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Visa, Mastercard mull increasing fees for processing transactions: WSJ (reuters.com)
225 points by protomyth 33 days ago | hide | past | web | favorite | 342 comments



The credit-card model is spinning out of control. I have a good income and decent credit. So I have a credit card that gives me 2-3% cash back on everything, low or zero fees, and tons of other bonus perks (various kinds of insurance, airport lounges, whatever).

So I should be excited right? Well, not really. The 2% cash back barely makes up for the 2% that MC/Visa take out of the middle in the first place! So the goods I buy cost more than they should and I get a "kickback" on the backend.

And if you're someone without access to great cards, then you still pay the same price in stores but you get no cash back, high APR, low credit limits, and crazy late fees.

It's regressive taxation.


According to [1]:

> On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general.

[1] https://www.bostonfed.org/publications/public-policy-discuss...


I have to say, I have never thought of it this way but it seems so common sense. Every deal has a cost associated with it of course but if only a certain subsection of people can appreciate that deal (see: non low income earners), then those who can't will eventually end up paying for it. The most egregious example would be over the top ceo bonuses. I always thought that the major problem with the unbanked or this who didn't have access to lines of credit were that they didn't have as much upward mobility but now I can see they're actively being made poorer with essentially accelerated inflation of the prices of everyday goods. I wonder if other services like Amazon Prime have a similar effect.


You're forgetting that it costs merchants money to handle cash; between miscounting at the till, plus petty theft, plus counting cash at the end of the night, plus time to take cash to the bank, plus time to take cash from the bank back (say when rolls of coins are needed).

I'd be surprised if the cost adds up to 2% of the cost of all goods, but it's still there.

> And if you're someone without access to great cards, then you still pay the same price in stores but you get no cash back, high APR, low credit limits, and crazy late fees.

That's an entirely different discussion, and completely misses out on debit cards (no APR, typically includes some form of rewards), when the bad cards should be used to build a good credit history, not as a daily driver.


While paperwork is easier with a cc, and the ~1.75% charge that processor's apply is valuable, there are additional risks that follow cc processing.

Fraud. While you may have an individual pay for $10-$500 in goods with counterfeit currency(rare), you'll definitely encounter $10-$5000 purchases with stolen card numbers. This means you not only lose the sale income, but you get charged a fee because there was a filing against you (charge-back).

Depending on your line of business, this can be as high as %0.66.

https://www.ns8.com/en/solutions/case-studies/industry-repor...


>You're forgetting that it costs merchants money to handle cash

Not that much. Which is why all-cash businesses invariantly offer stuff cheaper.


They also invariably evade taxes. Go wild on that downvote button, guys, but there's no need: everyone already knows it, and there is never going to be a political will to do something about it.


Do you believe in a right to privacy regarding purchases? (every electronic transaction can be tracked for all time) If so, how does that weigh against the small amount of tax evasion that takes place?

I do think there's a right to privacy, and I do hope it's difficult to gather political will for taking away rights.


In my country, many retailers now have to connect their cash registers directly to the taxman. The law behind this was enacted last year to counter tax evasion.


Does it work?

I mean, it's much easier for a tax inspector to simply go to the store, when it's busy, and wait for the slip up (when the clerk accepts money but does not use the register).

But in my opinion this was rare even before. And in really small operations, they don't have a register anyway. (Or take the gamble and don't use it.)


> Does it work?

There's no reason why it shouldn't.

> I mean, it's much easier for a tax inspector to simply go to the store, when it's busy, and wait for the slip up (when the clerk accepts money but does not use the register).

Why would a lowly clerk break the law for his multi-millionaire employer? And why would a customer do business with a company that didn't provide receipts?

That's not how it works. The fraud happens further up the food chain. However, if the taxman knows exactly how much money came in from customers by monitoring the cash register, he knows how much to expect in taxes from that business.

> But in my opinion this was rare even before.

Perhaps in your country. A few years ago whistleblower protections and a reward system were enacted here. So anyone who dobs in a company that's been evading taxes gets a percentage (IIRC 10%) of the unpaid taxes subsequently recovered. Since then there's been a string of highly-publicised cases of the taxman coming down on tax evaders. They recover taxes and squeeze more out of them in penalties and fines, and the whistleblower (probably some low-paid bean counter in the company) get's a huge lump of cash for his troubles.

Anyway, as a result of these events, now the taxman monitors the tax registers of large companies that accept cash. Certain categories of commerce and small businesses are exempt.


You think Arco evades taxes? They're a pretty large gas station chain and they don't accept credit cards.


Arco is not an all-cash business though - they accept debit cards.


There's a lot of correlated factors in all-cash businesses. Yes, they don't pay CC processing, but they often sell lower-end goods, are in worse neighborhoods with lower rent, may acquire some of their merchandise in sketchier ways, etc...


are we at the point where we are criminalizing the behavior of people who choose to avoid credit cards and only accept cash?


Right or wrong, it's a fairly common stereotype: a merchant who insists on cash-only transactions is dodging taxes or selling something illegal (or both, I suppose).

On the topic of criminal behavior, it's also worth noting that doing business cash-only makes you a more tempting target for robbery; if you did almost all of your transactions via credit or debit cards, you'd have very little in the till for someone to steal.


Being a cash-only business also means they can pay their employees in cash - often because their employees aren't authorized to work in the country.


We hit that point a long time ago when having a large amount of cash with you became a justification for civil asset forfeiture.


IRS forces card processors to issue 1099-k for any card processing payments. That's how it goes.


Could you please explain this for someone not familiar with the US tax rules and forms/numbers?


In old days when cash was king, many small businesses used to under report income. Then came credit/debit cards, which require of businesses to sign up with credit card processing companies, who take the fees out and reimburse monies to your bank account.

Since old habits die hard, these small businesses used to under report income despite the trail of evidence left by credit card processors. So, IRS came in and imposed a rule on these processors: send us a copy of payments paid to Mr Small Business X--and that copy is called 1099-K. This is like W2, 1099-MISC, 1099-INT.

Basically, the tax man wants records from the third parties, since self-reported ones are mostly under reported.


All processors ( FDC, Worldpay, Global Payments etc) are required to report credit card sales for each of their customers through 1099 reporting , This reporting is done on what is called a MID ( Merchant Identification)number. Every merchant accepting credit cards has one ( sometimes multiple)

Some processors charge merchants for this reporting services to the IRS which further drives up Merchant Services cost.


"...plus petty theft..."

I know people who work in hospitality. Employee theft is endemic. Via both cash and card.


Card? How?


Just a story of one, but here goes:

Back in the 90's, my parents were making a purchase with a card, and the cashier told them that the machine was down, so he had to take a copy of the card to run it later. A quick swipe of their card throughv something that impressed it on carbon paper and off they went.

Not long after, police showed up at their door informing them that said cashier's apartment had been raided and a whole stack of copies of cards had been found; for every one he made for the store he kept one for himself.

Mind you, this was before ubiquitous cell phones, internet access, and way before chips in cards for encryption. Whether a similar tactic could work now I have no idea.


Back in the 90s when our family went on a big vacation abroad we were always advised to never agree to have our card carbon copied for exactly that reason. Though I think there was one gas station where we had to, because we were out of cash. (Back then ATMs were new, and POS was only for the rich foreigners. Strange that nowadays we run around with everything RFID/NFC and multiple cards. And yeah, this was before smart phones. Those were simpler times :) )


Add or inflate the tip, then cash out.

