I often wonder how much goes into the pockets of these companies who are essentially providing an easily replaceable service if it were not for the entrenched reality. (IE; to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places)
That said, I can't complain too much about VISA; which (Apple Pay and Samsung Pay also uses on the backend, there is no escape in Europe) -- they seem to be processing things fairly well, even if I don't understand how much both parties paying for such a service.
It goes unnoticed to the consumer because it didn't go unnoticed to the lawmakers. The EU caped the fees those companies can charge to merchants to 0.3% for credit card and 0.2% for debit card back in 2015 .
In the US it's less ignored because those fees to merchants are on average 10x bigger! (2% on average )
The payment processing market is a bit more complicated:
When you make a transaction:
1) Your bank charges Visa/Mastercard an interchange fee (this is the bit capped at 0.2%/0.3%)
2) Visa/Mastercard charge a payments acquirer a processing fee
3) The payments acquirer charges the merchant a fee - this final fee is likely to be a blend of percentage and fixed fee per transaction. There's no cap imposed here.
EU-domestic debit cards 0.31% (max 0.75€), EU-domestic consumer credit cards 0.90%, EU-domestic company credit cards 1.10%, foreign consumer debit cards 1.25%, foreign company credit cards 1.45%, foreign credit cards 1.65%.
No per-transaction fees, but card readers have a monthly fee (39-53 EUR/mo).
Finnish source: https://www.yrittajat.fi/uutiset/572780-maksupaatteet-hintav...
So let's say that you swipe your card at a retailer, perhaps an IKEA.
IKEA has a card payments processor (ie: the vendor that the little terminal you sign on / stick the card into is from). This processor deals with a network (usually Visa or MasterCard, although there are smaller vendors such as Amex, Discover, etc) who ultimately connects the payment processors to the banks.
Now, for each transaction, your bank charges a fee to the network (the interchange fee, limited in the EU to like 0.3% I think) as a percentage of the total transaction. The network then charges some fees to the payment processor, which includes the fee that the bank charged. Finally the payment processor adds in their own fees and charges some unified fee schedule to the merchant (in our case, IKEA).
The payment processor doesn’t belong to any of the credit card companies if they are tied to any institution they will be part of the acquiring bank but these days most of them aren’t, all they do is facilitate the transaction and there could be more than one in the chain.
The issuing bank as in the institution that issued the card charges a fee, as well as the acquiring bank the bank that actually receives the payment also charges a fee.
There are fees that are levied on multiple parties across the chain by multiple parties however at the end these tend to be mostly be then baked into the fees that are levied on the merchant.
Each of them charges a fee, and can be charged a fee. A credit card transaction is a multiparty transaction with a lot of small fees.
The payments acquirer will then send on some of this fee from the merchant to Visa or Mastercard (again the exact rate depends on the transaction type). Visa or Mastercard will then send on an interchange fee to the bank that issued the card the customer paid with - this is the bit capped at 0.2% for consumer debit cards and 0.3% for consumer credit cards.
So essentially, card payments is a 3 sided market. The merchant chooses which payments acquirer they want to use. The issuing banks choose which card company they want to use. Customers choose which banks they want to bank with.
The interesting thing is that the EU has capped the banks' interchange fee, but not capped the fees elsewhere. When the interchange fee was reduced, this was passed on as a cost saving to the payments acquirer. This saving might have been passed onto the merchant (especially if the merchant is big and sophisticated enough to shop around), but it was equally possible that the payments acquirer could just enjoy the higher profit margin, or that Visa and Mastercard could raise their processing fee.
For example in Denmark: "Due to the higher fees charged by banks for the use of non-Danish issued cards (that consist of foreign card network interchange fees plus Danish banks own fees), many Danish merchants only accept Dankort and Danish-issued credit cards, but not foreign cards." (https://en.wikipedia.org/wiki/Dankort)
I really hope that the EU adds some regulation that forces merchants to accept debit/card cards from other EU member states on an equal basis. Especially in combination with the fact that in some cases only electronic payments are accepted, which makes it pretty much impossible for anyone to pay without a national bank account.
The EU already solved (or at least mitigated) the issues with roaming in mobile networks. Doing the same for payments is the next logical step.
The cardless life was very strange in the beginning, but I learnt to love the absolute sense of freedom and privacy the lack of any digital records of my day-to-day life provided me.
I even stopped carrying my smartphone when I didn't need it. It was like back to 1990s.
A short answer: because of history.
The individual banks seems to set the fees (card owner is charged) Most banks charge a yearly fee (~25$) (free transactions), though some banks charge as much as 1NOK ($0.12) per transaction on top of that.
