive or unreasonable most people already have a competitor in their wallet, one for whom fees are strictly controlled.


In Sweden, you can pay in most online stores (that I visit) with Klarna. They use direct back transfers.

Klarna is a bank that is connected to the Visa network. So, inherently, it is bound by the same rules as any other bank. So, in the context of this thread, they are not a competitor to Visa/MasterCard.

That's correct only in NA, where Klarna issues virtual credit cards and transactions happen via card tracks. In EU, or at least the Nordics, the transactions are bank-to-bank and there is no virtual card. That means they are a direct competitor.

In Sweden they issue regular credit cards (my friend has one). Also, AFAIK, in Nordics they offer virtual card payments to merchants who don't integrate with them directly.

There is also a huge difference in b2b payments. Cards account a very small percentage of B2B payments in Europe. I don't know how it is in the US, but I've understood that a much higher share of B2B payments go the card-track?

In some European countries maybe, but in France it's all Visa and Mastercard.

Even Amex has an even lower market share than in the rest of the world.


Yes but concentrating that many things on your phone is not the solution. It causes different problems.

These are not concentrated to phone.

-Direct bank payments use your bank id. You can have bank id stored in the phone, but you can also use a personal keychain authenticator

-Klarna, Collector, etc use your social security number as the primary identification method

-Mobile payments like Swish and mobile pay use your mobile number, so it is linked to your phone subscription, not your phone.

Of course you still need to have a bank account, but there are a lot of banks out there.


Yes but you need your phone on you to pay at the shop right ?

So no batterie, money ? No network, no money ? Phone stolen, no money ? Phone broken, no money ?

What if I don't want to have a spying hardware on me at all time ?


Hmm well, fair point. The society is moving also away from cash and many places don't accept it anymore. You are left with credit card... Which is also a spying device. So no payments without data collection for you!

I don't think that is essentially a bad thing. Forcing a digital signature for every transaction makes criminal activity difficult. Modern AML works much better because there is always a digital fingerprint for every transaction.

But I think that these are two distinct issues? Some crypto -things could somewhere in the future solve the privacy issue... But no society wants that, because real privacy makes criminal activity and money laundering possible. But that has nothing to do with credit card duopoly?


A cashless society is another debate entirely. I do think it's a dictator dream and the best way to kill diversity and innovative social behavior.

But the matter here is card vs phone. Your card do spy on you, but it doesn't have your contact, a microphone, the history of where you have been, etc.

You can easily give your card away to a friend for the day. Your card doesn't need an update. It's not connected to internet all the time. It won't die if it falls, if it rains or of it's too hot. You can have a replacement easily as well.

It's also way more accessible. My grandma can use it. A blind man can. They all work the same way.

A phone is only a good card alternative when every thing goes right. But I value resilience in my paiement system.


Would be happy to buy a usable cryptocoin card. I was thinking about interest-free crypto-loans where the debtor would speculate on the value of the currency at the time it will paid off (like options trading). If you loan 100btc you would loan with the speculation that for example it would be 10% more valuable in a year. If in a year your speculation is correct, you break even, if the price is 10% lower, the debtee still has to pay using your speculated valuation, if the price is 10% higher you lost potential money you coulf have gained had you hold onto it. Either way, you have insurance against loss the debtee takes on risk but they don't get endlessly canibalized by interest payment. Escrow or credit rating is something I have not figured out.

Regardless, an acual card and a payment processing network would cost billions to deploy.


That seems extremely risky.

You will still have credit checks and collaterals as usual. The person taking on the loan absorbs all risk in exchange for not having a interest accumulate. Think of it this way, with APR loan, how much you pay at the end depends on how the interrst rate is adjusted and how long it takes you to pay off. With my approach you might end up owing a lot of money but it will never depend on how fast you can pay it off. It will not canibalize your cash flow like an interest debt. The debtor gets free loss insurance and debtee gets freedom from interest and the total cost depends on the currency value at the time of first payment. Also,the total cost will not be a surprise to anyone, the person taking on the loan knows how much they have to pay back. Ideally if you don't have credit, you will need to place in escrow some amount of the base loan and take on more risk in terms of paying at a higher valuation should the currency value be higher at the time of payment(which all goes away with collateral or good credit score)

Anyway, I was just thinking out loud my idea. I hate interest and mandatory insurance alike.


You have 1 btc lets say 10k usd.

So in one year i have to pay you 11k.

It is basically 10% interest.


Intetest accumulates, if it takes you 2 years to pay, you owe 12k normally. Regardless of how long your payment plan is, how much you owe depends on the speculation date (the sooner it is, the more predictable and less risky). Bigger loans would be issued for less trustworthy customers if the speculation/first payment date is very soon. But let's say the first payment is a year away and the debtor speculates too high of an increase in currency value,then they would come off as bad debtors no one wants a loan from. But the more conservative their speculation on long term currency value, the more reasonable and appealing of a debtor they appear to be. So if you will start paying me back a year from now,I might speculate a 2% increase in value but if you will pay back in a few weeks I can more accurately predict and say a 5-10% increase. Since the worst outcome for the debtor if payment is made is "my cash is insured against loss" they have the incentive to make conservative speculations that lure debtees. If a well known and reputed person uses their valuable site/business for a $1M loan that will be paid in 5 years and you loan them with a 3% increase speculation you will get 30k for the risk you took on and guarantee that not only will you not lose money but will gain at least 3%,regardless of economic crashes or market volatility.

Coincidentally I just read a post from a business that's finding ordinary bank transfers getting more traction from customers than they expected:

https://www.revk.uk/2020/06/beyond-credit-cards-is-this-way-...


This is good news on the competition front.

The traditional problem with bank-to-bank transfers in a retail, or point-of-sale, setting has been speed. Cheque was about the fastest that could be mustered.