Customer A has an open tab, customer B pays with cash, put B's drink on A's tab and pocket the cash.


Ah, yeah, that happens with or without customer B unfortunately. (And of course drunk people are easier to trick with cards, but then they are easy to simply rob of cash too.)


I would ditch credit cards the moment all the merchants I use would give me a 2% discount for paying cash. Using credit cards is perfectly rational until then. What's more, it's rational even for credit cards that don't earn any rewards or cash back, let alone ones that do.


Pro tip: if you go to a Chinese restaurant that offers credit card payments, counteroffer with cash and you can get a discount as high as 10%.


Credit card fees are about 2-3%. So if they are doing this, it must come from not charging tax.


Yup a small chunk of off the book income which goes straight to cash is worth 10% to them


They are doing this. Also, there are fees from credit card fraud as well to factor in.


I was under the impression that was factored into the 2–3%. Not true?


Merchants are usually liable for fraud losses (both the loss in good or services + a fee imposed by the bank for the privilege...). This is on top of the transaction costs. Those transaction costs do not cover fraud liability or losses.


>I would ditch credit cards the moment all the merchants I use would give me a 2% discount for paying cash. Using credit cards is perfectly rational until then.

Only if you don't fall behind on payments and start paying the card their exorbitant interest, as most people end up doing.


I use a debit card. All the convenience, but if I overspend, the transaction just gets blocked, end of story.

(I always have money in other accounts for emergencies, but this keeps day-to-day spending in check.)


Incidentally, debit cards ('check cards') in the US are more expensive than credit cards as a ratio of processing costs to fees (they charge %~.75.

These fees are more in line with costs in Canada (~$.03 a transaction).

https://www.cardpaymentoptions.com/fee-sweep/debit-fees-expl...

These numbers align with my experience when working for a processor in the US.


I'm surprised, because there's a couple of local stores that have a purchase minimum for credit cards but not debit cards (I'm in NYC). Also, I remember Jet.com used to offer a (very small) discount if you paid by debit card specifically, although I think they've stopped that in recent months.


If they have a purchase minimum, it's because they generally have low ticket values, sub $25 average receipt value. They exchange a low percent (as low as 1.00% on average vs ~%1.75) for a per transaction flat rate (say $.25-$.50 per transaction). The minimum is a way of keeping the processing costs in line (sub 3% for example).

The debit cards have different regulations which as far as I understand, don't exist (ie, it's like the old credit card contracts where they didn't allow you to charge a separate price for cash transactions). This is only my assumption.

There was no discussion on what regulations we had to follow for our merchants when it came to bank network transactions(the deals are brokered on a per bank basis, you can see which networks your card supports by looking at the back of the card for instance). Because of the segregated nature of the debit networks, they have less clout than visa or mastercard.


Businesses actually aren't allowed to impose minimums on debit cards. Some still try it, but technically you can report them.


But why would you want to do the credit card company's work for them? That regulation is in place purely because of political bribery by the credit card industry.

The consumer-friendly thing to do is to charge proper rates for things with higher processing fees, like credit cards, and not subsidize them by punishing everyone else.


>But why would you want to do the credit card company's work for them?

I'm not sure I'm following. The reason you'd do it is because you want to pay for a small purchase with your debit card. Like if you run into a gas station and buy a soda and a bag of chips but don't have cash on you.

>That regulation is in place purely because of political bribery by the credit card industry.

It's in place because it was determined that people shouldn't be subjected to a minimum purchase amount for paying with their own money through their debit card. (As opposed to paying with borrowed money through a credit card.)

>The consumer-friendly thing to do is to charge proper rates for things with higher processing fees, like credit cards, and not subsidize them by punishing everyone else.

Again, I'm not following. We're talking about minimum purchase amounts. What's punishing someone else?


Debit cards lack the same fraud protection that credit cards have. They have a weaker version.


I've never had issue with a bank refunding fraudulent debit charges. They catch them within minutes to hours.



The merchants would probably love to do that if cash handling related costs were lower.


Their contracts with credit card companies forbid different prices for credit card and cash. It's slightly insane IMO.


That used to be true, but it was ruled illegal and so it is not anymore. See https://www.washingtonpost.com/business/capitalbusiness/as-r...


I had around $25K stolen via a skimmed debit card from my Chase checking account (in a few hundred separate transactions). I finally noticed after about 6 weeks; they never did until I told them. This despite the fact that all the fraudulent transactions took place at least 100 miles from my residence, some as far as 2000 miles away. I did get all my money back eventually, but it took a month or two and a ton of back-and-forth in person and on the phone to sort out the bad transactions from the good ones (mostly due to their lack of attention to detail). I stopped using debit cards after that (and started monitoring my daily balance).


Is there a reason more merchants don't do this?

I've seen it done at gas stations (of all things), but never anywhere else.


As a small business owner in a past life, it’s probably because you don’t need to; not many businesses have customers looking to shave pennies off the price. The margins and competition in gas stations don’t happen elsewhere, I think.

And you don’t want to. Adding another set of prices and complication isn’t worth it to the business owner.

My 2c


It is my understand that Visa/MC won't be happy if you offer discounts for Cash (meaning they won't let you process any Visa/MC card).


The posted price has to be the CC price, but retailers can offer a cash discount. They don't want to see a CC surcharge.

https://www.cardfellow.com/blog/cash-discount-eliminate-proc...


Nah, they've been fine with cash discounts for a long time. They only became okay with surcharging / adding a fee for cards as a result of a lawsuit in 2013. They'd still prefer businesses offer a cash discount, though. They know customers generally don't take them up on it, but also don't feel punished like they do with a surcharge.


Mastercard and Visa take very little out of the transaction compared to the interchange fee that goes to the issuing bank. I believe the issuing bank would take $2.50 on a $100 dollar transaction vs $0.10 for Visa and Mastercard roughly.


In europe it's more like $0.35 on a $100 transaction for standard personal Mastercards and Visa due to regulation, the rest goes to the issuing bank to cover their costs and card rewards, and to your merchant bank to cover their costs and risk of chargeback. In US and Asia the interchange fees are much higher due to lack of regulation, thus it's not unusual for small business to pay a bundled rate of upwards of 4% if little credit history


To my knowledge the network and the bank take roughly a 50/50 split of the transaction fee. Visa and Mastercard are the ones with market control, so you wouldn't expect them to get only a tiny slice.


Visa and MasterCard began as consortiums of banks, so they made the system in banks' favors. Good rewards cards pay 2% cash back on all purchases, while transaction fees on rewards cards are in the 2-3% range, which necessitates that most of that fee go to the issuing bank, or the rewards programs would be money losers... they're not.


They actually only do get a tiny slice.

Interchange fees to the issuing banks start around 1.5% while Visa's volume assessment is only 0.13%.

But they get a tiny slice on an ungodly amount of transactions, so it adds up.


Actually Visa's Credit Assessment rate is .14%. They raised their prices by 1bpt in January 2019 and wrote themselves a $500 Million check by doing so. This is one of the reasons why Visa's stock performs so well over time.


I can't remember the exact figure, but I believe there is roughly only a two basis point spread between what the network providers take versus the operating costs to run the network. Therefore, any "disruptor" trying to enter would have to burn cash to not only build out the network but to also lower prices to try and steal market share. And the result would really only be 1 BPS saved on each transaction for the consumer.