EU drastically capped interchange fees a few years ago. The premise was that it will lower costs for merchants and effectively lower costs for consumers. However, most of the savings were kept by merchants, especially larger ones.
Some EU study confirming that: https://www.europeanpaymentscouncil.eu/news-insights/insight...
I remember when debit cards first came out in the US. There was actually a 1-2% surcharge that most merchants were charging (especially smaller mom/pop type stores) to use debits - because it cost them to use the payment system just like credit cards. Eventually the merchants just baked the processing fees into the prices of all goods because most transactions are done with cards. Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.
> Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.
I don't know what checkstands are but I've never seen a check immediately pull from my account. (Just for example, I wrote a check Saturday and I'm sure the vendor deposited it immediately and it still hasn't posted to my account three days later.) In fact, that would be great, IMO. Instead anyone who wants immediate payment without the risk of a check not clearing (landlord first month's rent, or mortgage, or like a car) will demand a cashier's check or money order or wire, all of which are associated with an additional fee of $10-25. (Or will pull your credit to cover the float.)
In some countries and places, credit cards are not even accepted because of the possibility of a chargeback and much higher processing fees.
In essence, many people here treat Visa / MasterCard as just "electronic cash", and therefore spend only the money they actually have.
In my own EU country, only about 1% of private bank customers own a credit card. These are usually the wealthiest people in the country, who have no problems paying the balance back on time.
The credit cards themselves provide very few benefits apart from the international health insurance for the entire family, and 0% fee for up to 45 days.
The reward programs are almost non-existent. Just like the general idea of spending the money one doesn't have.
It might sound like a very conservative society, but people here are a way more relaxed about their personal finances than in the US.
Instead of trying to earn reward points, they try to plan their expenses upfront, and focus on staying debt-free as much as they can.
That's because most Europeans have stable jobs with stable salaries which can neither grow, nor decline by a lot. Therefore, almost nobody expects to become very rich or very poor, and lives accordingly.
I don't claim to be a typical credit card user, but I do like to game their system and make money off of them (paid for by people NOT paying their balances off monthly and racking up dumb fees). I don't see a downside to it. It's not like they're getting more data on me by using a rewards card. They already know all of the purchases I make with them.
At the same time, I am glad that the EU provides a more conservative alternative and style of living.
I think the US is more about getting rich, and the EU is more about not becoming poor.
And for a money-savvy person the US might provide much more opportunities than the EU can.
Yet, the majority of people are not money-savvy, and the "high risks, high rewards" game inevitably produces more losers than winners.
That's probably because people pay online only at a very limited number of places they trust, and it's easier to solve issues with the local merchants directly.
Another reason might be, that many online payments are made via direct bank tranfers / SEPA, which can be both, fee-free and instant, across the entire EU.
Essentially, everything is based on trust. Nobody puts his debit / credit card details into a form of a website he never heard before, and nobody risks his business reputation if he has managed to earn it.
what makes you think debit cards are less safe than credit cards? as far as I know here in EU all debit cards are smart cards with PIN code protection, what exactly is the unsafe part?
are you confusing debit cards with magstripe cards?
I don't use a CC in Europe so I can't comment on how expensive those are here.
As for who is paying for it? Once you have a payment system set up its really not that expensive to maintain it. Driving around armoured vans with money is actually more hassle.
> to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places
That's basically the definition of hard to replace.
For all my disagreements with major payment processors, I must say that there is a lot more than meets the eye in these networks.
Having visited the fraud detection apparatus of a couple payment networks, I am thoroughly impressed. Most of them were doing machine learning at an industrial scale at least eight years ago.
I’ve travelled quite a lot, but everywhere I’ve been there has been the same - Visa, MC, and a local alternative or two that might be popular within the country but don’t extend elsewhere.
Is there actually any other network elsewhere in the world that is of a similar scale? I assume China must have something?
Doesn't that suggest VISA & MC are not making obscene profits? The upstart being more expensive than the incumbent is often a sign that the incumbent is not just resting on their laurels with fat profit margins.
AMEX has been issuing charge cards since 1958 and Discover has been issuing credit cards since 1985.
One fun bit is that it uses SIM applications, something that's barely used for anything serious except for m-pesa (and its spin-offs) but exists practically across the entire GSM infrastructure.
China did the same thing by banning Google and supporting Baidu.
In Baidu's case, they're a locally grown replacement. Per the article, local credit systems didn't really take off; a researcher in the article states their belief it's due to different attitudes on debt in China.
With data being ever more valuable and a small group near monopolistic companies in position to siphon most of it, it's going to be difficult to lead a private life.
