Hacker News new | past | comments | ask | show | jobs | submit login
Can the Visa-Mastercard duopoly be broken? (economist.com)
409 points by pseudolus on Aug 17, 2022 | hide | past | favorite | 682 comments




Fraud protection of credit cards is the root of modern e-commerce. In some ways, Visa and Mastercard are the privatized court systems of the internet.

If I end up on a random, self-hosted ecommerce site and decide to make a purchase - what guarantee do I have that the item will show up or be as-described? If I bought something through a bank transfer, reversing that purchase would be incredibly difficult. And, suing a merchant is prohibitively slow, expensive, and arduous.

Also, modern B2C SaaS is built on credit card subscriptions. The ability for a merchant to pull payments on a recurring basis from a credit card requires an incredible amount of trust. If consumers had to push payment every month or year to continue subscriptions (instead of having it automatically debited), then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.

So, I'm sure online merchants are happy to keep paying their ~3% fees as long as sales continue. Nobody wants to go back to "Cash on Delivery", and nobody wants to hire workers to knock on doors asking for bills to be paid.


As your post illustrates credit cards are really a solution developped for the deficiencies in the US banking system which have been exported to the rest of the world due to the dominance of the US market. 20 years when I was still living in Germany, hardly anyone had a credit card, while everyone was using automatic payments and electronic wiretransfers. I was very surprised when later (about 13 years ago) a US friend told me that they were still using cheques for most things. I had only touched a cheque maybe 2 or 3 times in my life.

Even today many people in Germany still don't have a credit card or if they have one largely use it for travel. Of the people (in Germany) I know, they also never use charge backs on the cards (I suspect many don't even know that you can do it) and instead rely on the court system to get refunds etc..


This, absolutely. It is totally embarrassing to watch my UK family or EU friends interact with their banking systems and compare it with the US.

To be fair, things are improving a little bit. But we're still so very far behind the EU banking system. Instant, cost-free transfers between any two accounts, completed faster than you can lift your finger off your smartphone.


> Instant, cost-free transfers between any two accounts, completed faster than you can lift your finger off your smartphone.

This is available to most people in the US via Zelle. I have been using it for nearly 10 years I think.

https://www.zellepay.com/get-started

Ideally, the federal government would have already made it a utility available to all, but for now the functionality is there for those who can get a bank account.


The problem with Zelle is that it's not safe to use for anything except payments to friends and family. The Zelle user agreement [1] puts this warning in all-caps: "YOU SHOULD NOT USE THE ZELLE® SERVICE TO SEND MONEY TO PERSONS WITH WHOM YOU ARE NOT FAMILIAR OR YOU DO NOT TRUST. ZELLE® DOES NOT OFFER A PROTECTION PROGRAM FOR AUTHORIZED PAYMENTS MADE WITH THE SERVICE"

[1] https://www.zellepay.com/legal/user-service-agreement


And this isn't a hypothetical concern. People have sent money through Zelle to the wrong person, either through scam or by mis-typing a phone number, and Zelle support has been very clear that there's no way to get your money back. There was a previous HN post about it.


Regulation E should apply here, limiting liability to $50 (https://www.federalreserve.gov/supervisionreg/regecg.htm), regardless of what Zelle puts in their user agreeement or the training materials for their support personal. Don't even bother with Zelle: call your bank directly.


I've never heard of any protection like this in the EU banking system. If you transfer money to a scammer it's simply gone.

It sucks for the 0,0001% of people who get scammed some time but is it really needed that the bank takes on this role?


not sure where you get the 0.0001% figure.

The protections are part of the regulations.

A consumer can reverse a SEPA Direct Debit transaction at any time. This is called a chargeback. A chargeback is allowed up to 8 weeks after the date of the direct debit with a valid mandate and up to 13 months without a valid mandate. At most banks, the consumer does not have to give a reason for the reversal.

https://help.mollie.com/hc/en-us/articles/115000796469-How-d...


Direct debits are the thing used to automatically pay your electricity bill every month. A different system with different rules to a one-off personal or business money transfer.


If you initiate it - yes. If the seller charges by IBAN via SEPA - you get 8 weeks to chargeback, no questions asked


Aren't IBANs entry only. You can only debit the IBAN.


Zelle is not always instant. There are two ways for a Zelle transaction to clear. The fast one goes through the Visa network, the same network for credit cards and debit cards. The slow ones goes through ACH, which takes several days. It is generally not possible for two recipients to know which network Zelle will use beforehand.

ADDENDUM: The official marketing page for Zelle at https://www.zellepay.com/faq/how-long-does-it-take-receive-m... has this to say about transaction speed:

> Money sent with Zelle® is typically available to an enrolled recipient within minutes.

> If it has been more than three days, we recommend confirming that you have fully enrolled your Zelle® profile, and that you entered the correct email address or U.S. mobile number and provided this to the sender.

Note the weasel word "typically" in the first sentence. If all Zelle transactions went through Visa, all such transactions would be instant and they wouldn't have the need to add the word "typically" in the first place.

The second paragraph asks you to wait three days. That's basically the Zelle fallback path when it uses ACH under the hood.

ADDENDUM 2: This HN conversation really piqued my interest and did more research. So apparently Zelle now uses one of three different networks. According to https://www.americanbanker.com/payments/news/how-the-clearin... :

> The Zelle P2P service currently uses two separate rails to settle payments, depending on the particular transaction, including the ACH network and the two debit card networks: Visa Direct and Mastercard Send. By adding the RTP network, Early Warning will be able to reduce its reliance on ACH, which can at times take days to settle and is operated only in batch mode during business hours.


Given who owns Zelle and what they do, and that they’re not a bank, I really want zero to do with them. They’re sus AF, IMO, and I’m just waiting for there to be a serious incident.


>Zelle is a United States–based digital payments network owned by Early Warning Services, LLC, a private financial services company owned by the banks Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.

So it is owned by the banks, but the banks that own and offer it don't give any protections.


It is governed by regulation E (https://www.federalreserve.gov/supervisionreg/regecg.htm), and Zelle admits as much on their website (https://www.zellepay.com/financial-education/pay-it-safe/und...).

They do try very hard to suggest this doesn't apply. This isn't true in practice, but I'm certain many would give up without trying.


It's almost like that's the point. A lot of tech solutions just seem like ways of offloading liability or skirting regulation in a traditional market.


Interesting, I did not know that! It’s always worked instantly for me, even got a few thousand dollar transfers.


My credit union has a $250 per day cap and $500 per week. It really limits Zelle's usefulness.


Bank of America limits: $2500/d, $10.000/7d $20.000/30d

https://www.bankofamerica.com/online-banking/zelle-transfer-...


What does it depend on? And how do you figure out which one it used afterward, if not beforehand?


To give you the comparable situation - in the UK we have two numbers associated with every bank account (historically one identified the branch of the bank the account was held with, and the other identified the account, but nowadays there’s no real link between a branch anymore). For me to send money to another person or company’s bank account, I just those two numbers, and I can send up to £25k and it will be in their bank account almost instantly. In the last couple of years they introduced a system where it goes to the other person’s bank account to check whether the name you have given for them matches the name on the account, so it warns you if there is a mismatch that there might be fraud.