Yeah, credit assessment is .14, debit is .13.


On top of that, I wonder what the average length of time credit card rewards spend accumulating and not being used, and how much depreciation that represents w.r.t. inflation, not to mention the opportunity cost of having invested it for the same amount of time.

And to boot, you pay a yearly fee for those non-interest-bearing funds to sit around!


But if you get 2% and they charge 2% you're stating their fee is approaching 0.

$0.25 and 2% is much less than the fees for Bitcoin, even cheaper than the ethereum gas.

If you only want to compare to cash, the cost of one bad employee greatly exceeds 2%, then employees needing to transfer money to and from a safe, and the guards and trucks required to transport that money.


As long as you do cash, you need to handle that anyway. And usually the people who want to pay with a card don't want to pay with cash. So if you don't accept cards at all, you'll likely see fewer sales. So it's probably worth it to have a POS terminal in your shop.


It isn't just the card brand taking a slice.

At best it's a 3 party system between the Gateway (Auth), Acquirer (person actually paying the merchant), and the card brand. I don't think it's uncommon for their to be middle-men between the acquirer and merchant.


Your argument that people with good credit pay less to use the network is sound, and in that sense it almost constitutes a minor poverty trap. But to call it taxation ignored all of the remarkable innovations that the card brands have made. They have successfully managed to connect nearly all of the worlds banks together in a way that facilitates almost instantaneous payments between them. Sure this innovation is old, but that doesn’t make it any less valuable to consumers. It’s still so valuable today, that a lot of our modern day payment innovations are still based on those very networks. Try and think back to a time before payment brand networks, and how tedious payments were then (especially international one) before dismissing the value of the card brands.


> But to call it taxation ignored all of the remarkable innovations that the card brands have made.

So something is only taxation if the money is wasted in your view?


> So something is only taxation if the money is wasted in your view?

Sometimes I wonder if half the problems we have in this century stem from our eagerness to slap labels onto things instead of just letting them be themselves.


I think a tax is any compulsory fee levied by the state. Even if you generalise the concept to all compulsory fees, I don't think it fits in here. You're free to not use the card brands payment networks, and pay them no fees. You can say that it's not practical to do so because that would severely limit your ability to pay for goods and services, but that's what transactions were like before the card brands innovated the industry. They render a service that provides extraordinary convenience for consumers, that's what you're paying for. It's no more a tax than any other expense that's factored into the margins of the goods and services you buy.


It is compulsory fee if merchants don't offer a cash-discount.


Visa doesn't collect any fees on cash transactions. This argument gets contrived pretty quickly. When you go to a restaurant, technically the cost of toilet paper is factored into your bill whether you go to the bathroom or not. If you shop online, technically the cost of rent for the retailers brick and mortar stores will be factored into the price. Transaction fees aren't a tax, they're the price paid for consuming a service.


Is it a cosmic coincidence that these two large competitors are going to increase fees at exactly the same time?


Your comment reminds me of a recent article I read (on HN iirc but can't find the comment thread):

https://www.technologyreview.com/the-download/612947/pricing...

>Researchers at the University of Bologna in Italy created two simple reinforcement-learning-based pricing algorithms and set them loose in a controlled environment. They discovered that the two completely autonomous algorithms learned to respond to one another’s behavior and quickly pulled the price of goods above where it would have been had either operated alone.

>“What is most worrying is that the algorithms leave no trace of concerted action,” the researchers wrote. “They learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.” This risks driving up the price of goods and ultimately harming consumers.

I don't think it's out of the realm of possibility that two companies could arrive at such a move without conscious collusion. I also don't think it should be treated differently.

Long term, I think Visa an MC could shoot themselves in the foot. Merchants are now allowed to charge fees for using CCs IIRC in at least some areas.

You could easily end up with a situation like Europe where people mostly use debit cards for in person purchases since the processing fees are lower.

Consumers lose the protection of a buffer from their bank account, issuers lose out on revenue. Not a good outcome IMHO.


There was this thread from awhile ago: "Cartels Are an Emergent Phenomenon, Say Complexity Theorists" https://news.ycombinator.com/item?id=3494224


Of course. They also share most of their customers. Their business model is the same. A lot of their metrics probably trend similarly. Each would definitely know what the other is up to without talking directly.


Is this essentially a variant of the "tit for tat" strategy in an iterated prisoner's dilemma? It seems analogous


The prisoners dilemma is ultimately just a demonstration of game theory.

That is there is more than you win/I lose or I win/you lose but there is win/win.

It’s definately conceivable two algorithms or two ai would be capable of concluding the same. In fact it may be even easier because what’s the actual dilemma/self interest of such a system without the selfishness of human nature?


Why would you intentionally operate an AI that wasn't as selfish as possible?


Because game theory/prisoners dilemma/the red black game (whatever you want to call it) suggests you would get a better outcome otherwise.


if you ruin your only competitor, the antitrust folks will come after you


Nah, they still can come after you if you prevent new firms to enter the market. (But if you just do the usual regulatory capture the gov. will be just happy for you, as you gave them a lot of busywork for nothing.)


My pet peeve is how "The Prisoner's dilemma" is the most commonly used example of game theory while being one of the worse examples (because it involves no information exchange and a skewed payback)


Also tragedy of the commons.


What do European banks do when debit card fraud occurs?


India probably has the same number of users (or maybe more) of debit card users as the whole of Europe.

In India, banks have transferred the liability of debit card frauds directly to the card holder.

As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.

If you lose your card or suspect fraud, you can always block it through your online net banking account or by calling the bank.

In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -

A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't happen, they filed further complaints with the bank and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.


European banks use chip and PIN cards which are much less susceptible to fraud. So they're fine.


India probably has the same number of users (or maybe more) of debit card users as the whole of Europe.

In India, banks have transferred the liability of debit card frauds directly to the card holder. As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.

In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -

A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't they filed a complaint, and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.


For certain definitions of fine. If fraud does happen the consumer is usually not believed, because of course, fraud does not happen.


And additionally my bank have a block system, I believe around 24/48h between freeze the money and finally withdraw it from my account.


Am I wrong to assume most fraud is online? How does Europe deal with big data breaches and the like?


2-factor auth is typically mandatory when using a chip and PIN card to buy things online. Rather than physically entering the PIN on a keypad, you're doing something through a flow using your user account with the bank. So not only would the random retailer need to be compromised, but the bank would have to be as well.


In that case what is the difference between credit and debit usage?


In practice, here in Europe credit cards are often worse because the seller can add additional charges after the transaction using just the CC number (even with chip+pin CCs) whereas this is impossible with a chip+pin debit card.

And the CC "protection policies" aren't that useful here, in my experience it's near impossible to do a successful chargeback and there are few cards with high cashback.


Arbitrary "protection" policies anyone can implement, powered by Visa and Mastercard?


Several forces would contribute to both VISA and MC changing fees at the same time.

- the typical open and transparent "price signaling" where competitors can "see" others' price changes. Similar to one airline immediately changing (matching) a ticket price in response to another airline lowering or raising its price. Same mechanism as Amazon bots constantly web scraping Best Buy and Walmart and Best Buy in turn scrapes Amazon. Everybody is constantly monitoring everybody's prices.

- Visa and MC have overlap of owners[1][2]. 4 out of the top 5 owners are the same for both: Vanguard, Blackrock, FMR, State Street

- Visa and MC have overlap of member banks that also have minority ownership

Yes, you were being sarcastic about the coincidence but it seems like the natural economic equilibrium is for both to have near identical network fees.