Yeah. It's called "cash" and "checks".
As the parent comment explains, nearly every electronic money system in Europe uses Visa or Mastercard as a backend, creating a unhealthy duopoly. The free market needs some competition so it can thrive.
I think that’s nearly every credit card system. Many countries have debit card systems that, AFAIK 100% outside of Visa and MasterCard, traditionally work across most banks in the countries, and nowadays work across the Single European Payment Area (28 EU countries plus six others. See https://en.wikipedia.org/wiki/Single_Euro_Payments_Area).
But ApplePay is actually more pleasant than both. I can pay with my phone and my watch. It is a faster transaction than both cash and credit, and no need to pull my wallet out.
With one big exception! There are a few places in the city that are starting to only accept credit/applepay/etc., but when their terminals go offline, they’re screwed. I saw this exact thing, for some reason they had no backup system to accept cash. I assume this is a rare issue, but still, I couldn’t believe they couldn’t resort to cash.
To accept cash as a back up you have to have all the items in place to accept it all the time basically. You need the register and to have enough cash on hand to cover giving change plus the accounting and tracking at the end of the day to make sure cash hasn't walked. So if a place has the ability to accept cash intermittently they might as well accept it always.
Has some issues wrt theft (portable pay terminal with boosted nfc signal/antenna) - but certainly convenient.
I used to get cash back at the grocery store. Very easy way to keep the wallet stocked since you're there 1-2x a week
But, you are right, if you careful you can game the model. In your case, if you are paying 90% of your travel expenses with bonuses you are probably getting back more than $400 a year, which is an average credit card cost per US household.
Doesn't that mean people who don't engage in this 'hustle' are essentially losing money?
Credit card fees end up as a transaction tax on a huge part of the economy. The folks who have figured out how to insert themselves into the money flow (Visa et al.) are sucking a huge profit out by slightly taxing everyone else.
As a side benefit for the credit card companies, they also collect data about everyone’s purchases, and can earn extra money by selling that data to the highest bidder, compromising customer privacy.
The system is in need of some strict regulatory oversight, but card networks can afford expensive lobbying / campaign donations, so don’t hold your breath.
It's one of the larger rackets in the economy today, whole percentage points of consumer spending is syphoned by the financial industry as pure rent.
Essentially, card processing fees (paid by merchants), interest charges (paid by cardholders who carry a balance), and annual card fees (for some cards) are income to card issuers.
Points, cash back, and paying interest on purchases from cardholders who do not carry a balance are expenses to card issuers.
I expect income is rather static at scale. Which is why card issuers are always tweaking the expenses side. The numbers have to add up somehow, and if you go from all cardholders redeeming points for a real value of $100 to their doing so for a real value of $300... they won't.
Sign up bonuses (the easiest part of the hustle) are the hardest to gauge from the card issuer's side, as a hustler looks like a regular customer. There have been attempts by some issuers to track this in a more detailed way (e.g. Chase's 5/24), and I'd expect to see more issuers moving towards doing so. It's essentially the same problem Vegas has.
But remember, this is how credit cards work anyway. These companies rely on people not paying their bill in full each month, paying high rates of interest. That pays for all this "bonus" crap and more.
I do value business class, though, and happy that I can redeem points over paying for it out of pocket. There is a joy in actually being able to lie flat and sleep on a 11-14 hour flight to Asia or Europe and feel rested when you arrive vs feeling sore/cramped/and jet lagged for the first 2 days of your trip!
All you can say for sure is that credit card companies have revenue, and some of that revenue is spent on marketing, such as signup bonuses, and that's pretty obvious.
"Company sets prices to account for marketing budget" is hardly a revelation.
In the EU, we pay VAT on practically everything, so, US prices are still cheaper with credit cards etc.
The math works for me since it’s the fastest and most convenient way to meet spend (usually around $3k)
For a $3k rent payment (mine is less than this but as ex to meet spend), you’d pay a $75 fee, but earn the signup bonus + 3075 points. Depending on the credit card, 3075 points is likely at least worth $30.75 if not more, so your net fee is $44.25 or 1.475%, which is not bad IMO.
Otherwise, some landlords might let you pay via credit card.
Disclaimer: I have been a satisfied customer for them. I do not work for them or get any kickbacks.
If you are spending to earn a bonus, e.g. 50,000 points for spending $3,000 you are earning 16+ points per dollar (1 point is generally around 1%, sometimes better).
(But only for donations you're making anyway, and only when fees really are waived.)
You're getting some points, sure, but everything you buy is a percent or two higher to pay for it.