You can also schedule in advance “standing orders” which pay money to an account on a certain day. This is how pretty much everyone pays rent. We have direct debits where you can pay companies on a regular basis and almost everyone uses this for bills like for local government taxes, energy, water. With this, the company asks for permission to withdraw money for your account on a recurring basis with your details and you have to approve it. Guarantees are built into this system though, so if the company takes more money than they are supposed to, you can call your bank and they are able to pull back the funds.

Both of these have been around since the 60s so when online banking came along it was just implemented in that. It got faster at some point I don’t remember - it used to take about a day for UK transfers but it’s usually seconds now.

You can also send money abroad but it has slightly different limits and takes a bit longer. You just need the IBAN of the account though and can still all be done online in a few clicks.


Yes, that is much better. I was always envious of my British family’s ability to use teletext and get weather, sports, and even airport arrival/departure info on their TV instantly before the internet was mainstream.

Meanwhile, in the US, I was stuck listening to radio trying to figure out if my school was closed or had a delayed opening on any inclement weather day.


Wait until you hear about France's Minitel!

https://www.bbc.com/news/magazine-18610692


This network/system is called Faster Payments https://www.wearepay.uk/what-we-do/payment-systems/faster-pa...

You may also be interested in Paym which uses mobile numbers https://paym.co.uk/


I like Zelle, but this is not comparable to the system I've used in the UK.

- Limits how much you can send

- Identity is based on email or phone number (what?!) that then needs to be managed/tied to the bank account. If you switch banks or whatever, you need to re-active with the new bank.

- For awhile, I could only associated one email with one account in Chase (despite having 4 checking accounts for business, etc.)

- Recipient also needs a Zelle account setup.

UK system is simple: give me your sort code + account #. Done.


The UK equivalent to Zelle isn't BACS/Faster Payments, but https://paym.co.uk/

As I understand things, the US equivalent to BACS would be ACH. Which is also sort code and account number, but allows pulling money without further authorisation as well as pushing money. Obviously doing that when you're not supposed to would be very illegal, but unfortunately that's not enough to stop everyone.


Yup, that was my point. The OP thinks "we already have this in the US" and its not nearly the same.


is pulling via ACH basically a direct debit in UK terms?


Minus all the safety precautions that make DD generally safe to use.


That is no solution. The limits are so low you can't do serious transactions with it. I think it's 1000$ instant daily transfer max, then 2500$ daily non-instant transfer.


It’s up to your bank. My max limits are $5k for known parties, $2k for new/unseasoned contacts (Chase).


So even you can't pay a rent deposit, pay university tuition or let alone large items like a car


At the moment. FedNow (new instant payment rails) limits will be $25k to start, negating the issue of low Zelle limits. Progress will arrive.


> I have been using it for nearly 10 years I think.

Zelle launched in June 2017


It was rebranded, but the functionality existed before, at least if you were transferring between the big banks.

> In April 2011, the clearXchange service was launched. It was originally owned and operated by Bank of America, JPMorgan Chase, and Wells Fargo.[6][7] The service offered person-to-person (P2P), business-to-consumer (B2C), and government-to-consumer (G2C) payments.[8]

https://en.wikipedia.org/wiki/Zelle_(payment_service)


Chase’s version was called QuickPay and was rebranded to Zelle around that time. Until its rebranding it was only available to transfer between two Chase accounts if I remember correctly. I used it to pay rent from 2014 to 2017.


Freaking hilarious. It astounds me how advanced, yet also archaic the US is.


But it's available to everybody in Europe regardless of what bank or other service they use.


biiig asterisk on that is necessary

basically friends in the same country using a select few major banks are likely to have instant sepa available between them and it seem like the normal thing, while the reality is that instant-sepa is a massive patch work of availability between countries, banks, currencies

an outsider to the EU trying to do business is unlikely to be a part of a social circle where everyone is using the same thing

theyll encounter super slow multi business day SEPA, where no bank knows where the transfer is yet, the same as ACH in the US


Normal SEPA is max 2 days and usually it takes one. That’s not what I would call super slow.


Most SEPA transfers (even between countries) are now instant, I've noticed.


Same here. I've got accounts at two different banks, and when I transfer money from one to the other, it's usually there literally the moment I approve the transaction. Within a second. I don't know if it's just as smooth across (internal EU) borders, but I don't see why it wouldn't be.

It's possible that it does require both banks to have implemented these instant payments. Both side have the ability to delay the transfer, but it's possible that these days they're required to support instant transactions.


My experience of sending money from Czech republic (in EU, but not in Eurozone) to a bank in Netherlands via SEPA is ~4-6hours during banking hours, but I was surprised by immediate transfer from Slovakia (in EU and in Eurozone) to the same account.


IIUC, banks can choose which other banks to interface with, provided that both banks are connected to the same clearinghouse. For example, I think some Netherlands banks still choose to limit instant payments only to other NL banks.


When one of the parent comments that spawned this thread talks about transactions clearing faster than it takes to put the phone down after initiating it, it's quite a few orders of magnitude slower.


Its what I would call super slow.


It's also available in Canada through Interac. I'm still shocked when I go to the US and have to sign for a credit card transaction. Last time I did that in Canada was when Bush was president.


That is going away fast. The last time I signed for a credit card was...in Canada. I use a credit card literally everywhere. I do not use my bank account for anything beyond paying the card and 2 other bills. I do this for rewards, payment protection, zero transaction fees (including foreign, like those in Canada, a country in which I visit often). The credit card gets paid off once a month directly from my bank account.

The only exception to this is restaurants, however that is also the case in Canada, and even if I use my debit card, they still bring me the reader, make my stick my card in, print the receipt, and sign by hand.

Where are you in Canada? I regularly visit parts of eastern Canada, including Toronto and Quebec.


That has more to do with a foreign credit card.

I haven’t signed in the US for a credit card transaction in at least 5 or more years.

I do if I use my card outside the US.


You don't ever eat in a sit down restaurant or a bar?


That's more related to the tip and restaurants covering their butts.

Credit card processor doesn't require a signature.


Same here in Europe. I've not signed my card for more than a decade because I've never been asked to provide a signature.


Signatures are silly. They're hard to verify, and easy to forge. And my own personal signature has degraded over the years; I can write my autograph twice, and although they both look to me like my signature, they no longer look like the same signature.

So I can understand why nobody any longer wants to have to verify signatures.

Most people that ask me for a signature (usually deliverymen) don't care what I scrawl on their device; it's usually not even an attempt at a signature, it's just the simplest <squiggle> I can manage on those awful devices.


You at least have a PIN with your cc. In the US, it's signature or...nothing. Almost everywhere it's a tap or insert the chip. Still a mag stripe swipe in a few places but that's becoming more rare.


You described the US (regarding not signing, you are mistaken about the signature aspect). Most places stopped accepting signatures several years ago. Card readers are almost always 'insert' except in the very rare case where a card doesn't have a chip. Tap and pay is not common, however tap and pay is more common than signing something (in the US companies have been resisting tap and pay due to higher transactional rates). I haven't signed for a transaction outside of a restaurant across 17 states and 4 years. As I mentioned above, the last place I did sign for a transaction was in Canada.