[1] Visa top 5 institutional stockholders: https://www.nasdaq.com/symbol/v/ownership-summary

[2] MC top 5 institutional stockholders: https://www.nasdaq.com/symbol/ma/ownership-summary


The overlap of owners means nothing, as those are mutual funds or ETFs that are the top owners of most stocks on the market.


These mutual funds and ETFs actively participate in corporate governance, and the overlapping ownership of most stocks in the market is a very underrated problem.

Economists have found evidence that as ownership concentration increases, firms act more like a monopoly.

See this paper for one example in the airline industry: https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698


Participating in corporate governance and actively forming corporate strategy is a very different issue. And to my knowledge, ETFs and mutual funds do not participate in any meaningful way in management, i.e. they do not act as activist investors.


>And to my knowledge, ETFs and mutual funds do not participate in any meaningful way in management, i.e. they do not act as activist investors.

There's been a trend towards more activism with passive indexes. One example with Blackrock's passive fund:

https://www.afr.com/business/larry-fink-says-blackrock-will-...


It seems relevant - if company leadership is attempting to act in the best interests of the shareholders, the fact that the shareholders also own their competitors would tend to bias them against engaging in a price war (even one that they would have a good shot at winning).


there’s an ongoing debate about whether this situation actually does pose an antitrust problem across many industries.

it’s at least not totally implausible.


IMHO, the Card Brands are an Oligopoly Industry so they have pricing power and therefore raise prices because they can. Add on the fact they are public companies with their investors ( your list) hounding them for better returns leads to price increase abuses.


Good post!


That's why they're 'mulling'.

Company A 'mulls' something, company B and C follows, X gets done.

If company A mulled something and no one else piped up, they could still of course go it alone, or they could decide that they want to help save their customers even more money, and not raise prices.


just use cash. can’t be tracked and it works everywhere (however i’ve run into one cashless shop recently). it’s unweildy for large transactions though, so checks or (reluctantly) cards are useful there.


Also Delta flights don't accept cash transactions.


Delta Connection flights (potentially single class cabin only) only take cash. United also did away with cash transactions onboard. Of course, if people stop buying things on board because they can't use cash the airlines will switch back.


Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets.


> Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets.

Technically it depends, but it's still Delta branded with Delta setting the policies. Endeavor Air is, for instance, wholly owned by Delta.


ah, yes, i don't usually buy stuff on a plane but that's a more prevelant example that i couldn't remember earlier.


Don't fly delta then.


I get 1.5% cash back on purchases with my credit card. I'm essentially recouping the interchange fees.


yes, almost. the middlemen are still taking ~1%, which everyone pays for through higher prices. wouldn't you rather have lower prices on everything and not have to worry about which card to use to get which points to claw back some of that cash?

to be fair, one needs to experience the current credit card rigamarole to realize that straight lower prices are less complicated and preferable. i get tired of having to remember to cash in my points in a convoluted system involving yet another third party (the rewards provider).


> i get tired of having to remember to cash in my points in a convoluted system involving yet another third party (the rewards provider).

Get Citi Double Cash and you'll get 2% on everything without point conversion hassles.


This is a nice thought, but come on. If you want to be a good samaritan, donate to a charity. Giving up 2-3% cash back by using cash while plaintively reminding everyone that interchange fees are harmful to society isn't making any difference to anything other than your own wallet.

Also, some cards automatically apply rewards points. My Schwab Amex card deposits my 2% cash back each month directly into my brokerage account. My Amazon Prime card just gives you a checkbox when buying on Amazon where you can apply cash back to your purchase during checkout.


Has to be if there's no documented evidence otherwise, right?


Just like all the gas stations in an area raise and lower their prices at the same time and in the same amounts.


Gas stations change their prices based on their primary supplier for a given area these prices tend to be more or less the same, they also don’t make money on selling gas these days but rather of the convenience store/restaurant or by leasing that space to someone.


Gas stations do that at a very regular cadence: daily.

Visa and Mastercard change prices much less often than that, so this take is a little too apples-and-oranges for me.


It's true that they don't change prices daily, but it's also not particularly uncommon for them to do so. Visa raised an assessment I think last January? And interchange fees have changed several times over the years as well.


In economics this is called tacit collusion


Wouldn't we observe the exact same behavior if the two were in an equilibrium where long term average cost was minimized (and, incidentally, equal to the price) and something caused LTAC to rise?


No. I'm sure they use similar algorithms to determine when to increase fees.


Capitalism has failed in a way. The free market was supposed to facilitate competition. But what we've seen is increasing consolidation, not competition. Most industries are dominated by a handful of players who gobble up smaller rivals, who, after raising millions in funding, are too happy for the exit.

All data shows the same: competition is being trumped by consolidation and its eventual end, cartelization


> Capitalism has failed in a way.

That's not to say that capitalism is thus refuted as an economic model. All it means is that someone hasn't been doing an adequate enough job (probably regulators or lawmakers, in this case).

Capitalism's success is always a function of adequate rule of law, economic regulation, social trust, and personal generosity. Where those are present, it absolutely trounces other models.


I'll agree that processing is surprisingly lightly-regulated.


Capitalism is astable and requires a negative feedback framework to operate properly. It also has a narrow habitable zone otherwise it will cause an ecosystem collapse.

Capitalism isn't just a hand, it is mostly a mind that runs as an overlay over all the participants willing or not, and it isn't very bright, but it is very powerful. We are all but rabbits under its strong hands.

https://www.youtube.com/watch?v=ArNz8U7tgU4


global markets, network effects are king.

these services should not operate as for-profits. though efficient oversight is also hard :(


But they're not competitors. They just happen to provide the same service.

Cooperation is the way to maximize profits for both companies.


> But they're not competitors. They just happen to provide the same service.

Why are they not competitors?

I might be way out there, but if two companies provide the same service (even if they vary slightly), they are competitors.


Because there are only 2 companies in the industry with huge moat - https://www.jstor.org/stable/4225650?seq=1#page_scan_tab_con...

It's the same reason why airlines don't compete with each other.


The price of flights to Hawaii just dropped because SouthWest is starting a new route there. How is that not competition?


They are competitors, but it's not a zero sum game. There are plenty of consumers who have both.


Look at AMEX, which has been rebuked by many merchants due to higher fees. The biggest risk for Visa & MC in doing this is that AMEX might begin to seem more swallowable for merchants.


Amex actually lowered their fees to be more in line with Visa/MC through its Optblue program back in 2015. The fact that many businesses don't know that is just a testament to the complexity and confusion in the industry.

Source: am in the industry.


Would that mean that after Visa & MasterCard do this, AMEX will actually be the better option for merchants?


We don't know which rates Visa/MC are actually raising yet, but probably not. It has a lot to do with how/what processors charge.

Along with lowering costs, Optblue let processors add a markup to Amex transactions. (Previously they couldn't. That meant no incentive for processors to suggest or push Amex acceptance, as they didn't make money on Amex transactions.)

Now they can, and those markups tend to be higher than for Visa/MC. In egregious cases, the processor simply continues charging the business the old Amex rate (~3.5%) and pockets the entire difference between 3.5% and the new lower rates.


Rumor has it that Opt Blue Wholesale rates are going up by 10 pts in a few months


They aren’t competitors? Well, they definately aren’t complimentary services (ie peanut butter and jelly).