I pay my balance in full every month, so I don't pay finance charges. If you can't do that, then don't use cards. They will eat you alive. Understand that most of the benefits/points that are offered are paid for by people who carry a balance.
If you can manage them and keep the balances paid, the points are just icing on the cake. I rarely pay for hotels anymore, for example.
I like to think as credit cards as tax on the poor to feed the rich.
I recommend this wonderful essay into the trials of being poor, which isn't necessarily because you're bad at financial planning:
Also this recent HN posting and discussion, about the "Vimes [from Discworld] Boot Theory":
Conclusion: I'm poor.
There is no getting away from the fees, so I must get a credit card, but that means that all of my purchases are tracked.
If you don't think this is important, you haven't been paying much attention.
Yes, but we're also paying for that guy's international flights. I don't care how little it is: I don't want to pay for that. Buy your own vacation.
For the record: good on him for taking the points. 100% his prerogative. My problem is purely with the eventual cost being amortised across other customers, even non-CC customers.
Only if you pay the full dose immediately at the end of the billing period. Anytime you've haven't paid your cc bill in time, you're charged way more in interest. People have crushed under cc debt.
The point about paying less is that the merchants who often complain of the processing fees and delays seldom give a discount for paying in cash to offset the lack of fee surcharges bundled into sale prices.
So, it's only tangential in the NRA sense of "guns don't kill people, people do".
Hooking people to using credit cards for payments plays into this whole system.
In Germany and France, for example, the equivalent payment systems are still online, through cards, etc., but they involves debit cards almost exclusively.
- 5-10 minutes at beginning and end of shift to count cash drawers in and out, and make deposit bags, per employee
- 10-15 seconds per cash transaction to count payment and make change
- 60 minutes to prepare daily cash bank deposit and restock change (once, done by a supervisor)
- Employee theft from cash drawers, while not a common issue, did happen probably at least once a year
Now, I couldn't say if that all adds up to an extra 1-2% overhead, but I think its disingenuous for people to suggest that merchant fees charged by credit cards have little to no benefit to retailers. I think we'll see way more businesses go to electronic payments only within 10 years or so.
In recent months I have seen the latter system (human cashier + cash-handling machine) in a Madrid airport restaurant and a Romanian hypermarket.
More info: https://www.pymnts.com/visa/2018/non-compliant-cash-discount...
I think people have claimed that when the experiment was
done by capping fees, things don't get cheaper, so your viewpoint may not be accurate.
Plus for the life of me I can figure out if a travel card is better than cash back.
Your credit reward system comes at the cost of half of the world's businesses and the government knowing every single thing on your shopping list last week.
So no they can't sell your shopping list, the system simply doesn't work that way. Terminals don't send that info.
Cash is the only way to circumvent this process until we have anonymous credit systems.
The payment processors don't seem very eager to support stable coins either as it's harder for them to inflate the fees/conversion to fiat.
I am unable to find a link to the ruling in the article, does anyone have it? Curious how this number was arrived at.
”Mastercard cooperated with the Commission by acknowledging the facts and the infringements of EU competition rules.
The Commission granted Mastercard a 10% fine reduction in return for this cooperation. Further information on this type of cooperation can be found on the Commission's Competition website”
with a link to https://europa.eu/!XC69Qb.
Basically, you get a fine reduction if you promise not to appeal to the fine.
If the Commission is now able to levy such massive fines and lower them if you promise not to appeal, in a binding way, then they can simply make whatever sum they pull out of thin air 10% higher, give a 10% "reduction" for cooperation, and that's effectively a second fine for appealing the first.
Especially considering that many european countries such as Germany had (and have) independent systems with often orders of magnitudes lower fees, faster transaction times and more safety and security.
I'd rather see girocard become a monopoly on the european market than to see this mastercard/visa monopoly continue.
Why not? Is that due to contract terms that prevent you from charging more for card transactions vs other payment methods?
I vaguely remember clauses like that were recently thrown out in the USA. I’d imagine the EU would be even more consumer friendly.
This is extremely common at gas stations and coffee shops, for example.
What's the difference? If the business advertises both a cash price and a credit card price, then there is effectively no difference I believe whether you characterize it is a discount for cash or a surcharge for credit cards.
However, if you only advertise one price, then its a surcharge if that is the cash price and you add extra for credit cards at the register. If the one price is the credit card price, and you take off some for cash at the register, then it is a cash discount.