But with developments like UK Faster Payments (which is mentioned in your link) bank-to-bank transfers are getting faster, in some cases instant. And so usability at the point-of-sale is now on par with cards.

In Holland, iDEAL is used a lot for retail purchases. It's an instant bank-to-bank payment option that competes with the card networks.

The equivalent in Sweden is Swish. It too is moving into point-of-sale payments.

As for the US, I suspect that at some point Zelle will pivot into retail point-of-sale payments. At which point the card networks will have a big competitor.

All of this is good news if you are worried about the card oligopolies!


One good piece of news I saw was that a lot of these new bank-to-bank mobile payment services like Swish are finally looking into cross-compatibility between countries, something that has really been missing until now

https://en.m.wikipedia.org/wiki/European_Mobile_Payment_Syst...


Yes we're really lacking a Europe-wide system for this. People travel (and move) a lot between countries, national systems are too limited.

I can't really see bank transfers taking of at the point of sale in the UK. Making a payment with most banking apps is very clunky - especially for the first time with 2FA.

As a consumer, a credit or debit card gives me a lot of protection. I wouldn't give that up for anything (oh, and the cashback I get too).


It works like this in Denmark [1].

You open the MobilePay app, and touch the NFC thing. The amount and payee is shown, and you swipe to confirm the payment. The retailer's POS gets a message.

In a small shop without a fancy POS system, they just print a paper QR code. You can scan that, but you need to type the amount yourself.

[1] https://images.squarespace-cdn.com/content/5564e82de4b0edcad...


I have some competitors in the UK who told me that if a single customer pays you from a frauded bank account, your entire bank account is closed permanently, and they investigate with the police.

They also assume you are involved in the illegal activity and you have to interview at the bank. All this for what can amount to a 20-50 GBP payment, and even if it represents <1% of your transfer volume.

If bank payments are going to become prevalent in e-commerce, this type of primitive reaction to fraud will need to improve drastically.


That's what most people said 10 years ago about the mobile payments (mobile bank to bank transfers, not related apple or Google pay) in the Nordics, but no one is doubting it anymore.

I don't see what the advantage would be.

Apple Pay/Google Pay already offers near-instantaneous, highly-secure transactions in most stores - and with good consumer protection. Contactless cards offer the same up to £45.

I can get cashback/miles/reward points too.

What does a bank to bank transfer offer me as a consumer?

The difference between the Nordic countries and elsewhere may be that 10 years ago, these contactless payment methods weren't widespread.


But I thought debit card = bank transfer? There is no protection?

You can still do a chargeback with a debit card in the UK.

If you have a basic consumer dispute about something (such as a retailer not giving a repair/refund for a faulty item), you should be able to file a chargeback with the card issuer and get a refund.

In the UK, a credit card is much better though, as for any purchase over £100, the card issuer is joinly liable with the retailer for any issues.

https://www.which.co.uk/consumer-rights/regulation/section-7...


Yes, a debit card is a bank transfer.

In the US, most PIN debit card transfers occur via either MasterCard's Maestro or Visa's Interlink debit networks. Signature debit payments go through MasterCard/Visa's credit card networks. So you've still got the duopoly problem.


This is very common in Thailand, in person and online. Shops often have QR codes than encode their bank details. Also, cash on delivery, and also you can finish some online purchases by taking money into 7-Eleven.

There is something that I've never managed to put my finger on: most companies as huge as Google / Apple / FB etc... or even more traditional ones (banks, oil, etc ...) are sort of "well known" in the sense that they do PR, they have well known figureheads, etc ...

VISA has always struck me as a very nebulous entity, whose structure, governance, is not very well know by the general public.

I wonder how they managed to grow so large while managing to keep such a conspicuously low profile.

edit: and to answer my own question, the wikipedia page is quite informative : https://en.wikipedia.org/wiki/Visa_Inc.


If you make $10B/year on revenue of $20B/year (great margin at that scale) you keep quiet I think for good reason :)

I think they were an "association" until the spun out into a company in their own right recently.

https://money.cnn.com/2008/03/21/news/companies/visabanks/in...


Their leaders may not be well known, but they spend an absolutely massive amount of money promoting their brands. They are extremely recognizable.

Mastercard so much so that the recently removed their name from their logo as its nolonger needed.


If you don't work in the payments space, then there's a lot of entities that you're not aware of since their members/associates front them.

One fintech startup recently sold for $5 billion to VISA. They issused a PR statement that was completely false, but if you didn't work in payments you'd never know they didn't have 11,000+ clients (hint: that's the number of institutions in NACHA.)

https://en.wikipedia.org/wiki/ACH_Network

https://en.wikipedia.org/wiki/NACHA


While I agree with the sentiment, things have certainly opened up lately quite a bit with the mainstream-ization of the crypto currencies. One could conceivably avoid Visa / MC in a way that just wouldn't have been possible before.

Visa / MC remind me a bit of Ticketmaster in that they've got parties on both sides defending them because of kickbacks. You charge the merchant the "interchange fee" plus some amount and that fee goes back to the "card issuing" bank, so they like the system.

The merchant passes on the cost (generally) to the consumer, so they don't really notice, and the ease of moving the money in 99% of cases means everyone is happy.


I'm not seeing a "mainstream-ization of the crypto currencies". A few years ago, quite a few local businesses were experimenting with accepting cryptocurrency payments, and I could buy all kinds of stuff and services using bitcoin. I could order a pizza with bitcoin, I could buy electronics at a major retailer, I could buy plane tickets, I could pay for lunch in a local cafe.

That's not the case any more, by now all these local companies have stopped accepting bitcoin, because after the first hype, the volume simply was not there to make it worth their while. Some people (often the same people!) bought some stuff initially to try it out, but that was it, there was no sustainable mainstream business. It's still usable for some online services targeting the tech crowd, especially where anonymity might be a feature, but for everyday use of paying for physical goods and in-person services there has been the opposite of "mainstream-ization" in my experience; by now the mainstream businesses have tried crypto and found it not useful. There's enough well developed infrastructure and service providers so that mainstream businesses could easily accept cryptocurrencies if they wanted, but they don't, because there's no significant customer demand outside specific niche markets.