Well merchants and consumers aren’t the competitors of visa/MC. Maybe they should cooperate by lowering the fees. If cooperation is the way to maximize profits...or does that only work when two companies collude to price fix?


Visa and mastercard should be careful they don't compete their way out of a market. Stripe, square, apple, google, samsung, etc; there is no reason these companies couldn't band together to create their own clearing system. Visa and MC started as credit cards, but almost nobody I know uses them that way anymore. They're all bank cards, and visa/MC/Amex are just proxies. I see no reason why they can't be replaced, and I'm honestly hopeful that they will be.

Okay and seriously: I actually just want US Mint backed card. I think it's absolute lunacy that these private companies are essentially levying their own tax on consumer transactions. Cash is outdated, and the government should react appropriately. (And only in my most feverish of fever dreams: it's a cryptocurrency, and only at >104F temperatures, it's on the ethereum network. Oh boy a man can dream!)

In this world: Amex, Visa, and MC can go back to being credit cards.


I mean the actual reason these companies are able to levy these taxes is because they provide contractual consumer protection. If we had strong consumer protection laws in the US in the first place, there wouldn't be much value left in Visa/MC etc.


Visa/MC are essentially the Uber of credit. The banks provide the credit lines and Visa/MC take a processing fee to use their networks. Amex is a pure play. Paypal in store is one way to avoid the CC network.


I don't think I follow you here. What consumer protections does visa offer me if I am using it as a bank card?


I haven't used a bank card in many years. Is it common for people to use bank cards for general purchases? I believe more people use credit cards now because of the many benefits, including consumer protections.


Yes this is very common. Most people I know use a bank card, which is powered by Visa's payment network, and ran as credit.


Far fewer to almost none, BUT by the same token interchange rates on bank/debit cards are way lower than they are on credit cards.


Here in Norway we got Vipps, a mobile payment system owned by the largest banks here, which recently beat all relevant competition.

At the beginning the transactions went through your credit card, but they added (optional) direct bank account access not long ago. They also quickly removed transaction fees for amounts < ~$500, above it's 1%.

They've also added ability to have company accounts, so that you can pay in kiosks, kebab shops or whatever with Vipps. And since they're backed by the banks you can get and pay your bills directly in the Vipps app. They're currently in integration talks with Paypal to make Paypal<->Vipps transactions more smooth.

So yeah, raising transaction fees isn't the first thing I'd do if I were Visa or MasterCard in Norway.


The clearing system isn’t the core part of the card brands value though. It’s their payment network. The fact that a card issued anywhere can be used to process payments to a majority of the worlds merchants and banks.


Worth noting that here in NYC, the courts have gone back and forth on whether passing transaction fees onto consumer is legal: https://www.law.com/newyorklawjournal/2018/10/23/ny-court-of...

I remember being shocked when my local pizza place put a sign on the register saying there was now a 3% fee on card usage (which became legal to do as of ~September 2017). Absolutely wild that Visa/Mastercard would raise prices further. It's already hard enough to find a place that accepts my Discover card, let alone an independent joint that will accept Amex (accept for all the places in and around Chinatown who only accept Amex, never will understand how _that_ happened).


Absolutely support passing crap like this on to customers.

Otherwise there is no incentive to lower them.


Completely agree and it also punishes people who pay with cash because we all have to indirectly pay for the processing fees of others.


One could also say that the costs of using cash are being passed on to card-paying customers


What's hypothetically supposed to happen is the payment vendors compete with eachother for traffic, and businesses negotiate deals and use the ones that give a good deal.

Whether it's actually working that way in practice, of course, is a valid question.


The problem is network effects. If you accept Visa or Mastercard then you lose business, because many customers have only one or the other. So you need both, which means you can't play them off each other for a better deal and they aren't actually competing with each other.

Combine this with contract terms in many places preventing merchants from passing on fees and it gets even worse, because card networks can gain customers and increase their network size by offering rewards and then use the network effect to raise fees. If the merchant can't charge more to customers whose card network charges them higher fees, the cardholder has the incentive to use the card with the highest rewards (and thus the highest fees), so you get a ratchet of increasing processing fees despite an overall trend of falling underlying processing costs due to automation.


Speaking purely hypothetically, it's easy for a customer to carry both a Visa & MC, so if stores more frequently took only one or the other, customers would respond accordingly. Like they already do with AmEx, or when traveling internationally (where MC has a big leg up).


But that's chicken and egg. Collective action problem. You can't stop accepting one or the other until the large majority of customers carry both, which they won't do while most vendors continue to accept both thereby allowing the cardholder to only need one.


True, although Visa card circulation far eclipses MC, so you could take the gamble that they'll have a Visa. Last I checked, Visa actually had more cards in circulation than all three of the other major brands combined.

Slightly old info, but:

SEC filings for end of 2016 had Visa circulation at 335 million, MC at 200 million, Discover at 51.4 and Amex at 47.5.

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

Nilson report 2016 card usage by volume has Visa at $1.549 trillion, with Amex at $0.695 trillion, Mastercard at $0.693 trillion.

https://www.valuepenguin.com/largest-credit-card-issuers

Forbes has some charts with market share info.

https://www.forbes.com/sites/greatspeculations/2017/09/07/vi...


The problem is it's not a gamble, it's a percentage. Even if 75% of your customers have a Visa, then 25% of them won't and you risk losing that amount of business by not taking what they do have.

Moreover, that still wouldn't give you competition, because then what incentive does Visa have to give you a good rate if they're the only network you could plausibly attempt exclusivity with? It's like trying to solve a lack of competition by creating a monopoly.


I agree that there isn't much of a way to get lower interchange fees, but many, many businesses overpay at the processor level, where there IS a way to get lower total costs.

>contract terms in many places preventing merchants from passing on fees a

This is not a thing anymore, the card brands allow surcharging. It's prohibited by state law in something like 7 states, but those are rapidly losing court battles about it.



I don't know if its true or not but heard that Costco with this new deal with Visa is only paying a flat 40bps in interchange cost. Now that's a deal!!


Companies should feel free to not accept credit cards, but if they do accept them, it becomes a cost of doing business, and I, as a card user, expect to not be penalized for using one.

Providing parking is also a cost of doing business. I don't see any arguments in favor of merchants charging car-driving customers more than walk-ins.


Conversely, we could regulate and treat card networks as utilities (allowing them to recoup reasonable operations costs) instead of for-profit concerns siphoning unnecessarily off of the flows of capitalism. It works for Europe.

Customers regulating through voting with their wallet isn't going to work with how much power large financial firms wield. I contacted Elizabeth Warren's office (she's on the Senate Banking Committee); if this matters to you, I suggest you do too!


> I contacted Elizabeth Warren's office (she's on the Senate Banking Committee); if this matters to you, I suggest you do too!

Unless you've also got a plan to get a Democratic majority in the Senate, your plan probably needs to extend beyond Warren if you are relying on her role in the Banking Committee (if you are expecting her to win the Presidency in 2020, that's perhaps another story.)


> your plan probably needs to extend beyond Warren if you are relying on her role in the Banking Committee (if you are expecting her to win the Presidency in 2020, that's perhaps another story.)

It does. No need to pollute this thread, email me if you want to chat about it.


I prefer that honestly, i feel like im getting a discount for paying in cash


Before the law changed discounts for cash were pretty common especially at gas stations. In my part of the world (Fla) I don't see them anymore, anywhere.