Still no PIN as in the UK and Europe (and maybe most of the rest of the world, though). If you steal a chip card in the USA, you can use it. Not so elsewhere.


Every store I have been to in the last few months is tap to pay. It really seems to have exploded in popularity in 2022.


That's not quite true. I have a USA issued corporate card from Citibank which has a PIN. It only gets requested on rare occasions though, typically at automated terminals.

http://www.citi.com/chipandpin (note, pdf link)


Which Bush? :)


Sadly the limits on Zelle are too low to pay rent (at least on SF) and it lacks the ability to setup recurring payments (what in the U.K. we would call a standing order.)

BillPay seems the only viable option and that ends up with a physical paper check being mailed to your landlord every month so you have to set them off a few days early to account for possible delays in the mail.


> Ideally, the federal government would have already made it a utility available to all

They are working on it: FedNow https://www.frbservices.org/financial-services/fednow/about....


Less than 5 years ago, the Hongkong retail bank system used to charge about 50 HKD to transfer money online to another local bank. Absolute highway robbery / price fixing. Most absurd: Writing a check was free. Can you imagine the comparative operational cost??? Later, the central bank introduced an free, instant, money transfer system, and forced all banks to join. Paying my rent suddenly dropped 50 HKD per month!


Insane. In the States we have similar gouging with fees when you pay with a card, but some law states that a fee cannot be collected for checks. So I paid rent with a check for the majority of my adult life before Zelle came along even though the option to pay with a card was available.


There are limitations on who can use it, though. For example, I own some properties that I rent out. I would love for my renters the be able to simply send me their rent via Zelle, but Citibank doesn't allow it on business accounts (or at least I couldn't get them to turn it on for mine when I tried a couple years ago). They claimed it was only for personal accounts. I rarely need to send money to people I'm friends with. (And when we do, we use Apple Cash.) I also don't like having yet another company keeping track of whom I interact with.


I don't want some third party doing the bank transfer, just lets the banks 1:1


Zelle is owned by the big banks. I wouldn’t call it a “third party”. In particular, it is owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, Wells Fargo, and US Bank.


You need a network of some sort, unless each bank has to maintain a direct interface with every other bank.


The central bank can do that. That's how it works for instant payments in my country (Pix payments in Brazil).


That seems even less appealing than the sideways system we have in the U.S.

Is there any percent chance that the government doesn't wiretap all those transactions?


Tap on what sense?

The government doesn't hide the fact that all this data can and will be used by the IRF equivalent in Brazil (Receita Federal)

I would assume the same for any credit card payment in the US


Zelle doesn't support all banks - the call to action on their home page is even "See if your bank offers Zelle". My credit union, sadly, does not. So it's not really comparable to EU IBAN transfers.


Ueah, I use zelle a lot; to move money between my incoming bank, store bank, & spending bank; all 3 different ones.

My auto loan credit union offers 0.5% off on loan APR if I bring my direct deposit to them, but doesn't support zelle.


Who is Zelle and what do they do with the information that they harvest from this service that they offer?


https://en.wikipedia.org/wiki/Zelle_(payment_service)

> Zelle (/zɛl/) is a United States–based digital payments network owned by Early Warning Services, LLC, a private financial services company owned by the banks Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.[1][2][3][4]

Those are all the biggest banks, so they probably have all the transaction information anyway.


Buuuuut as banks they have a totally different privacy policy than a 3rd party payment system, aren't they?


I have no idea. I just assume everything I do electronically is tracked.


But fraud-wise Zelle doesn't seem as protective as regular banks:

https://www.nytimes.com/2022/03/06/business/payments-fraud-z...

> “It’s like the banks have colluded with the sleazebags on the street to be able to steal,” said Bruce Barth, another victim. In late 2020, Mr. Barth was hospitalized with Covid-19 and his phone disappeared from his hospital room. A thief got access to his digital wallet and ran up charges on his credit card, took out cash at an A.T.M. and used Zelle to make three transfers totaling $2,500.

> All three accounts were at Bank of America, where Mr. Barth has been a customer for more than 30 years. When he filed fraud reports, the bank quickly refunded his cash and credit card losses. But it denied his claims for the Zelle thefts, saying the transactions were validated by authentication codes sent to a phone that had been previously used for that account. Bank of America was essentially saying that the Zelle transactions were authorized — even if his phone was stolen.


And the EU system is way behind India’s UPI. That system really is a dream. It turned India into the world’s largest real time payment market and basically is Google’s model for FedNow they’re pitching to the federal government. It’s also what the EU is trying to emulate.


Woah, I did not know about India's UPI. And it serves more than India!

Check it out: https://en.wikipedia.org/wiki/Unified_Payments_Interface

    Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions.[1][2] UPI is an open source application programming interface (API) that runs on top of Immediate Payment Service (IMPS).[3][4] It is regulated by the Reserve Bank of India (RBI) and works by instantly transferring funds between two bank accounts on a mobile platform.
<< Markets India Bhutan Nepal Malaysia Singapore United Arab Emirates France >>


"Markets" here means some limited ability to transfer to/from India, but nobody uses UPI for domestic transactions in these places.

Singapore has an equivalent system called PayNow, which is equally instant and ubiquitous.


PayNow (NETS) works with ~5 banks and is effective within a place as large as major city. Hardly an analog.


I'm responding to the earlier claim that UPI can be used in Singapore (or anywhere outside India), which is really not the case.


Yeah, it's a dream come true. When I got my first credit card, I was very happy. But later within 2 years UPI got introduced, my credit card activity got decreased because it is far more easy to do transaction with UPI than CCs.

And when Indian Government declared BankNote Demonetization in 2016, it further boosted UPI because people don't had the cash, so ultimately online transaction is the only option. At that time, E-Wallet also made a hype but it wasn't feasible.

UPI has many advantage for both users and merchants. And further Google also introduced their UPI app Google Pay along with some local players like PhonePe and PayTm which makes UPI transaction easy not just to send money to other be it friends or a merchant but mobile recharge, Bills, insurance, etc. can be done from these apps via UPI.


A very annoying thing in the U.K. recently is that companies are making it more difficult to make ongoing payments via “direct debits” which have a high level of consumer protection and encourage people to use “continuous payment authorities” from debit and credit cards which allow companies to take money almost at will, and are extremely time consuming to cancel by the customer.


United States citizens are the only ones who still have to SIGN their credit card receipts, including when they travel.

We are behind the times even with our own "hack" invention. Remarkable.


Any idea what it's like in Canada, similar to the US?


Canada has e-transfers between any two bank accounts via Interac, although some banks do charge a small fee when sending from some types of accounts. Interac debit can also be used pervasively at POS terminals, although credit cards (both Visa and MasterCard) are widely used. I haven't seen a cheque used in any capacity in over a decade.

Edit: Both debit and credit card payments use chip-and-pin or tap everywhere, and have for a well over a decade.


Are you saying that the USA is still far behind the EU banking system? That's news to me - I've always assumed that banking, of all things, would be far superior in the US. I've always imagined that the experience in the US, at least compared to German banks, would be one of slick apps and super-friendly paperwork because 1) banks want your money 2) something something capitalism.