Crpyto isn't mainstreaming but you are having a mainstream-ization of non-CC digital payments.

Venmo is the thing in the US, but China has Alipay/Wepay, SE asia has various digital payment apps, Japan has had a huge "cashless" push in the past 12 months....

If I were running a retail shop in the US I definitely would accept payment by Venmo if I could.


Yes, apps like Venmo/CashApp/Zelle have grown massively in the US over the past 2 years. However, there's still limited options for merchants to integrate these payments into ecommerce systems in a way which allows the customer to make payments through a website.

It's hard to say whether these apps are actually focused on B2C transactions, so far it's almost entirely C2C (P2P).


Apple Pay is the thing. And it makes peer to peer money moving simple while not violating privacy like Venmo. You can use Apple Cash or a payment card. It’s all pretty easy — and private. Venmo is a privacy nightmare. You can use Apple Pay without even having a debit or credit card.

Apple Pay doesn't solve anything on the merchant's side. There's just nothing in the US with the simplicity and affordability as the various payment apps in Asian countries.

For instance, in China WeChat Pay only charges 0.1% above 10,000 RMB (from what various articles say). Square is not even in the same category, charging 2.6% + 10¢. And you don't need to buy any equipment to use WeChat Pay; you just need to pull up a QR code on your phone.


This is all possible because China has standardized bank to bank transactions across all banks in the country. It sets the tone for secure P2P transactions at fractions of the cost of a regular Credit Card payment.

This allows people to on-board to WeChat Pay easily through online banking. They also have way less KYC hurdles, so people can go from signing up to sending money in minutes.

US online banking is eons behind China, and almost any other country. So many online banking systems in the US are prone to unauthorized access, which makes on-boarding and security highly inefficient.


> mainstream-ization of the crypto currencies

And modern Tendermint[1]/Cosmos SDK-based chains or Solana are basically distributed databases, using consensus models similar to Raft, except with byzantine fault tolerance and Proof of Stake for leader selection.

No mining, no forks, finality within seconds, large throughput. Pretty boring, actually, with little hype surrounding it - it just works, like a regular database, except there's no single entity controlling it.

One of the top five payment gateways in Korea - CHAI - uses the decentralized Terra[2] blockchain as their backend.

[1]: https://tendermint.com/docs/tendermint.pdf

[2]: https://terra.money


Does raft work when people are trying to attack it? My understanding of it in its normal application is fuzzy enough.

Raft is not safe against byzantine nodes, but these new consensus algorithms like Tendermint are.

Merchants certainly "notice" and take any opportunity to use an alternative to the card networks. They only accept it because they must to avoid losing a purchase. They would rather customers pay in almost any other form due to interchange costs.

When talking to big merchants about any new payment product, the first question you will hear is often "so, how does this lower my interchange cost?"


That might be true, but it isn't as obviously true as you would think. Credit cards payments are not subject to being stolen or lost. Once you have the approval the money will reach your account.

Of course there are other frauds you are vulnerable to. Which is why it isn't clear what is really best


There are plenty of other payment methods than cash that have guards against being lost/stolen or the other problems with handling cash, but also dont have the high cost of interchange that funds credit card rewards.

Merchants take credit cards to avoid losing a purchase. Cards have such a high volume that consumers expect it and some small portion will skip a purchase if its not an option. But merchants would much prefer you pay with a store card, debit card or one of many other payment methods that dont have the same (2-3%) cost that credit cards do.


Pretty much the digital economy. As long as the consumer only get screwed a little per transaction, and consumers don't see the charge directly.

The consumer isn’t getting screwed. There is purchase protection, fraud protection as well as extreme convenience. If we are worried about consumer prices, let’s talk about taxes and government malfeasance with the spending of those taxes. Some countries have a 20% VAT. Surely they could survive on 18%? Or even 10%? Less than a percent (in Europe) for interchange or less than 3% (in the US) is minor compared to the 9-20% one directly pays in sales taxes.

It will probably happen, but will take a while. My bet is that this is what Apple is working on. They will launch a version of Apple Card that is free of MasterCard.

So far it's been a really long-haul play where Apple has spent a lot of time establishing deals with banks manually, in order to get a tiny fee, which they can due to the increased security of their system. This hard work is necessary in order to create a payment network that can work for everyone.

Eventually, Apple will be in a position to launch their own network, while increasing fees for themselves and lowering fees for merchants.

As someone who's been a merchant I'm very happy to see this happening, although it's like watching a tree grow (paint drying would be exciting in comparison). It's likely Google will follow suit, and depending on Apple's choice of implementation, we could hope that it will be backed by a stable cryptocurrency - but that's just a shot in the dark.


Unpopular opinion here (from my experience), but crypto / blockchain is ever so slowly and deliberately destroying the moat around payments and the artificial barriers constructed. Probably 5 more years for some very serious mainstream business movements into it, and 10 more for non-technical consumers, but I believe with the rise of stablecoins (USDC) and Ethereum scaling via proof of stake (ETH2) their days are numbered.

And one year after that we will get self driving cars. And the next one will definitely be the year of Linux on the desktop :)

Sure, it could happen somewhere down the line but saying that blockchain is "destroying the moat" today is a big stretch. Blockchain barely just started to realize that the moat is actually much larger than previously thought. And that parts of the moat exist for a reason. It's barely starting to understand the moat, still far from attacking it, let alone destroying it.

Hopefully it will but I'm not holding my breath nor my bitcoins.