Cash is pretty expensive too.


AmEx is not widely accepted, because the fees are higher and the cardholders usually also have a Visa or an MC card.

Saying as a merchant ;)


For this reason, I don't understand how Amex keeps attracting customers - you can't count on it being accepted everywhere, so you need to carry a MC/Visa backup card.

I used to tell myself that it was superior customer service, but I once disputed a charge at an overseas hotel and was sure it would be a fast/easy process - I paid for the room through Expedia and the merchant charged me for the room after I checked out. I contacted the merchant and they agreed and said they'd refund the charge. They never did.

I sent all of the information to Amex including the Expedia booking and the email from the merchant saying they'd refund me. It took them 3 weeks to "investigate" the charge and then they came back and determined that the charge was legitimate and I was not due any refund.

I spend an hour on the phone with them and got escalated to a supervisor who said she would re-open the investigation and 20 days later, they decided that I was due a refund and a week later they refunded it.

That's when I realized that there's no reason to have an Amex, so I replaced my Amex Gold Card with a Chase Sapphire card - I had to dispute one charge on the Sapphire and I didn't even have to talk to anyone, just did an online dispute and had my money back in less than a week.


Amex is accepted almost everywhere online, anywhere Square/Revel/Clover is used, any large retailer, and most 2+-dollar-signs-on-Yelp restaurants.

As you said, users should still carry a backup, but most places accept it. As for customer service etc., their platinum cards are where they shine.


I think it's as simple as - twenty years ago, there was no CSP/CSR, Amex was just a different experience. People's views/frame gets ingrained deeply. Younger people go Chase, in my experience.


Amex lowered their fees in 2015 through their Optblue program. They're still a little bit higher than Visa/MC, but much closer than they were. If you're still getting high Amex (3.5% or more) your processor is pocketing the difference between that and the lower costs.


With all the talk about "free markets" and stuff it seems very un-american that the restrictions the credit card companies are imposing are legal. These companies have enormous power and they are allowed to use it.


Those transaction fees were originally prohibited by credit card merchant agreements, but eventually they relented.


> Those transaction fees were originally prohibited by credit card merchant agreements, but eventually they relented.

They were prohibited by federal law until a few years ago. That was repealed, but now they're still prohibited by state law in a number of states. In addition, some merchant agreements still prohibit it, particularly if the merchant accepts American Express.


They shouldn't charge extra but offer discounts. It is bait and switch if they are charging arbitrary fees. Ryan air is notorious is for this practice. Advertise a low-cost flight but after you go through the sales funnel, unless you have Visa Electron. You pay an extra 5%.


Which is at least more favourable to the customer than Easyjet's approach which is to tack a £16 ( $20 ) 'administration fee' onto each booking regardless of how one pays.

I don't have any love for Ryanair but recently booked with them because the ticket cost less than Easyjet's fixed fee.


IMO, If surcharging really takes off, I think it will make Visa and MasterCard more accountable for their rate increase or at least think twice about it. I say this because with surcharging the merchants will pass the rate increases on to the customers and point the finger at Visa/MC. You might see the consumers then going to his or her Congress people both state an federal saying WTF! That's when the shit might hit the fan. That's why Visa and MC fought surcharging in courts they don't want to be held accountable. Stay tuned


It might be to accommodate business diners and really rich people who have those black cards. I've personally never had an Amex except for corporate cards.


It has a bit of popularity for unbanked folks with the Bluebird Card from AmEx / Walmart. Free reloads at Walmart unlike the Walmart MoneyCard (Visa / Mastercard) which has a $3 fee.


American Express also launched a discount prpgram for merchants, to make pricing comparable to Visa/Mastercard. If you have little volume, its easy to qualify.


while its true for amex, i dont think discover fees are any higher than visa/mc.

square lists discover fee 1.56% – 2.3% and visa fee at 1.43% – 2.4%.

of course, fees are negotiable and much less for the physical retail. durbin amendment sets the limit on /debit/ fees at 0.05%+$0.21


It's been a while (~10 years) since I've had to deal with credit processing, but at least back then, discovers terms were pretty abusive for small businesses. In any month where we processed 1 or more discover transactions we had to pay a minimum fee of (iirc) $50. Given how relatively unpopular discover is the risk was just too high.


Wow, sounds like a clearly anti-growth policy. I wonder if they have some expensive accounting in the backend or something.


It's really annoying when trying to buy guns. They tack that 3% fee on there, and then say you can pay for cash or check. Ever bought anything online with a check? It's annoying, doubt anyone does it. Any site that is selling a gun I want that tries to pull that I avoid.


Visa/MC are probably going to try to target the margin that fintech startups have able to eek out at the lower end of the card processing market.

From their perspective, the fact that companies like Stripe and Square have been able to obtain unicorn valuations for card processing services means that there's money left on the table. Card processing was a basic commodity business before these guys. Somehow, Stripe et al have been able to convince a large swath of customers to accept 2.9% + $0.30.

Did you know that interchange on most debit cards is just 0.05% + $0.22?[1] That's massive margin.

Visa/MC is like, sorry Stripe, don't try to play our game on our platform. We invented it. (Somewhat cynically you could argue this is why Stripe spends a lot of time/resources on "big thinking" and kind of puffing themselves up into more than a "card processor". It's part of the sell.)

[1] https://www.burlingtonbankcard.com/interchange-plus-pricing/...


Visa/MC don't care what Stripe (or any other) processor charges, they get their money FROM Stripe/the other processors, by way of assessments.

>Did you know that interchange on most debit cards is just 0.05% + $0.22?[1] That's massive margin.

Except on certain transactions where it's a money loser. Square was charging Starbucks 2.75% and Starbucks' average $5 debit transaction was killing them. They lost millions.

Square’s cost to process a regulated debit card works out to 0.16% of the total sale price (the 0.05% regulated and the assessments from the card brands) plus a transaction fee of $0.2355. (Again, the regulated transaction fee plus assessments.)

So, Square’s cost to process a $5 transaction is $0.2435 (5 x 0.0016 + 0.2355). However, 2.75% of $5 is only $0.1375, which means Square losses $0.106 (0.2435 – 0.1375). It only charged its customer $0.1375 for a transaction that it paid $0.2435 to the bank and the card brand to process.


> Square was charging Starbucks 2.75% and Starbucks' average $5 debit transaction was killing them.

That's a somewhat separate issue. That's because Square doesn't charge an absolute component ("+ $0.xx"), not because their percent component markup wasn't huge. In any case, Stripe suffers no such problem.


Indeed, and it's part of why Square was a (ha) square peg in a round hole. Incidentally, it's also why they have other pricing now that does have a per-transaction fee.


Stripe and Square will just raise their fees. Visa/MC are the network, you still need a processor. For low volume transactions, its normal for a processor to offer a merchant blended rate. For higher volume, you pay interchange + processing fee. Stripe offers interchange plus pricing if you have enough volume.

Visa even owns a low volume processor called authorized.net that charges same fees as stripe. They also own cybersource which specializes in high volume processing which operates on an interchange plus model.


> Stripe offers interchange plus pricing if you have enough volume.

Are there published details on this? What is their markup?


Most interchange plus pricing is negotiated and covered by NDAs.

Generally, Interchange plus fees(not stripes) range fixed of 0.05 with 10bips settlement fee all the way down to fractions of a penny if you're doing millions of transactions per month. Authorized.net used to do 0.10 and 25bips settlement but I think they only do blended rates now.