When I want to do a domestic transfer in Germany, if the recipient's bank does not accept SEPA Instant Pay (looking at you, Baader Bank), then it takes around 2-3 _days_ for my funds to get to the other person. That's insane. In India, our slow transfer (It's called NEFT. UPI is the new shiny instant transfer system) takes at most a day and even before UPI no-one was using NEFT because there were faster alternatives. I've always thought that the slow fund transfers were a German thing and that the US would be better. Guess the grass is not greener on the other side.


As you noticed, the involved banks must accept SEPA for that. And it's another dimension to do that across many country borders and so many local banks, while in India everything happens in the same jurisdiction, I assume (same for USA for that matter)


> Instant, cost-free transfers between any two accounts, completed faster than you can lift your finger off your smartphone.

If you're referring to SEPA transfers, then frankly that's a joke. There are 40 cent fees for every transfer and it usually takes hours if not a full day to process as the bank closes the system at like 4PM for some gdamn reason and all further entries have to wait until tomorrow. Like are they processing this shit by hand by actual workers or something?

Maybe my bank just sucks.


SEPA transfers within the Eurozone are not allowed to cost more than a local bank transfer. So if it costs 40 cents for you, it means it's because all your transfers cost 40 cents :)


The benefit of credit cards is no one can literally drain your bank account via fraudulent access to a payment card directly tied to your bank (i.e. debit card in US nomenclature). This is a clear benefit regardless of location. Courts are slow and not scalable, and you don't want to be in a scenario where your bank has been drained right before you need to make important payments.


> The benefit of credit cards is no one can literally drain your bank account via fraudulent access to a payment card directly tied to your bank (i.e. debit card in US nomenclature

This difference is a consequence of law, not payment technology. It's entirely possible for someone to make fraudulent charges on a card up to its limit (which would be the analogue of draining a bank account), but CC companies are required by law to absorb fraud beyond a token amount. There's no technical reason why bank accounts couldn't be similarly protected, but banks have thus far been successful in preventing such laws from being enacted.


There is a functional difference in how credit/debit cards work, though.

With credit cards, you get an invoice with fraudulent charges at the end of the month. You can choose not to pay those charges, citing fraud. The bank will clear the charges if they agree.

With debit cards, the money is withdrawn directly from your account. You can report the unauthorized withdrawal, and the bank will reimburse you if they agree. In the meantime, you don't have access to the money.


With credit cards the disputed charges will still decrease your credit limit, no? So the functional difference is much smaller than you think.


And unlike a credit card, it's easy to vary the risk/limit with a debit card. Just keep the main funds on a separate, non-card accound, and transfer to the debit card account as needed.

I usually keep around $200 on my debit card, which means I lose at most $200. This way I also get a sense of my spending in terms of how often I have to transfer.

If I need to pay for more, I just transfer before paying. Takes me about 2 seconds with an SMS or through the bank app.


However, in the UK there is the Direct Debit Guarantee: the company holding your DD mandate can't withdraw more than you mandated, nor on some other date than the date you specify. Otherwise you have a claim against your bank, and they have no defense.


Part of it is inherent to the type of account. Ledgers have to balance out somehow, and fraud is going to temporarily be someones problem until it is resolved. Credit is, by definition, the bank's money.

For example, US also has similar laws for debit cards, but, by definition, when a charge is made to your bank account, it is made to your bank account.


>There's no technical reason why bank accounts couldn't be similarly protected, but banks have thus far been successful in preventing such laws from being enacted.

My bank's (Chase) policy limits debit card customer fraud losses to the same $50 that the law requires of credit cards.

Not sure about other banks, but while I'm not sad that I have this protection, Chase's anti-fraud measures for debit cards (mostly programmatic, I'm sure) are pretty draconian.

If I travel any significant distance from my home, transactions with my debit card are almost always declined and I either have to contact customer service (a big time waster) or use a credit card.

That's incredibly annoying, although if that's the reason my debit card fraud responsibility is limited to the same as a credit card, that's a trade off that some may be willing to make and some will not.

Given that my debit card has been the subject of fraudulent activity several times and the bank has made me whole every time, perhaps there's something to be said for the harshness of the debit card anti-fraud algorithms.

But it's still incredibly annoying.


> My bank's (Chase) policy limits debit card customer fraud losses to the same $50 that the law requires of credit cards.

Yes, many banks do. But be aware that when using a debit card, it's just the bank policy of being nice that protects you. They have the right to change that policy on a whim.

When using a credit card, that protection is built into the regulations so you can count on it.

Always use a credit card, never a debit card, is the safest approach.


My impression is that all banks are pretty miserable to deal with when you travel, though I imagine if you move out of consumer-grade junk, that improves. I have a bank account (Navy Federal Credit Union) that got locked out when I used a cashier's check to buy a car (despite repeated assurances that there was a note in my account explaining the transaction in advance.) Unfortunately, their customer service is just a notch better than Google, with hold times routinely exceeding 3 hours, and lines periodically going dead; consequently, I'm going on 7 months without access to my accounts.


> This difference is a consequence of law, not payment technology.

Yes, that's the beauty of it. When using credit cards you can know you're not liable for losses, full stop. The bank can't suddenly change their policy because it comes from regulation.


There's an important difference here: bank accounts are not credit. If my card is stolen and charges are racked up, I'm no poorer until the fraud is detected and resolved. You don't spend cash when you use a credit card, you spend credit. There isn't a legal remedy for this.


So a credit card is doable, but a credit account is beyong the capabilities of human civilisation. Its like breaking the light barrier


What would the difference be between this hypothetical “credit account” with payment card attached to it and a credit card?


Credit cards are effectively a second bank account in the former and in the latter "credit card" and bank account are merged as one.


In fact in most of Europe banks have to absorb the cost as well unless they can proof that you acted negligently (e.g wrote down your pin and had it in the same wallet as your card), it is the same essentially for online banking.


This does not negate the parent post at all. You're just describing another deficiency of the US banking system.


Out of curiosity, how do European banks avoid this issue? If my debit card or ACH info is compromised and someone drains my checking account, is there a way to use the stolen funds before the bank/court finishes their investigation?


How would they drain your bank account? There's quite a bit of 2FA they'd have to defeat. Easiest is stealing the card after skimming their PIN, but if you know it's stolen, you're going to block it pretty quickly, and there are limits to how much you can withdraw from an ATM.

The big problem with credit cards is that all the info needed to authorize a transaction is right there on the card. The second problem is that quite often you submit that data directly to the merchant or to whichever payment provider the merchant chose.


In the US, automated payments tend to be "pull based", where a company tells your bank "give me this much from this account, I have permission". The company can lie but, by the time you find out, the money is already gone and it can take a long time to get it back. The bank has no real incentive to get your money back.

With a credit card, on the other hand, you see what was taken _before_ you pay them. So you can tell the credit card company "this amount that was charged to me is not me, I'm not paying that". Then the credit card company has to look into it; they have incentive to figure out what happened (unlike banks) because they aren't getting payed back their "loan" to you until they do.


In India, now you have to approve all such scheduled payments with a 2FA and upto a limit. So even if I have approved ShadyCorp they can't demand more than approved amount.