This has been a problem for a long time and unfortunately the outrage around the duopoly died out the last time we confronted it, which was in 2010 when Visa/Mastercard blocked Wikileaks (https://www.forbes.com/sites/andygreenberg/2010/12/07/visa-m...).

It is still a problem in 2020. Gab was recently impacted by Visa blacklisting them (https://news.gab.com/2020/06/19/gab-blacklisted-by-visa/) and also drew parallels to the realities of the "social credit score" system used in China (https://news.gab.com/2020/06/26/social-credit-score-is-in-am...). The vagueness of Visa's allegations stood out to me as problematic, given the lack of viable alternatives.

Ultimately, the lack of a provider who acts neutrally is a threat to freedom of speech and expression for all practical intents and purposes.


It's trickled into other mainstream/downstream services as well like Patreon. Patreon bans certain creators because they have a "policy" on acceptable content that is backstopped by visa/mc policies.

Let's end the duopoly, but please don't forget Google (or Facebook, Apple, Amazon,...)

"Both" is word that will not make the Newspeak cut.

Calm down. Evoking HN's favorite specter of 1984 about payment processors is a bit much, don't you think?

I was feeling quite calm.

I'm not talking about payment processors so much as the degree to which people feel "either" when they could feel "both."

Divisiveness is quite rampant, and I think the language we use (or don't use) has an effect.

ie "Forget Google" -> why not both?


Visa is now a publicly traded company, but it used to be a chaord, owned by the banks that used it. It's a data network and a standards organization. It doesn't issue cards or handle the money, it just passes transactions from one bank to another. The banks settle up separately.

https://www.forbes.com/sites/andygreenberg/2010/12/07/visa-m...

Note that this was a policy decision based on whim and a politician lobbying. No hearing, no evidence, no recourse, no rights and no meaningful alternative. Also a decision not taken by the banks nor, I believe, were they consulted.

The upopular person's (Wikileaks here) rights are your rights and my rights. If you think the've done the wrong thing, you're entitled to that opion and establishing that is literally what courts are for. Much the same way we might want law and courts involved for suspension of a driving license and not simply because a politician doesn't like you and lobbies a bit. "Nobody who drives for UPS can drive on the roads because they love Putin" --not as ridiculous a fabricated politician's quote as it should be.

But going back to it being a data network and standards organisation that describes the classic long-run decreasing average total cost curve of the natural monopoly which makes privatising it for profit a pure "rent-seeking" play.

So we can see how egregious the monopoly is two ways there. Practically with an example and according to classic and relatively uncontroversial micoreconomic theory.

So what about the classic monopolists' defence, which will come up again here. Define the market to be bigger and claim it's a small fraction of that bigger market. Can we just dismiss that as total B.S.? ie "You can also use cash to buy things." Try running a business or calculate the additional cost of buying the things you need without using the visa/mastercard network.

Unless you have multiple networks with very low switching costs it's a disaster. Disclosure: Ajit Pai disagrees with all that totally.


Could Stripe swoop in and make a play to become a third major CC option? I feel like they have the core infrastructure in place and are still nimble enough to make it happen if they wanted.

I feel like if they tried anything, MC/Visa would try to squeeze them until it becomes unviable. They would still need to support MC/Visa until they get enough market share to not totally hinder their existing business.

Visa own a stake in Stripe, and are unlikely to be supportive of such a play.

I feel like card competition is actually pretty steep. MasterCard and Visa may have the majority of the market, but there are still Discover and AmEx. I have been using things like NerdWallet to figure out what is the best card to go with, it is usually a healthy balance. I think the main thing is that most Debit cards are Visa or MasterCard...and you are locked in by your bank. Where as credit & charge cards are a free for all.

When it comes to advertising online though, you have only 2 choices...Google or Facebook. As a business I can't not go with those two or I'll lose immense business. I can go with a Visa, Mastercard, Discover, Amex...and it really has no effect on me outside of the benefits the card gives me. The fees charged to the banks, etc are essentially the same. So it's really no comparison as to which is worse for the market itself.


You’re talking about different things. When you shop credit card offers, you are comparing issuers (eg Chase vs Capital One). That’s not the same as the payment processor aka card network (Visa vs MasterCard).

Of course it’s endlessly more complicated then that but it’s important to make the distinction.


When you open a web shop, you pay to get SDK from payment processor to integrate them with the site.

When customer clicks “Checkout”, they are sent to payment processor website to enter card number like 1234 ...5678... and whichever card it is, it goes through, and shop owner receive the payment later.

Which means payment processor has contracts and connects with every card networks, absorb API differences, and on top of that, obeys and agrees to everything CC network thinks or says, to be able to handle any cards customers may have with them.

So if a Visa or MasterCard exec thinks maybe he don’t like Cheetos and make a call to processor CEOs how they think about it, no later than by Friday no one will be able to order a single bag of Cheetos, especially online, using any credit card because payment processors will have explicitly communicated that Cheetos had never been tolerated from the beginning and any store who let that happen will have accounts frozen.

It happens somewhat softer than that but kind of happening once couple years these days.


Near the entire economy paying a % rent to these couple companies is unfair. Cryptocurrency can remove these middlemen, however, they're missing some important features. 1. Dispute resolution. 2. Recurring billing. When you see how expensive it is to do #1, credit cards start to look like a wonderful deal.

Someone is going to say: Micropayments (it's never worked.) Pre-auth'd lower amounts retailers can pull from you (might work.) Crypto-escrow (Any place that used to do it has gone out of business I beleive.) Too volatile: (Peer to Peer stable coins, or "trusted" stable coins protected by laws instead of code address this.)

Thus, peer to peer open source value transfer is the minimum amount of middlemen possible, but is crippled by regulatory overhead at the end points, giving the incumbents entrenched advantage. Caveat: I founded a cryptocurrency.


I would rather see Visa, MasterCard, and other big banks regulated and require them to accept all legal businesses. Fraud can still be blocked but on an individualised, reasoned level.