Wow... Visa purchased Authorized.net in 2010. They were one of the big ones for startups besides PayPal.


Authorized.net was in decline in 2010. They never released a method to pass the card numbers on the front side which made customers servers in-scope for full PCI compliance.


Square is probably the biggest game changer here simply because they also have the POS systems in place to just replace visa/MC if they want. They also have a bunch of apps like cash app....which apparently is going to be integrating bitcoin lightning network soon.


You don't understand payments if you think they can just replace Visa/Mastercard. The whole value add of Visa/Mastercard is the networks they have with the hundreds of thousands of banks, etc, which Stripe doesn't have.


Stripe as an acquirer does have bank relationships. Visa isn't paying the merchant directly.


Different kind of bank relationship. There are two banking roles involved in card networks: merchant acquirers and consumer card issuers. Visa/MC are the intermediary between them.

Stripe only partners with a merchant acquirer bank. To replace Visa/MC they'd also have to get into the card issuing side of things: get a bank or banks to issue "Stripe cards" and get merchants to start accepting them.


> they also have the POS systems in place to just replace visa/MC if they want.

Yeah, that's not how it works. Banks that issue cards contract with intermediary card networks like Visa/MC, not POS system vendors.

> integrating bitcoin lightning network soon

Been hearing that for years. Basic problem is while merchants would love to have lower fees, consumers don't have a powerful incentive to switch off using cards. The usual argument is they would save ~2% on prices but there is actually evidence that this would't necessarily happen. When Australia regulated down processing fees, the savings were not passed onto consumers.


>Card processing was a basic commodity business before these guys. Somehow, Stripe et al have been able to convince a large swath of customers to accept 2.9% + $0.30.

Certain retail industries are willing to pay a premium for simplicity and better UX. Merchant account processing is a cottage industry and it's easier to pass on hidden charges through a merchant than a what-you-see-is-what-you-pay flat rate. Especially one with Stripe-caliber UX.


Definitely the case for some, I know a lot of developers love Stripe's documentation. But some others just plain equate simplicity and low cost. They have no idea how to read their complex merchant processing statement, there are all these rates and fees.. Square or Stripe comes along, bundles everything into a simple-to-understand rate, and they think it must be cheaper.


eke


India launched UPI (Unified Payment Infrastructure) which is more like a public utility which does 10x more transactions that Visa and Mastercard in mere 28 months of its launch and is 100% free. More interestingly you can built very interesting apps on top of it and make money.


I don't know if the stats you quoted are true but UPI is a fantastic product. The only problem being you can't use credit so you pretty much pay through your bank account.

Also, they have a more direct rival to Visa and MasterCard as well. RuPay, which has lower fees apparently.


The stats are for India only BTW. UPI does close to 700M transactions a month and growing around 20% month on month.

Compared to that Visa, MasterCard and Rupay combined do around 150M transactions a month. Of course if we add ATM withdrawals (which is actually a cash transaction to think of) than that number is around 800M per month for all of them combined.

All numbers are for India only. in USA Mastercard alone does around 12B transactions a year and globally around 75B transactions a year. Large but India's UPI had a fair chance to even overtake than in next 5 years.


Presumably this is to pay for all the points people get by using cards, not to mention the sign up promotions.

I like how in Europe and Australia interchange fees are capped. Even if it means they live without such bountiful premium cards.

https://en.wikipedia.org/wiki/Interchange_fee >> In the United States, the fee averages approximately 2% of transaction value.[2] In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards.[3]


I think the points are fully paid by avg 21% APR, $37 late fees, interchange fees, foreign transaction fees(2%) and ATM fees on credit cards. Its just greed.


Saw a video by vox today where they argue that the points are also paid by increased retail prices. Even if you decide to use cash, you are basically paying for someone's business class upgrades

https://www.youtube.com/watch?v=ySH5SudRwak


The Chinese store I buy from offers me discounts if I pay in cash. He offers me 5% discount on furniture and also gives me a proper invoice (so he is not really defrauding the tax authorities either).


And the card holder pays with their privacy as well, that data stream is also monetized.


Yeah but the people getting the points aren't the people paying those fees. It's mostly a wealth transfer from the poor to the well off. It's grotesque, and I think they should be banned.


No one is being forced to spend money they don't have.


> pay for all the points people get

More like stagnant growth and very few levers to increase their (Visa/Mcard) bottom line - which, of course, shareholders demand. Issuing banks and acquirers deal with the points people get.

Source: was in the industry for a dozen years.


Here is an in-depth overview of who ends up losing out with the credit card rewards system we have in the US: https://www.reddit.com/r/churning/comments/5oucdq/the_econom...


EU is also considering an alternative, more real transaction cost based, rails for the Visa/MC system

https://www.finextra.com/newsarticle/33339/ecb-chief-says-in...


Points aren’t managed by visa or MC, it’s the card issuer that does it.


While this is a hostile development that will be painful for some, there's a part of me that's grateful for every shitty thing they do because it increases the likelihood of a challenger.

Would Stripe exist if PayPal hadn't been so hostile to their customers? Giant markets of money movers all explicitly saying "We hate having to use these guys, isn't there anything better?" tells David that it might be worth fighting Goliath.

IMO blockchain is like a green-party candidate that undermines more promising candidates by sapping votes in a system that doesn't allow runoff voting – it's a shiny, utopian distraction that prevents people from starting the companies I think are more appropriate and promising – card & payments startups that support or resemble existing infrastructure.

Privacy.com, Final (RIP), the venmo card – the first company to unseat the incumbents in the card space is going to be a big deal. Stripe is making excellent headway in eating the elephant, using their web payments platform to get big enough to compete in the more difficult card issuance space. Here's hoping they have ambitions of re-investing the clout they get from cards to attack the underlying processing layers, and disrupt global financial infrastructure from the outside in.

The Point Of Sale industry is making great headway here too. Revel, etc. The blockchain equivalents have flopped, but the card-based ones are now standard issue at even the tiny mom and pop stores. There's real hunger for modern tech in the payments space, it just needs to roll out in more accessible stages.


We have a solution in Denmark, thats cheaper called Dankort, litteraly everyone over 18 has one (Works just like any credit card). Jointly created by all Danish Banks. Works pretty much flawless, but the banks jointly sold the company behind it, and now looks like some banks wants to let it die... So they can instead get kickbacks from Visa/MasterCard.


> the banks jointly sold the company behind it, and now looks like some banks wants to let it die

There could be a dark brilliance to such a move. Want to raise your margins? Get paid to sell your low margin product, let it die, and get paid again when you raise your margins in the new market.


The best way to beat the system is to take advantage of the massive credit card reward bonuses that US banks offer. I've churned credit cards since 2012 and have nearly all my personal travel paid for by points every year, including international business/first class flights, luxury hotels, and cash for travel...

Best thing is credit card rewards are not taxed because they are considered a rebate, which is quite amazing especially in a high tax state like CA!


I mean, yeah, that's good for a limited pool of consumers (myself included, as well), but really we're just being subsidized by other consumers who pay with cash, debit, or even credit cards that don't generate as high rewards. There's no reason Visa and Mastercard (as well as the banks) should be able to rent-seek the insanely high fees that they do on most retail transactions.