Dutch banks used to work like that too, by "incasso", and in fact still do to some extent. But any incasso that hasn't been directly authorised by you with the bank can be undone (and apparently at an additional fee to the company that originated it; they really don't like it when that happens). So that's actually very similar to how credit cards work, but without the additional fee. These days you can easily manage all upcoming incassos through your banking app and block them before they happen, though I generally prefer to pay such recurring payments through automated "push" transfer.


The problem is that since direct debits are so easily reversible, in Germany they are not seen as a final form of payment (until the charge return time limit expires) as there is no form of dispute arbitration involved.

Merchants will usually not ship goods or provide services for a direct debit alone.


In Netherland incasso is mostly used for recurring membership fees, not the purchase of goods. Those are generally done through a direct, authorised transaction, which isn't so easily reversible.


> The big problem with credit cards is that all the info needed to authorize a transaction is right there on the card. The second problem is that quite often you submit that data directly to the merchant or to whichever payment provider the merchant chose.

Same with my (UK) DD card, when I use it online. I occasionally get challenged by Visa/Mastercard for some passphrase or whatever. For retail purchases, I can usually just swipe. Periodically I'm asked for a PIN.

I prefer DD over CC, because I have full control over my liabilities, should someone try to drain my account, just by adjusting the balance on the account (and I can't link my deposit account with the card; so that's where the rich pickings are kept).

Also, way back when, I was pretty relaxed about credit balances, and the CC company kept raising my limits; I got into a lot of debt. Nowadays I don't use credit unless I'm forced to (which hasn't happened for 20 years). So I have a CC, with a zero balance (and the CC company is going to shut it down, because I'm not using it).


A gun to ones head is one universal way to drain any bank account or bitcoin wallet.

AFAIK none of the banks will reverse this activity, since technically you've authorised this transaction.


Technical exploits are only a subset of fraud. Scams bypass 2FA with no problems.


The law says that the bank needs to give back your money immediately, at least in my country. If it turns out that it was your fault you don't get to keep the money, but you will have money to pay bills with during the investigation.

Laws and security adapts to whatever medium people tend to use, so common problems tend to have solutions. The laws in Europe are made to make debit card transactions and security reasonable, because almost everyone uses debit cards.


US law does the same thing. But you need to deal with it.

My credit card was compromised and AMEX has a problem. My debit card is compromised and I have several problems.


When you know someone’s bank account number you can only send them money. This issue simply isn’t possible.


That's not true. As a business, at least, I can run an ACH Debit[0] with just a routing number, account number and name. NACHA rules prohibit this, but nothing programmatically prevents this from happening.

[0] https://plaid.com/resources/ach/how-does-an-ach-transfer-wor....


u/vimy was talking about European banks. There is no "pull" there. People freely share their account info because one can only push money in with that info.


That's still not true. Pull-based schemes are widely used across the SEPA region and in national schemes such as the UK's Direct Debits.

A notorious celebrity in the UK famously revealed his bank details as a stunt to show that a large-scale data loss incident wasn't a big deal and he ended up making an unexpected payment to a healthcare charity shortly afterwards.


I don’t know about the UK but in my SEPA country only companies can create pull-based schemes and they can’t do it without authorization of the bank account owner. Mostly used for things like utility bills. So there’s zero danger in sharing your bank account number with someone.


1. It's easy to setup a company 2. There's no validation that the direct debit is being setup by the account owner


1. It’s a bureaucratic mess. And scammers will also need to deal with the bank first. 2. With a paper form they need your autograph and other ID data. Or when it’s digital you need to authorize the request with your banking app.


In the UK it's £10 to register a company online in minutes.

Direct debit instructions require nothing beyond a name and account number.


Quite the opposite – SEPA direct debit is an extremely successful payment scheme in many European countries.


Note that, at least in France, you can't do a SEPA direct debit with only the account number.

You need a SEPA dd "mandate" which is a (paper or electronic) document account owner asks their bank for, containing a unique identifier


> If my debit card or ACH info is compromised

There's two ways this could happen, but neither is super easy:

1) You've handed over your physical debit card and it's PIN code to a baddie and not informed your bank. Unlike the security code on credit cards the PIN code is not on the card. Unlike credit cards you need the actual physical card to transfer money.

2) You've given a baddie your online login info and had him send you a QR code which you then scan and approve the amount.

Notable what does not happen, which does with credit cards, is making a payment at a webshop and that webshop then leaking your card info to a baddie. No one other than the bank ever sees the "secret" part of the card info.


Out of curiosity, how do European banks avoid this issue?

In the UK we have a system of Direct Debits that is popular particularly for making recurring payments like household bills or subscriptions. You provide your bank account numbers to the merchant and they can collect the required money directly.

It sounds like a huge opportunity for abuse by merchants but the easy setup is balanced by a universal Direct Debit guarantee for account holders that basically says if any erroneous charge is made then you get your money back from your bank first and questions are asked later. Merchants are required to provide all customers who pay this way with certain information about the guarantee scheme (and everyone actually does).

That in turn sounds like an opportunity for abuse by customers but having personally run a business that accepts Direct Debits I can tell you that we have never seen a single abusive reversal of a Direct Debit payment. In contract we've had a few problems with legitimate charges to cards being reversed later and the whole system around chargebacks with credit cards seems to be unreliable for both merchants and cardholders.


German banks require the account owner's permission to pull money from a bank account and the owner has a 6 week window to get all their money back, no questions asked.

"SEPA Lastschriftverfahren" is what it's called.


Its called Direct Debit guarantee, UK had it for decades:

"Immediate refunds. You can get a full and immediate refund from your bank (also known as an “indemnity claim”) for any payment taken in error."

https://gocardless.com/guides/posts/dd-guarantee-in-plain-en...


Who defines whether a payment is or is not in error? Has the USA really made me that cynical?


You (the account holder) do. Direct debits are instantly reversible for a month (maybe 2?).

You'll have to explain to the company that deducted the money why you reversed the charge though, and if it was legit after all you still need to pay them.


There's no time limit for reversing direct debit transactions.

https://www.cleardebit.com/indemnity-claims/


There is. It‘s 8 weeks (for any reason including "I‘d like my money back and rather do something else with it") or 13 months (for unauthorized charges).

https://www.europeanpaymentscouncil.eu/what-we-do/sepa-direc...


At least in Germany, the dispute process for bank account debits is literally clicking a single button in online banking.

No proof or even reason for this is required in the first 8 or so weeks since the charge (or more than a year if the debiting merchant does not have a "direct debit mandate", which essentially means some sort of evidence of the account holder agreeing to be debited).


It happened to me at a French bank. I got refunded everything within a few days, I just declared it to the bank.


There’s a lot more approval-related stuff and general friction.


Giving someone your bank account number (~EU ACH info) only allows them to send you money, not take it from you. It's not a secret, some retail businesses list it on their websites.


Can you explain how this is a deficiency of the US banking system?

According to stats I can find, the European central bank reported 1.03B Euros of fradulent transaction via cards back in 2019 (https://www.ecb.europa.eu/pub/cardfraud/html/ecb.cardfraudre...).