No more denying legal pornography businesses, no more denying legal fireworks stores, etc.


One option would be for people to start paying each other in gold.

Cards still account for less than 18% of US payments (source https://go.plaid.com/rs/495-WRE-561/images/Plaid-Modern-guid...).

From your source "More than 82 percent of the value of all U.S. payments goes through ACH"

Note that it's value, and not number of transactions.

Personally, I have only 4 things pay out of my checking account. Mortgage, HOA dues, and power are all bills that require checking account transactions for auto-payment to avoid credit card fees. These are very large transactions which will greatly skew any measurement by value.

The final thing paid out of my checking account is interesting: the credit card payment. Since any money I spend with my card necessarily is repaid from my checking account, that also greatly skews measurement by value.

If I spent 50% on housing, and spent all of the rest of my money on things with my credit card, then my personal ACH value percentage would be 66%. (1 unit house payment, 1 unit credit card transactions, 1 unit paying credit card bill)

This isn't even starting with business to business transactions. I'm unsure if the source is counting it in that metric, but it would further skew any value measurement. No factory is going to use credit card when buying $100,000 worth of parts from a supplier.

All those things considered, 82% seems about right, even if you assume something like 90% of consumer transactions use credit card.


> No factory is going to use credit card when buying $100,000 worth of parts from a supplier.

I have a business who uses a credit card every month to buy more than $100,000 worth of materials from a supplier.

On the consumption end the card programs are wonderful, great purchase protection negotiated, delay on actual payment for additional working capital, and rewards. We basically never have to use cash for employee travel expenses, all via points.

There is no benefit for me paying my suppliers via ACH, wire, or check.


Yes. But considering Stripe and others charge 2.8% of transaction, it's the more relevant metric.

I think the largest chunk of the volume difference is commercial-use. I don't have the numbers handy but the difference is huge.


(Googler, opinions are my own)

It really depends on the types of products and what the consumer experience is like. Google is an interesting beast in that we provide services across a wide variety of billing models.

You have immediate product purchases, where knowing that the transactions is complete immediately can be important (ex: Play store games, or movies). Credit cards are great for that instant guarantee.

For delayed billing or threshold billing (Ads), slower payment methods can work great (eg: ACH, wires, vouchers). Some of these also allow a standing instruction that a company that just keep paying money against to top-up their account (and Google will see it as a bank statement push payment).

So yes, Credit Cards are a small volume of US payments, they enable specific products that don't work great with ACH or wires. If the US ever gets 100% ubiquitous instant bank push payments, maybe that'll change, but our banking system is too disjoint to move at any kind of speed to do this.


But there's Same Day ACH, right? Also the new RTP Network (https://www.theclearinghouse.org/payment-systems/rtp) seems to get traction.

RTP is definitely a step in the right direction. It's coverage is s around 50%, which is good. I'm hoping FedNOW pushes is the rest of the way.

The clearing house is also owned by many of the large banks in the US. While this seems nice, I'm sure there's some paranoia from non owners about joining a network owned by their competition.

The UK went and interesting path of forcing all banks to implement faster payments, so it got wide coverage.


Bet those stats go way up in the next few months as more and more businesses get on the refusing cash bandwagon. Apparently it's for 'safety' but I live in a country where my money's made out of plastic or metal, that shit can be sprayed or dunked in iso. The excuse seems pretty flimsy too when again, places don't seem to bother cleaning off their pinpads before the cashiers or other customers touch them anyway.

The other 82% is ACH, not cash

That stat won't change much in the US. It's illegal for a store to turn down cash.

That's a myth:

https://www.federalreserve.gov/faqs/currency_12772.htm

Private companies can refuse cash.


There’s no federal law but it’s not a myth. It varies by jurisdiction. Several states (New Jersey, Rhode Island, and I’m sure others) and cities (NYC and Philadelphia, for example) don’t allow a retail business to refuse cash.

if you owe a business money, you can pay the debt in cash.

Yes, but you don't owe them any money if you want to buy something. From the link:

"There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services"


Correct, but if you want to buy something, you don't owe them anything yet.

However, if you stole the thing and were ordered by the court to pay restitution, they would have to accept cash for that.


18% is freakishly huge, we're talking about the whole of the US here.

What's worse, if you look at the details, there is a swath of products that are darn near impossible to buy without a credit card.


And it's important to remember that ACH is typically used to:

* receive direct deposits

* pay credit card bills

* pay rent

Which represent a large amount of the value transferred vs number of transactions.


Just to clarify, that says 18% of the value, not 18% of the number of transactions. From googling a few months ago, credit cards appeared to have the most transactions.

However small you think that %-age is, the absolute numbers are still huge (src: Wikipedia):

"100 billion transactions during 2014 with a total volume of US$6.8 trillion"


A major issue here is that payment processors literally choose which industries, and which players will succeed. If your industry is deemed high risk by payment processors, you are fighting a brutal battle to accept customer payments. If you can't process payments, you don't have a business. Conversions will drop off a cliff if you try to switch them to niche payment methods like crypto currency, or even something like Skrill.

Even worse, the payment processors do not apply their own ToS unilaterally. You'll find some websites will retain processing, while you lose it, even though the reason is that your business model is high risk. PayPal is notorious for this. Their ToS will only be enforced in certain countries, leaving companies in places like China with PayPal processing while your company is permanently banned from the platform.

It becomes impossible to compete if you are banned from Stripe & PayPal while your competitors are not. If their own rules are not applied equally across your industry, they effectively pick the winners. Their platform also favors long-standing merchants in many ways.

First by providing them an account manager, second by essentially grandfathering in certain accounts. You'll find it very difficult to process payments in certain industries on PayPal, likely not even being successful in on-boarding, while sites operating in the exact same business have functioning PayPal accounts.