I mean as a private individual I have no power to change what Visa or Mastercard do, so it makes no sense to "protest" by using cash (which actually hurts me since I'd be the one subsidizing others) instead of just trying to extract as much value as possible from the banking and payment industries.


You're not extracting that value from the banks. You're extracting it from poor people.


Couldn't you say the same about taking advantage of any offer that poor people can't (or are less likely to) take advantage of? eg. buying toilet paper every 6 months when there's a deep discount, rather than buying small packs weekly (which poor people are more likely to do because they don't have the savings to buy 6 months of toilet paper upfront).


> I mean as a private individual I have no power to change what Visa or Mastercard do

Well, sort of. Enough bad publicity and public shaming has some impact on corporate bad behavior.

> it makes no sense to "protest" by using cash

I agree — I never suggested that.


Good job beating the system. If you tracked all the hours and mental energy you spent on these tasks vs the amount of money returned, what do you think the hourly rate would come to?


> Good job beating the system. If you tracked all the hours and mental energy you spent on these tasks vs the amount of money returned, what do you think the hourly rate would come to?

I also churn. After an initial investment of learning the concepts, I spend very little time. I can go onto a major issuer's site and spot a good deal in minutes. I have a small text file where I note offers I see on Reddit that may be of future note.

I don't recall how long it took to "learn churning" but it was small chunks spread out over a long period.

I periodically take breaks when coding to rest my brain. I'm taking one right now in fact :)

So I'd argue the time cost was zero/near zero since I wasn't going to be "productive" during those breaks anyways.

Then again, I'm not an extremeist - I mostly keep an eye out for destinations I'd like to vacation to, what airlines service them, then sign up with a card that can get me points to pay for that flight.

In the end, I'd estimate I save 1-2k on airfare per year plus some spare change in cashback. (Credit card rewards are treated as discounts and thus not taxable income, so getting tax free airfare then putting the money into an IRA or 401K is +EV).

I don't let myself get wrapped up in getting an extra percent back on my tacos or something though - in fact through analysis I've found that keeping entertainment money as cash reduces spending to a point it's better to use cash than use a CC and get rewards for spending at bars, restaurants, and the like.


I can't speak directly for the person you replied to, but it's almost certainly worth their while. We're not talking about $100-200 in potential benefits. We're talking about thousands of dollars (in the case of international business class seats).

The reason is because on the legacy airlines, international business class seats usually cost 4+ times more than the economy class seat on the same flight but you can redeem just 2-3 times more miles for a business class seat rather than a economy class seat.

One of the issues with this hobby is that the reward redemption flights are typically not as good as the non-redemption flights (i.e. you might have a layover as opposed to a direct flight).

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For instance, the United/Lufthansa/Swiss alliance has flights from NYC to Paris departing May 27 and returning June 5.

Economy seats are ~$650 or (60k United miles + $105). For economy, those miles would have a valuation of ~$0.0091/mile (($650 - $105) / 60k miles). Chase somewhat regularly offers signup bonuses on their United credit cards of 70k United miles if you spend $3k within 3 months (you are charged a $95 annual fee in this case). So the ROI is ~$450 ($650 - $105 - $95) in exchange for spending $3k on that new credit card.

Business seats are ~$2900 or (140k United miles + $161). For business, those miles would have a valuation of ~$0.0196/mile (($2900 - $161) / 140k miles). The same Chase offer as before applies. But you have to open the card, meet the spending requirement, get the bonus, close the account, and reopen the account and repeat once more. The ROI in this case would be ~$2549 ($2900 - $161 - $95 - $95) if you spend $6k on those two new credit cards.

In either case, it shouldn't take you more than a ~10 hours of active work to get those kinds of returns. You do need to occasionally check the banks' websites to see if they're offering any special deals, occasionally check the airlines to see if there's any favorable redemptions available, etc. In the case of economy, the ROI is ~$45/hr. For business it's ~$255/hr.


It doesn't take any time. I open a card, pay my rent with the card to get the bonus, pay off the card (no interest), and then put it away and cancel a year later.

Edit: Also, I consider it a hobby. It's fun to try to beat the system. And the reward for "beating it" is incredible experiences (i.e. Singapore Suites) that would be far out of reach if I didn't play. Would you ask the same question of someone who cooks or plays video games what their ROI is?


Damn I wish my apartment took credit cards for payment. That is the one single thing I don't put on my card.


The service Plastiq will send a check to your landlord funded with a credit card for a 2.5% fee. It’s not worth it to buy miles, but definitely worth it to earn a signup bonus where the rewards are worth 10%+ of the minimum spend requirement.


From my own experience, it's well above minimum wage, and even very pessimistically, above $150/hr. There's a high hours/$ learning curve up front and then after that you just do it on autopilot and it doesn't take any time at all.

(IME, CC bonuses are less time intensive than checking/saving bonuses. You just sign up for a new card off one of the blogs that tracks current offers as soon as your min-spend is met on the last one, and put your ordinary spending on the new card.)


I do not churn cards, so I spend nearly zero time. But, I do have a few cards that are used for specific reasons and end up returning 'free' money. For example, if you buy a lot from Amazon, the Amazon Prime Card is definitely worthwhile for %5 back at Amazon and Whole Foods.


Something embarrassingly small. It’s not worth it.


Eh, even if you don't value airline/hotel points, you can pretty easily get ~$500/card in value in sign up bonus just for opening the card and using it for expenses you were going to incur anyway. You need to be discerning about what you apply for and only apply for the good deals, but it really doesn't take much time.


For someone on HN, if you spend more than a couple of hours mental energy per card in total, it's not worth it.


I took a first class flight to Japan during peak Christmas season on points from one credit card that I earned the bonus on by paying my rent with a credit card...it would've cost $15k out of pocket (even economy flights are almost $1000 one way during the holidays...)


I am always hesitant on valuing redemptions for the price that would've been paid for the ticket, primarily because no one in their right mind would pay that price in the first place.


You can tell pretty easily who paid and didn't pay. Don't think the Japanese businessmen sitting in first used points.


But they still don't pay the full fare. They are atrociously high so that they can be heavily discounted, especially when it comes to corporate contracts.


What's the context tho?

If you spend $250,000 a year on credit card purchases and get 4% back on everything you've cashed in on $10,000 bonuses, but you had to spend $250,000 to get that.

It sounds like one of those conversations where it's like "yeah, just buy a car because you can write it off on your business account", so while you do get a discount on your taxes, you still had to pay for the car which is a net negative on how much $ you have in your pocket at the end vs not buying the car and paying more taxes.


The big money is in sign-up bonuses, like "spend $3000 in the first 3 months and get 50000 points, which is worth $500 cash or even more towards travel".


You're just paying for that through increased prices on the products you buy. You're not beating any system, no one beats the system except for the top .001%.


Seems like game theory? If everyone else is playing, then it's better to play than abstain.

Also I'm not sure about "higher prices", in my town there's two convenience stores across from each other, one with CC fee and one with no fee, same prices otherwise, so I just go to the no fee one. Maybe it gets worked in somewhere but it's not as fair/efficient as it could be.


I would argue that this level of dedication would be within the top 1% of credit card users and that probably is beating the system. Product prices are increased, but since the price increase is spread out among everyone (including those who pay cash), it seems likely to me he makes a good return. Maybe not $/hr, though.


I am though, since everyone who doesn't play this game is subsidizing my free flights


So the poor pay for your flights.


You are playing a mini-game to increase Visa & co.'s profit margin.


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