
The Card Game - How Visa, Using Fees Behind Its Debit Card, Dominates a Market - timr
http://www.nytimes.com/2010/01/05/your-money/credit-and-debit-cards/05visa.html
======
patio11
I love credit cards and think they are one of the wonders of the modern world.

Picture this: you operate a Quiznos selling fatty subs of goodness at the
Detroit Metropolitan airport. A lanky twenty-something comes up to you and
says "Hey, I'd like some meats and cheeses, but I don't actually have money to
pay for them. Don't worry though, I'm good for it." Now, traditionally you
might rely on social capital (sort of hard when he grew up in Chicago and is
flying from Washington to his home in central Japan) or cheap discriminatory
heuristics like "He's a white guy wearing a business suit, which means he'll
probably pay me if he says he's going to pay me. That black kid with the
sagging pants behind him, though..." Or you just don't make the sale, and then
he goes hungry and you lose revenue.

But it is the modern era and we have plastic. Plastic which certifies that a
bank in Michigan trusts a company trusts a bank in Japan trusts a software
consultancy trusts a university to pay their invoice to pay his paycheck to
cover his debts to make their transfer to make their wire to pay for his $10
worth of artery blocking goodness.

And we can do this _instantly_. For _fifty cents_. So reliably that fraud is
_rounding error_.

We are living in the freaking future.

~~~
blasdel
In civilized countries that use instant direct debit for everything, the fee
is more like 5¢.

In the US, where credit is the default, the fee for a card-present transaction
is more like 35¢ + %2.

~~~
dangrover
I despise businesses that don't take credit/debit cards almost as much as I do
the companies that make the cards.

If it's some taqueria that's keeping things off the books, I'm fine with that.
But if it's some pretentious place that I'm paying $9 for a sandwich and I
have to go to an ATM and pay another $4 to withdraw a $20, then that just
makes me not want to patronize the place.

~~~
henrikschroder
In civilized countries, we don't pay to withdraw money from an ATM, regardless
of which bank we have have.

(I would really like to know how that business model works though, if the
banks just soak it, or if local businesses can pay a bank to get one)

~~~
dagw
We do when we are in a different civilized country than the one that issued
the bank card.

~~~
furyg3
In NL this isn't the case. I popped over to Belgium yesterday, took out €50
from a Fortis ATM (my bank is ABN Amro), no charge. I was in Istanbul for New
Years, using HSBC's ATMS, no charge.

When I go back 'home' to visit family (the US), ABN Amro charges me no fees
for taking out money at local ATMs. The ATMs themselves (rudely) may charge a
fee, but last time I was there there were still some ATMs that had no fees.

------
andrewvc
You can watch the excellent companion Frontline TV documentary for this free
online at:

[http://www.pbs.org/wgbh/pages/frontline/creditcards/view/?ut...](http://www.pbs.org/wgbh/pages/frontline/creditcards/view/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist)

------
yan
This is a decent thread from reddit where a Visa employee fields questions (on
fees, among others):
[http://www.reddit.com/r/IAmA/comments/al3tl/iama_fraud_preve...](http://www.reddit.com/r/IAmA/comments/al3tl/iama_fraud_prevention_agent_for_a_major_credit/)

------
ojbyrne
Interesting story a while back about Visa/Mastercard expanding their debit
card business in Canada (which already had a quite efficient debit card
system). It can basically be summarized as "giant monopolies colluding to
increase their profits on the backs of small businesses, mostly with
encouragement from governments."

<http://www.nationalpost.com/m/story.html?id=2171251>

------
10ren
This reminds me of a "finder's fee", where you pay someone for recommending
your product. It's similar, because the recommender has an incentive to
promote your product, regardless of whether it is appropriate for the buyer or
not. I know these kinds of arrangements are common, and they form a nicely
logical model - but I don't like the moral hazard.

It also reminds me of advertising-supported media (free to air TV, newspapers,
magazines, and of course... google's internet), in that there are two parties
who may collude to the detriment of the consumer. So, you have "advertorial",
that appears to be impartial, but isn't; and advertiser-friendly news stories
and angles. Have you noticed how the Simpsons and Futurama depict drinking
alcohol? Have you ever thought "I wouldn't mind a drink" while watching?
Advertiser-friendly. Even Sponge-bob square-pants features burgers
prominently. And that's just for cartoons!

What to do about VISA... Protest? Buy stock?
[http://finance.yahoo.com/q/bc?s=V&t=2y](http://finance.yahoo.com/q/bc?s=V&t=2y)
Or start-up a competing transaction provider? (e.g. Paypal).

~~~
jrwoodruff
It seems like it's pretty much up to the merchants to protest, since these
fees don't (directly) effect me. I would say many people don't even realize
that the merchant gets charged a fee for each transaction.

As far as I'm aware, Sam's Club is the only major merchant I've run into that
does not accept any Visa cards, only Mastercard and Discover.

~~~
sokoloff
Most anything that substantially alters most every merchant's costs does
affect you. You may not see it as a line item on the reciept, but it's in
there.

~~~
10ren
Yes, the article says the costs are "passed on to consumers". Because goods
are prices the same no matter how you buy, I think this means that the price
increase is passed on to all consumers, whether they pay by VISA or not.

------
rms
_“What we witnessed was truly a perverse form of competition,” said Ronald
Congemi, the former chief executive of Star Systems, one of the regional PIN-
based networks that has struggled to compete with Visa. “They competed on the
basis of raising prices. What other industry do you know that gets away with
that?”_

------
dennisgorelik
It looks like market wants merchants to pay for credit cards maintenance, and
part of these merchants fees are going into customers' pockets (various
promotions like air-miles and cash back). It was clearly a smart move on
Visa's part when they decided charge merchants more for using credit cards.

------
drewcrawford
I've found this paper quite enlightening (PDF warning):

[http://www.kansascityfed.org/publicat/psr/rwp/WP04MerchCardA...](http://www.kansascityfed.org/publicat/psr/rwp/WP04MerchCardAcceptance12-28-04.pdf)

Aparrently merchants continue to accept expensive fees even when those fees
exceed the benefit of accepting that form of payment (WTF?)