It's incredibly anti-competitive. These processors run such a large scale monopoly; there are so few comparable alternatives, I've seen so many people go out of business purely by losing their PayPal.


India figured this out years ago. Launched a domestic government Visa alternative called RuPay and also launched BHIM - an interface where everyone gets an email address like payment address and can send/receive directly. Both have traction.

Sidenote: A bunch of the payment gateways began integrating BHIM and charging merchants a cut of the sale for what they pay 0 for. Can't see that lasting if people move off V/M completely.


The experience of receiving credit card payments for a SaaS subscription sucks badly, even if you disregard the inflated payment processing fee. Banks can allow the charge to happen the first five months, then on the sixth charge, randomly turn on a penny and reject the charge with a completely opaque do_not_honor code, which probably translates to 'our fraud detection algorithm felt extra paranoid today'. There's a whole industry of companies who help other companies "poke" their customers when their payments randomly fail, to prevent churn. This seems ripe for disruption. My dream tool for receiving payments:

- Isn't tied to a piece of plastic that expires

- Front loads the fraud prevention by requiring 2FA to make sure up front that the buyer actually wants to pay for this.

- Opt-in, per-transaction chargeback/escrow service (intended for shipment of physical goods) that you don't pay for if you don't activate. Transactions are clearly marked whether they include this during checkout. Otherwise transactions are final

- For subscriptions, allows you to specify the conditions under which future charges should also be accepted, and when they should be held and you get contacted to approve them instead.

- Basically anywhere the current system can fail/reverse a charge, the improved system would verify this up ahead, so the payment processor can be sure the buyer really wants to pay, and the merchant can be sure charges don't fail unless the buyer runs out of money in their account or actively cancels the subscription.

- Charge a much more reasonable processing fee, due to not needing to wade into disputes and fraud recovery all the time.


The whole system seems to be designed in such a bad way and relies on a bunch of heuristics and insurance to make up for easy fraud.

Why is it that to pay for something you give the seller the keys to your account and they go in and withdraw the money they want instead of the seller sending you a request and you accepting to send the requested money..

Another plus side of your suggestion is it now becomes trivial to cancel any subscriptions since you can simply stop allowing the payment to go through rather than getting the seller to stop taking your money.


I'm still wondering why there is no electronic SEPA mandate. When you want to authorize e.g. for your landlord to be allowed to withdraw rent payments from your account the landlord has to physically mail you a SEPA mandate which you have to sign and mail to your bank.

This may sound like a slightly obsolete but otherwise well thought out system until you notice that revoking the SEPA mandate requires you to contact the vendor first which is kind of silly.


> I'm still wondering why there is no electronic SEPA mandate.

There is! Nothing forces vendors to collect a paper form and signature. I know some countries still love paper trails (hello Germany) but even there, you'll find some businesses that don't do it. When I lived in Berlin and signed up for my broadband with 1&1, I just had to copy/paste my IBAN into their online form.

> physically mail you a SEPA mandate which you have to sign and mail to your bank.

Nope. The bank is not involved at this stage. Banks authorize direct debits by default, they don't need to know about the mandate beforehand.

> revoking the SEPA mandate requires you to contact the vendor first which is kind of silly.

It's not. It leaves the responsibility with the contracting parties, and keep banks as a neutral medium. That said, as a customer, you can revert a direct debit with a single click, and permanently reject further direct debits. It doesn't have any effect on your contract (and the vendor will send it to debt collection if it believes you're in the wrong), but you keep full control.

By the way, you can build a fully digitized billing system on top of that (there's SEPAmail in France for instance), and more and more banks support instant payments, which I assume can be used to improve the scheme.


Interesting this systems already exists. For Mastercard it’s called MDES for Merchants, or to give it its full name Mastercard Digital Enablement Service for Merchants.

It’s an extension of the technology that powers Apple Pay and Google Pay, and basically allows merchants to get a virtual card issued to them.

In the EU that would require 2FA to happen, along with describing to the customer what the billing schedule is (required for SCA but being implemented slowly).

The end result is the merchant gets a non-expiring virtual card to bill the customer, and the customer get the ability to disable certain merchants by asking their bank to destroy the card linked to a specific merchant.

Unfortunately all of this stuff is very new, and there are a bunch of issues that will prevent merchants from using the tech. But it is happening slowly.


the ideal system you described is called bitcoin

It always fascinated me that the process went to a semi regulated user pays cost recovery competition model, not to a regulated utility model.

At this point, the innovation stream has just about dried up. We're left with a need for micropayments that don't cost more to process than the value of the transaction, and almost all innovation has taken place to one side of card services.

If we fixed international funds transfer we'd probably get some incremental benefit. KYC is only part of the problem here, I recently did some IBAN transactions to the UK government from Australia and the expectations of fixed-field width (send this 15+ char reference string, but the input side has 12 chars for the reference field) were bizarre.

Huge amount of excess profit in TT.

Cheques? dead except for the USA.

Coins are dying of covid.

Remittence processes and the Islamic banking tradition is waiting to be somewhat unlocked. (trust is not transitive, unless you are a migrant worker from S.E.Asia and you have to get money back to mom and dad efficiently, without having any formal ID in the host country because your boss took your passport)


> We're left with a need for micropayments that don't cost more to process than the value of the transaction.

I disagree completely.

There's no technical or business reason why we couldn't have micropayments tomorrow. It's been tried many times already. The thing about micropayments is nobody actually wants them. Each time you make a payment of any magnitude, your brain has to process a 'purchase' which carries a large mental burden, and eventually you get decision fatigue.

Micropayments are one of those ideas that people think we want, but in practice, nobody does.

As a thought exercise, why do you pay Netflix $13/month and deal with sporadic content disappearances, when you could pay Apple $1.99 for a perpetual license to whatever piece of content you could ever want? Nobody wants to make that purchasing decision each and every time they want something. They'd rather pay for an all you can eat buffet even if it's objectively worse and more expensive over time.