Doing a cash discount was a common trick at gas stations to work around terms in their contracts that said they would not have credit card surcharges. There was a lawsuit against such contract terms by merchants who wanted to do a surcharge, and in a settlement in 2013 Visa and Mastercard agreed to allow them (with some restrictions, like no more than 4%, must be a sign disclosing them at the point of sale, had to be included on the receipt, and had to apply to all cards), reducing the need for such tricks in many areas.
There are some states that have laws prohibiting credit card surcharges, so the cash discount trick may still be in use there. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. These have been challenged on Free Speech grounds. The Supreme Court has said that they are (well, New York's version, but others are similar) is a regulation of speech, but did not rule whether it was an unconstitutional regulation (the lower courts had not reached that issue) . I don't happen to know what happened to that case after that.
For some transactions the reality is that almost every single purchase will be on a card and the vendor knows it, so advertising a "cash" price was just always going to be misleading. Rather than try to figure out some complicated rule (maybe you can advertise the cash price if most customers pay in person at a store?) the authorities just said it's simpler to ban all fees.
The British news media actually did stuff about this in the last few days. A bunch of famously shady lines of business like letting agencies were still charging extra for credit cards even though that's illegal.
There was quite a reaction against it, but in the end I assume they dropped this because they say usage numbers drop, though that is just speculation.
The following will be extremely unpopular here, however, it's a bit interesting that the EU is, in the case of private businesses, interested in preventing "restricted competition," however, when it comes to taxes, the EU continually criticizes Ireland for low corporate taxes. Essentially the EU is opposed to tax competition.
The EU parliament has accused Ireland of being a tax haven and damaging the economies of its neighbors. While now, Mastercard is being accused of harming the EU economy by preventing competition. Mastercard gets fined for preventing competition (a correct decision in my opinion,) while strangely, Ireland also gets condemned for attempting to have lower taxes. Ireland, Hungary, and Bulgaria are promoting competition and they're in "trouble" while Mastercard is restricting competition and they're in "trouble" with the EU as well.
So the EU Parliament is effectively acting like Mastercard by attempting to prevent tax competition which would lower prices for consumers far more than anything Mastercard could come up with. If the EU actually cared about competition and lower prices for consumers, then they'd let members set tax rates to whatever they want, but instead they want to "harmonize" tax rates -- essentially destroying the competitive advantage of lower tax locales. The countries that are harmed the most by tax competition are the ones that have highest taxes and public obligations -- yet Ireland, Hungary, and Bulgaria are supposed to raise their taxes to compensate for the fiscal decisions of France, Spain, or Italy?
"The EU’s tax commissioner Pierre Moscovici said in November that the Commission was considering using extraordinary powers to strip EU states of their veto power on tax matters to break resistance over blocked legislation."
So the EU tax commissioner wants to essentially force EU member states to comply with a "harmonization" of tax rates, despite some members opposing such a move and now the EU is fining Mastercard for attempting to "harmonize" interchange fees? That's hypocrisy, assuming the reason for the EU fine is to protect competition and/or lower prices for consumers. The difference is that businesses can more easily stop accepting Mastercard than they can change governments. It's worth noting that Pierre Moscovici is French and France has some signifiant headwinds in terms of regulatory and taxation attractiveness for companies. Punishing Ireland, Hungary, Bulgaria and other countries with significantly lower taxes serves to benefit high tax countries such as France.
So good for the EU for punishing Mastercard -- let's hope that they now turn to punish themselves for attempting to prevent competition with taxes. To be clear, I'm not anti-tax, I'm anti-tax harmonization and the reason is that tax harmonization essentially subsidizes bad fiscal policy. So countries like Ireland lose a competitive advantage simply because Spain can't balance its checkbook.
How is that "interesting"? That should be obvious. Taxes pay public goods, private companies just extract money to investors. They are diametrical opposed.
The bigger problem is that the UK won't be able to be certified as having adequate protection due to the Snooper's Charter (or, rather, any adequacy decision will be almost instantly sent for judicial review).
I think our politicians have forgotten how much we got away with by doing it after we joined.
I thought my question was fair so i don't understand the downvoting.
Meanwhile I can’t get a debit card from my bank that defaults to a language I speak at POS terminals because that’s not the official language of the country I opened it in.
The logic and connection being that is the country in which I signed the terms of service and agreed to x, y, and z (one of those being the language and another being fees).
So I, as a consumer, am stuck with the terms of the country I reside in, but the bank, as a merchant, shouldn’t be?
Edit: also, good luck with the “wants you as a customer” part. If you’re not a resident of their country it seems highly likely it’s not in their business interest to open you an account.
In Estonia, at least, they will demand some sort of “tie to Estonia”. That could be residence or a business, but you’re not getting an account otherwise.