So the only way those fraudulent transactions won't hit your bank account is if your bank account is not directly tied to the card, which makes it a credit card by definition (because you are being given credit for purchases and not having to pay for it immediately).

So it seems like what the parent is saying is true outside the US as well?


There are always scams and exploits. Legal consumer protections are necessary regardless.


Perhaps. Adding...

The benefit of credit cards is...credit, and the ability of the card to abstract the idea of spending money away from the consumer. Few things exemplify "out of sight, out of mind" better than credit cards. The model is amazingly profitable as well. Like printing money, literally.


Interestingly, in Japan, at least until recently, the way credit cards worked is, when you buy something you'd have to say how many payments you were going to pay it off in and your bank would automatically take money from your bank account at that level.

In other words, you'd go to some electronics store and by a $2000 TV and they'd ask "how many payments". You'd say 10 and you'd end up paying $200 a month. I don't know the origin of why they did it that way. To be clear, this was bank credit cards, not store cards. I imagined it was something to do with the commitment and knowing you couldn't just pay off some minimum. Purchases under a certain amount and/or by store you were not allowed to divide up.

I've had Japanese friends come to America and want to buy something for $500 and ask if they can have ask for 4 payments and have to explain that system doesn't exist here. If you want to make 4 payments you make 4 payments.

I've never looked into if the bank is giving all the money to the merchant and then charging the customer per month or if they're sending to the merchant per month. Nor did I ever look into interest fees. I just know it is (was?) common.


Possibly not all credit cards. We have the same in Romania - a lot of credit cards come with the option to pay in interest free (few installments) or sometimes interest bearing (more installments) installments. Sometimes at participating retailers, sometimes you just click on something in the bank's site.

Your spending limit is reduced by the whole amount but those interest free installments can be useful. Esp when you get 12-24 for stuff like TVs or furniture.

Other than that option, they act like normal credit cards. Pay next month, minimum payment, huge interest if you don't pay them in full, can contest any transaction, yadda yadda.


Card companies _do_ charge interest if you pay in (usually) 3 or more installments, unless explicitly mentioned being interest-free.


No one can drain ky bank account through my payment card either. For one, they lack the authorisation to do so, and for another, there's a limit (which I can change) to how much can be transferred per day.


> For one, they lack the authorisation to do so

I suppose someone should tell the criminals.

> there's a limit (which I can change) to how much can be transferred per day.

I expect many banks/cards have this ability as well. People just don't use it.

Hell, I have a virtual card I frequently use on websites that has a $50 limit per day. I'm sure most other companies have something similar available.


> I suppose someone should tell the criminals.

Outside of the US, the banks do tell the criminals - otherwise the banks would be the hook. This is the fundamental difference between the US and the RoW: in the US, fraudulent withdrawals are the depositors problem[1] which banks don't expend too much effort into, elsewhere, it's the banks' problem, consequently banks go the extra mile to prevent fraudulent withdrawals, and when it does happen, are quick to make the depositor whole.

1. This and "identity theft" are emblematic of a mostly American tendency to pass the buck (and losses) to the least powerful and least informed entity (the depositor) for fraud committed against financial institutions using depositor's information.


> I suppose someone should tell the criminals.

I think they already know, because their efforts are mostly focused on trying to get that authorization. But whether you know about it or not, no authorization means you can't access the money. Requiring explicit authorization is key to security, and I'm extremely wary of payment systems that don't require it, like credit cards.


> they lack the authorisation to do so

How does the German banking system prevent an unscrupulous online retailer from charging you 500€ for a 50€ item? Or charging you twice?


2FA, you get a popup in your bank app asking "Do you want to pay X euro to Y?" for online payments. Can turn that off if you want, but it isn't a big bother.


That‘s not how direct debit works. There is no accountholder involvement with processing direct debits, but they can be easily reversed (although after the fact).

There are related payment schemes though that do initiate a push payment (i.e. SEPA credit transfer), giving the accountholder control over the amount and payee, but they are not yet as ubiquitous or usable internationally.


That is exactly how my debit card transactions works. When I buy a game on steam using my debit card I get a popup in my phone asking if I really initiated the payment and lets me decline.

The payment page spins until I click ok on it in the phone, since my bank wont accept the transaction otherwise.


The grandparent post was asking about the German payment system, which presumably refers to SEPA Direct Debit, not debit cards.

What you are referring to is called 3DS, and it's a feature of both credit and debit cards. (It's available worldwide, but most commonly used in the EU, since it's mandated for ecommerce card transactions in many circumstances.)


It also only happens for higher-value transactions here. I don't have to authorize every tenner unless it's the 10th in a row or something


I don't know how it works in Germany, but in the Dutch system, iDeal, I see the amount I'm authorizing. Of course if I'm sloppy and rapidly clicking through my bank's screens, I might not notice it if they changed the amount at the last moment, but any merchant that can be shown to do that would probably be in a heap of trouble.

I do think it's possible to authorize an unspecified amount; automated gas pumps seem to do that, but they seem to be the only ones, and it probably has a hard maximum.

Of course any PIN transaction that goes through the merchant's equipment is not quite as secure and relies on a level of trust that's not necessary for online payments, where I give my authorization through my own bank's website.


In the Netherlands the customer picks theirs from a list of banks on the iDEAL website then the transaction is done on their banks website. Other services can be fit in front to extend the choices with other payment processors.

shop [> mollie] > iDEAL > ABN > shop

or

(pc) shop QR > (phone) photo app > iDEAL > ABN


If they do that (via direct debit), I can click a button in my online banking interface, immediately get the money credited back, and the merchant is debited that amount plus a fee.


You don't need to go to court to reclaim a fraudulent debit. For one, there's limits in place on card transactions and bank transfers with every bank. In every (read: two) situation I've had where my card was skimmed/used without permission, the bank cancelled my card and refunded the amount within 24 hours.


3% of your credit card spend is a steep cost to pay for that security though, they can't clean out all your money if you don't tie all of it to the debit card, just put a months worth there at a time and you are better off with debit unless you get your debit card stolen every year or so.

It isn't more work than credit either, instead of paying it off every month you fill it up every month.

And for fraud protection, 3% is only worth it if every 30'th purchase is fraud in some way. Personally I've never lost my card and never fallen for fraud, so it would just be 3% of my money thrown away for nothing.


1. Most places don't charge extra for a credit card payment.

2. Most cards have a cash-back arrangement, where you earn credits for what you spend.

Together, that means you're generally not paying anywhere even close to 3%.


Most places charge extra for any payment because of the high credit card cost. So you pay the 3% even with cash. Same reason quite a few restaurants have a sign with cash only. Same reason lots of restaurants in Europe had cash, card only for 20€+, no credit card (EC card was <1% fee, credit like 3% so they said no thanks).


In Denmark it's not unusual for company credit cards to be charged extra, and foreign credit cards to be charged even more.

(Before 2018, it could also apply to personal credit cards. It seems a step backwards to exempt them, as the national sysetem, Dankort, has much (much!) lower merchant fees, but now there's no incentive for people to prefer it to Visa/MasterCard.)

Legoland example: https://servicecenter.legoland.dk/hc/en-us/articles/20258981...