> If we fixed international funds transfer we'd probably get some incremental benefit.

Check out TransferWise! They've done a ton to solve this problem. They even have a currency agnostic bank account with local banking details in 6+ regions and supports 50+ currencies. [1] IMO they've largely solved remittences for the average joe.

If you've got a ton of money to move you can use InteractiveBrokers to exchange currencies at market rates for $20 per million (!!) in commission.

[1] https://transferwise.com/us/borderless/


FTA:

> And it could potentially have been even worse. Had their few competitors also gone down, literally all electronic payments would have broken at once.

This... is not true. As noted by another comment here, a vast majority of the value transferred (82%) is ACH in the US.


Visa recently banned gab.com from accepting payment over dubious 'hate' speech.

How come we haven't had big privacy scandals from Visa/ Mastercard?

Big companies, a rent-like business, no pressure to do things well, own lots of very sensitive personal data, clients giving the data away without realizing it, little regulatory oversight on the data front, etc.

I would expect them to sell or leak poorly anonymised personal data, leading to huge privacy issues.

Why hasn't this happened?


Because they know they have a golden goose and are not willing to risk it all pushing boundaries like the FANG companies are. They also have literally 50 years of experience with their data mining and the only think more powerful that incompetence is 50 years of bureaucracy....

There is literally direct competition with Amex. Sure not everywhere takes amex but the majority do, and you can speak with your dollars (and still hold Visa / MC in case amex fails you). Consumers derive huge benefit from the safety, consistency and reliability of the networks Visa and MasterCard have built out, and yes the consolidation is a certain price to pay for that. These companies invest billions into anti-fraud technology.

But they are at their core public companies that want to maintain their image. They are reactive to public pressure and political headwinds, and will cover their bases by running away from thorny messy situations. This crosses the aisle in every imaginable way - whether its stifling whistleblowers or stifling supposed hate speech. The reaction to public pressure is not going to be avoidable with any conceivable system, privately owned or otherwise.

The best defense is competition, and despite this post's assertions, there is competition in this space.


> Sure not everywhere takes amex but the majority do

Perhaps in the US, but elsewhere around the world Amex is barely ever accepted.

That said this duopoly only really applies to internationally accepted credit cards, lots of countries have alternative payment methods, but these generally don't reach beyond the borders.


American Express is not the answer. Let's not replace bad for worse.

I use my Amex regularly. Can you explain how it’s worse?

The problem with VISA-MasterCard duopoly is that in many markets the intermediaries (banks plus VISA/MC) skim off 2.5% off of the transaction between the mercant and the customer.

Amex takes much more (~4%?), so the problem is even worse there. Of course, they can and do bribe the customer with part of that fee so that it seems attractive, but from the wider perspective it's a huge overhead for no good reason, and if every transaction was like this (i.e. if Visa-MC was replaced by Amex) then that would be a big drain on the economy.


Well one of the reasons why they (MasterCard and Visa) backed Libra is because they were after the potential of cryptocurrencies, but in a controlled fashion, which Libra was perfect for them, Unlike other alternatives until they themselves left Libra.

Anything this duopoly can't control is a big no-no to them which is why they detest Bitcoin and the other alternative cryptocurrencies. Some online services are beginning to accept cryptocurrencies, which is a start. Cryptocurrency ATMs are a thing to cash out money, thus one could say that you might have bypassed them.

A side note, for those offended by master/slave terminology perhaps now you can ask Mastercard to change their name. Since, its pretty much has somehow offended somebody out there. /s


The terminology issue just shows us that people have got way too much spare time during the pandemic.

Terms like master and slave would probably be fine with everybody if we actually properly addressed the history of slavery and genocide that set our countries up so comfortably for some of us. I don't think anyone really cares about a word, they care about a casual flippant reference to something they care deeply about, an unfair society in which some of us are beneficiaries of brutality that is not entirely in the past.

The worst part is, that the fee for a card payment is shared between Visa/MasterCard and your bank.

Bank transfers within a country are often free of charge, but are quite uncomfortable to make (typing numbers) and usually are not sent immediately (so that you can not pay this way in a grocery store).

Banks have no interest in making bank transfers easier or faster, or opening up to cheaper competitors of Visa/MasterCard. Meanwhile, people happily keep their money in a bank, seeing that all bank services are free and that it "can not get any better".

I think, if anyone is to replace Visa/MasterCard, they should also make their own bank (a place where people keep money in a long-term).


We have instant transfers between banks here in the Netherlands. It is coming for the whole EER.

Some payment terminals now can also generate a QR code that you can use to pay, in addition to the normal debit/credit card payments.


there's a Futurama gag about a 3rd option that's just as apropos as when it aired:

> Fry: $30? I can't afford that. Unless... Do you take Visa?

> Salesman: Visa hasn't existed for 500 years.

> Fry: American Express?

> Salesman: 600 years.

> Fry: Discover card?

> Salesman: Sorry we don't take Discover.

the good news is that Amex seems to have stepped up while partnering with Walmart for their BlueBird cards - while not perfect, at least helping to add more options. and with walmart in the mix it seems to help get a 3rd (Amex) option accepted more places.

maybe not the perfect solution, but at least a step in the right direction.


Ending the duopoly is easy: create a payment processing system that charges nothing. However, you start peeling the onion on that and you wonder if it's just easier to create a new search engine.

The author clearly has little knowledge on the subject of payments. He's likely a consumer.

Getting this "duopoly" right is very hard. Payments has a number of actors, and the label is there to ensure fair play between acquirer and card issuer.

While mastercard and visa controls the market, it's not like there isn't competition: Amex, discovery, etc., are all labels that compete with the so-called duopoly.


Speaking of monopolies: what about the handful guys (there are only 3!) who manage ALL of our credit scores.. Experian ,TransUnion and Equifax.