They don't charge extra for credit card payments, but they pay the fee on the majority of their payments, so it's baked into their margin. The cash-back arrangement reduces this by ~1% in effect.


> The cash-back arrangement reduces this by ~1% in effect.

For people with good credit, as the article mentions. It's effectively yet another tax on the poor.


> 3% of your credit card spend is a steep cost to pay for that security though

You're not paying anything for the protections the credit card offers.

Or more precisely, you are but we all are, even if you pay cash or with a debit card, since the vendor prices the items accordingly and there's no cash discount. (There are exceptions, but very rare in the US.)

And most credit cards give you cash back so it's actually cheaper.


> And most credit cards give you cash back so it's actually cheaper.

Do you really think that banks and card networks work for free?

Even if you use the best rewards card and never pay a cent of interest or fees to your bank, you can bet that the program on aggregate is running a profit for the issuer, or they would not be offering it in the first place.

In effect, your rewards have to be either paid by the merchant (i.e. you, in the end, in the form of higher prices for goods and services), or by other cardholders in the form of interest, fees, using a suboptimal card/rewards category combination etc.


> > And most credit cards give you cash back so it's actually cheaper.

> Do you really think that banks and card networks work for free?

They certainly don't work for free, I addressed that above.

The credit card fees the merchant has to pay are bundled in the price of each item, so you can't escape them. By using a cash back card you can recover some of it, so you're leaving money on the table if you pay by any mechanism other than a cash back card.

A few gas stations around here offer a discounted cash price. In those, I'll pay cash.


> they can't clean out all your money if you don't tie all of it to the debit card, just put a months worth there at a time and you are better off with debit unless you get your debit card stolen every year or so.

You can set up daily/weekly/monthly limits for debit cards, and separate ones for online purchases, physical terminals or ATMs, if you want.


In the EU credit cards can't be charged more than other payment methods anymore, so _youre_ not paying 3% more.


Or from another point of view you're now hit with the higher bill even if you choose to pay by a more efficient method. It's debatable whether the EU's rule actually helps cardholders or whether it just protects the card networks and their overpriced payment schemes.


In Australia they allowed merchants to pass on the payment network costs, and a good lot of them did - so you might pay x for cash, x + 0.5% for debit card or EFTPOS (equiv of European EC card) or x + 2.5% for credit card. I think it was partially responsible for a significant reduction in the use of credit cards in the country. But perhaps not the dominance of Visa/Mastercard in POS transactions, since most debit cards are in their network.

At first I hated the rule, but then I realised it was exactly a rule that put the decisions in the hands of the customer and the merchant and took power from the card networks.

(I don't live in Australia at the moment so maybe this is changed. I gather there is now also app-based credit payments which have eaten into Visa/Mastercard's market, both for credit payments and for POS transactions. But how significant, who knows)


EU credit cards also don’t have any (or anything close to) the benefits US cards have, right?


Personally I think that's a good thing.

And yes, it's reflected in the fees that a card issuer is allowed to charge.


It isn't costing me 3% directly, it costs the vendor. Which is already baked into the costs and charged to all of the customers no matter their payment method (typically). So I get other benefits and points / cash back on my purchase, and anyone not using a credit card misses out on those things.

Its kind of a messed up system honestly. The people who are already well off and can get the top of the line credit cards get all kinds of great benefits. And the costs are subsidized by those who cannot get them.


Dealing with cash isn’t exactly free. You have to worry about employee theft, robberies, etc.

If I owned a business, I wouldn’t accept cash at all.

And no, it’s not a federal law that you have to accept cash except in service of debt.

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


I'd also have it empty before filling, so it never accumulates.


Having two accounts, one to store your money, and one that you move money into for payments as needed would offer the same protection.


Well from my perspective Germany is incredibly backwards with payment infrastructure (apparently has got somewhat better during covid). I've been many many times and so many places do not accept any debit/credit card, only cash. It is incredibly annoying especially at restaurants and you want to pay for a group.

Youre right about the rest but in the US card acceptance is very very high (same in the UK, Nordics, etc). Germany definitely is not a shining light of electronic payments imo.


That’s due to societal reasons though not really technical ones. In many cases it’s the businesses not being willing to pay the extra fees at all, regardless of how low they are.

This seems to indeed have started to rapidly change with covid.


Cash has a load of fees of its own though - loss, theft, peoople giving wrong change out, transport costs (and the risk it entails), bank fees to accept etc. I believe the cost of handling cash is estimated at 1-2%. I know my business bank accounts all charge 0.5%-1% to pay cash in.

The only way it makes sense is if you are evading tax, as you'll happily pay 1-2% in cash losses to save 20, 30, 40%+ in taxes.


I've never got it either. I do have to say though that the German society is super focussed on cash as a thing so I wouldn't be surprised if the associated cost of it were lower there.

It doesn't make sense to me however that the economics are ostensibly so different between e.g. Germany and France, where in the latter basically even small shops don't care. Either it's something to do with taxes like you said, or German shop's margins are razor thin.


Agreed that this is very seldom over here. But it's still the reason why I'm willing to shop that often online. It is _also_ the reason why online retailers are so "customer friendly". If I have a complaint with Amazon or Ebay I tell them I have a problem and I just expect them to sort it in my favour.

If you buy stuff from e.g. C&A or H&M (two clothing chains here) and pay by invoice (which is basically always a wire transfer you initialise), then there is always much more hassle. My ex-girlfriend had to have 3-letter discussion with them that they had to find the stuff she didn't want in their warehouse. If she'd just paid via credit card, this discussion wouldn't have lasted that long, because we could have had the bank take care of it. And I'm reasonably certain that ability influence their CS department's behaviour


> I was very surprised when later (about 13 years ago) a US friend told me that they were still using cheques for most things.

I was married with kids 13 years ago and I never touch checks - that’s not a wide spread US thing, it’s a generational thing. Anyone who used checks for ‘everything’ 13 years ago was a massive outlier.


> in Germany, hardly anyone had a credit card, while everyone was using automatic payments and electronic wiretransfers

Neither SEPA direct debit nor SEPA credit transfer offer any means of dispute resolution, though (SEPA direct debit defaults in favor of the payer, credit transfer in that of the payee).

This means that all but the largest retailers (which can afford to do fraud management entirely in-house) still depend on third parties to arbitrate the risk of non-payment (for merchants) and non-delivery (for customers).

> Of the people (in Germany) I know, they also never use charge backs on the cards (I suspect many don't even know that you can do it) and instead rely on the court system to get refunds etc..

This indeed seems to be the case, which is unfortunate e.g. in the case of travel provider insolvencies. The card scheme rules are very clear in this case, but way too many German banks have in the past declined these disputes (claiming that they are "incompatible with German bankruptcy law"). Cards (both credit and debit) do offer more customer protection that almost any other widely accepted online payment method.


This has little to do with the banking system and everything to do with counter party risk. As a consumer you don’t know if you are getting ripped off. Having the weight of a credit card company on your side makes it much easier to buy something knowing you have fraud protection.


Why would I use credit card at all? Sure it does help when traveling but not much use for it otherwise


> Why would I use credit card at all?