I don't understand Hacker News. Tim Bray's post on Break Up Google was buried and not visible on HN's front page. The next day this on Visa-MasterCard post shows up on the top with a "forget Google" comment. Why?

Is this a result from the community or the algorithm?

HN seems to have changed a lot in the last few years.


It is kind of crazy that anyone can buy my purchase history... Are there any way around this besides using cash?

Aren't they just networks for transmitting credit issuance messages, and a set of processes for handling disputes?

Anyone familiar with the intricacies of these operations know how amenable they are to being debundled into discrete components and provided via an Ethereum-like protocol?


> Like almost complete control over what can be sold online. Ever wonder why certain things are difficult to buy via PayPal or other similar systems?

So, why? The article doesn't seem to answer that question. What prevents shops from supporting alternative payment systems?


What is extremely important here: we will not forget Google (Facebook, Amazon,...) but just add Visa and Mastercard to the same list. But still concentrate on Google (...) as large technological corporation have potential to end up worse.

Nicely put. The problem of duopolies isn't limited to the debit-cards space. Every single industry with a strong US footprint regresses to duopology structure. The root cause of this phenomenon needs to be identified and addressed.

Is the timing of this by chance related to this https://news.ycombinator.com/item?id=23671933? (visa denylisting builder of Gab)

> time to end the Visa-MasterCard duopoly

Why? Because monopolies are bad, and we don't like them, no matter if they provide value to people, if they are not built around government regulations that stop competition from happening.


They would have to provide more value for less money, were there some competition. I don't see a way in which one can compete with those two (without resorting to aggression) on a global level though.

Immediate wire transfer could exchange it if people wouldn't be so used to the card. What would be the motivation to do a wire transfer from you account directly to the merchant instead of tapping your Paypass card...

Already India start doing it, its UPI system enable us to avoid cards for all type of payments with processing fee. Also Rupay backed by GOI enable us to use those cards in abroad using vast connection.

UPI is godsent. Probably the only good thing to come out of demonetization. I use it everyday, from buying groceries at roadside stalls to paying for my life insurance.

I have pretty much stopped using cash altogether and use cards mainly in those outlets which don't have upi.


The fastest way to do that is through phone-based payments.

Those protocols are substantially more open than Visa/MasterCard, and introducing a competition shouldn't require hardware changes for the POS.


We shouldn't forget about google. It also needs to be regulated.

This is addressed in the article but the title doesn't reflect this accurately.

TLDR; Clickbait title :sad face:


Let's tackle both. Harmful anti-trust violations are rampant.

> Forget Google, time to end the Visa-MasterCard duopoly

It's bad idea to forget "issue 1" and focusing on "issue 2".

Both issues are major.


So instead of sometimes one of the two not being accepted, you want me to carry 50 different ones and have 2/3 rejected?

No, thank you.


The only reason some cards are not accepted somewhere is because Visa-Mastercard are so powerful they force 3%-5% margins on transactions for merchants.

In the EU the just use bank cards. And since there's regulations the fees are lows and everyone can use it everywhere.


No... You have the option of any of 50, and they can all be accepted everywhere; rather than the option of only two if you want a chance of being accepted. I believe this is already law in the EU anyway, but there are few competitors to the big two.

What's law? That you have to accept all types of payment? Nope.

If everything has to be accepted everywhere, then there's no differentiation


Amex/Discover, plus PayPal and a host of lessor money transfer apps/companies, like Venmo and Zelle.

Venmo is owned by Paypal. Zelle is owned by all of the big banks collectively (Bank of America, Capital One, Wells Fargo et al.). The closest thing to a "small" player is the Cash app, owned by Square.

No commentary on the larger picture here or Amex/Discover, just pointing out your other examples don't exactly fit your point fully.


Good points. Thanks for pointing out.

Just curious why PayPal or Venmo?

Well. PayPal is a payment gateway/system where merchants and consumers can both use; it's serving the same role as Visa/MasterCard. Venmo is a bit off but once Venmo allows merchants as cash recipients, it will serve the same role.

...can't we go after every monopoly and power abusers and not 'forget' any of them?

OP needs to read about Bitcoin, it solves most of the problems discussed in the article

Amex/Discover cards exist too, you should use them!

I used to carry an Amex, but I also had to carry a Visa for all the times the merchant wouldn't take my Amex. Life got a lot easier when I got a Visa with all the same rewards as my Amex.

So, how does one build a card network?

It's easy, you just convince a plurality of banks to honor your IOUs.

Well whatever, but the mastercard name is so uncool right now I'm amazed they haven't changed their brand to primarycard.

was all on board until the conclusion was "regulation"

What was on NP2 that it's been censored by Mastercard? A quick search online suggested it was right wing politics but I suspect it must have had some content cross some legal line in order for it to be blacklist.

blockchain can change that with stablecoins.

Bitcoin Cash

Forget finance and tech, medical is under the tight grip of Physicians.

Every medical service requires paying a physician. And it's no trivial amount, its a huge expense. Further, any numbers on physicians salaries are horribly skewed because they don't consider specialists "physicians".


Giving everyone access to payment processing means giving platform to unworthy people like misogynists, white supremacists and conservatives as well.

Maybe we are better off with VISA.


Can't tell if satire or not

Let's tackle Google first then we will have a look at the other complaints. Not going to "forget" Google. Sorry.

Why not nationalize credit and banking? The industry has shown its gross incompetence time and time again, notably in 2008 and now with COVID they’re yet again settled with bad debt, this time corporate instead of housing. The nation already subsidizes their risks and failures, so why not the upside. Establish a clear hierarchy of accountability rather than the free for all smash and grab we’ve been seeing for decades.

>Forget Google

How about NO! How about we go after all three of them? Google should not be left off the hook. This is just whataboutism by Google's PR.

Anyway, Google's employees are all over this thread.




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