Float. If I charge $10k to a card, I get an interest-free loan until the balance has to be paid off. In a zero-rate environment that's meaningless. But even at the 30-day's 2.22% [1], that's almost twenty bucks. I'm probably paying about 1% more for the CC fees, but I can use my card that gives me 1.5% back on everything.

[1] https://home.treasury.gov/resource-center/data-chart-center/...


That seems so much hassle for so little.

But in Europe credit cards don't give cashback.


Your going to pay with some sort of payment card, and credit cards are easy to sign up for and less hassle to use with payments than debit cards, which require you to tap in a pin all the time. Also less fraud protection, etc.


Here in Europe it's the complete opposite. They're hard to sign up for (banks don't like giving them) and you get registered for the loan which means you will have a harder time getting a mortgage or car loan. The more loans you already have the harder it gets. I heard in the US it works the opposite way.

And the pin is required here on both (and rightly so IMO to protect against skimming). Only for minor contactless payments it isn't. But the same goes for both.

And we don't get much additional fraud protection or other benefits like insurance on them that we don't get with our debit cards.

I'm surprised the payment systems are so completely opposite. Despite being the same tech from the same companies.

The only reason I have one is that my work insists that I get an Amex due to some dirty deal they have. Which is a horrible card for traveling in Europe, nobody accepts it besides hotels. Try getting a taxi in Paris for example..

I also had my personal one as my debit sometimes didn't work but these days it works everywhere.


>They're hard to sign up for (banks don't like giving them) and you get registered for the loan which means you will have a harder time getting a mortgage or car loan. The more loans you already have the harder it gets. I heard in the US it works the opposite way.

In the US, loans are distinct from lines of credit and credit cards. Just having a credit card won't make it easier for you to get a loan, but having a history of on time payments while making use of the credit cards will increase your credit score. Having high utilization on your cards will decrease your credit score. Mortgages will take a variety of factors into account, with credit score being among them.

>The only reason I have one is that my work insists that I get an Amex due to some dirty deal they have. Which is a horrible card for traveling in Europe, nobody accepts it besides hotels. Try getting a taxi in Paris for example

I've actually been quite successful in utilizing my Amex card across roughly two dozen countries in Europe and Asia, so this doesn't really match my experience. I haven't specifically tried to use it for a taxi in Paris, however. I do keep a Visa in my wallet in case I need it, but my bigger issue has been places that don't take cards at all, and having to carry cash. Cash only locations are basically nonexistent in the US - even the smallest hole in the wall type places and random food stalls in gas stations tend to allow for cards ever since Square became popular.


> I've actually been quite successful in utilizing my Amex card across roughly two dozen countries in Europe and Asia, so this doesn't really match my experience. I haven't specifically tried to use it for a taxi in Paris, however. I do keep a Visa in my wallet in case I need it, but my bigger issue has been places that don't take cards at all, and having to carry cash. Cash only locations are basically nonexistent in the US - even the smallest hole in the wall type places and random food stalls in gas stations tend to allow for cards ever since Square became popular.

I've never used it in Asia, but for example the main Taxi companies like G7: https://www.g7.fr/en/paris-taxi-fares do accept credit cards but are very difficult about amex. When you wait at Charles de Gaulle airport there's some bouncer in the taxi queue who will ask specifically what card you have and if you have Amex then they have to haggle with the queue of waiting taxi drivers for one to accept it. And often when you do get to your destination the machine is suddenly 'broken'.

One of the taxi drivers told me that amex charges them a lot more than the others.

In Romania you'd be hard-pressed to find a taxi that accepts cards at all and if you show them an Amex they will laugh in your face (though taxi drivers aren't very nice people there generally speaking, two of my colleagues even got literally robbed).

The same with other minor expenses. Like rail tickets, food in a 7/11 style shop etc... The big hospitality outlets like upmarket restaurants and hotels do generally accept it. But my work requires me to pay all my travel expenses with amex and I get a lot of bitching from them if I don't. But especially in Eastern Europe I just don't get anywhere with it.


Amex is a clear example of where the power and focus lies here.

Amex gives its customers great benefits. It charges merchants an arm and a leg to do that. Literally double the fees. Merchants then refuse to accept it a lot of the time, but every time a customer "only has an Amex card" they lose business, so a lot do accept it, grudgingly.

Of course customers prefer to use their Amex card whenever they can, because benefits. So they often pretend to "only have an Amex card" (much like "the machine is broken" in taxis, that then miraculously fixes itself when you pull out some loose change as "the only cash I have").

the customer is king, as always.


> Here in Europe it's the complete opposite. They're hard to sign up for (banks don't like giving them) and you get registered for the loan which means you will have a harder time getting a mortgage or car loan.

Which part of Europe? That's not how it works in the UK. You build up a record by using credit products and it benefits your score to keep them in good order.

Though it is how it works here in Australia. When you apply for a mortgage they take your credit card limit into account as a negative.

> And we don't get much additional fraud protection

That's interesting. The UK (again) has significant legal protections for credit that mean the credit card company is jointly liable for the debt in some circumstances, like fraud, and must return your money pending an investigation. There's much less protection with debit cards.


> Which part of Europe? That's not how it works in the UK. You build up a record by using credit products and it benefits your score to keep them in good order.

Good point, Europe is not one entity. The UK is more aligned with the US legally (common law etc) than the rest of Europe. Especially now with Brexit.

In the Netherlands it's definitely something that works against you. Even something simple like a phone contract with subsisided hardware will lower the credit score.


The UK (again) has significant legal protections for credit that mean the credit card company is jointly liable for the debt in some circumstances

And the advice for customers is often to buy mid-to-high value items using a credit card for this reason. If you order £10k of furniture for your new home from an online retailer that goes bust before delivery and you paid by credit card then you might well have a claim against your card provider instead for example.

Of course the direct connection between whether you have certain consumer protections by law and whether you technically paid on credit doesn't actually make much sense today and mostly exists for historical reasons. The corresponding risk created for card companies also contributes to the raw deal that merchants get in the terms for accepting card payments, which is a drag on the whole economy.


I'm not sure they do get such a raw deal for accepting card payments do they?

Lots of (for example) food stalls in London were popping up as card-only businesses over the last few years, because it was easier than dealing with cash. The EU rules (which presumably still apply until actually repealed) capped the fees pretty effectively.


I'm not sure they do get such a raw deal for accepting card payments do they?

Typical terms for merchants accepting credit card payments are probably the most one-sided legal agreements I've ever seen.


Oh sure, yeah no contest there. You want to accept cards here's your list of arcane rules and if you step over the line no money for you. I guess I was thinking in terms of fees etc.


> pin is required here on both (and rightly so IMO to protect against skimming). Only for minor contactless payments it isn't.

Across Italy, France, Britain, the Netherlands and Portugal, over the last thirty days, I never had to provide a PIN over contactless. This was true for minor purchases to €5,000+.


Is that with your phone perhaps? With those there is no pin needed because you already authenticate on the phone itself. I don't have to with Samsung Pay either.

But on the card itself I have to above €75 (or after transactions accumulating to that amount)


Is this a US issued card by any chance? The issuing country/bank determines whether a PIN can/must be used.

Mobile wallet based payments also don't need one, usually (since authentication already happens on the customer's device).


In France, contactless has a legal limit of 50€. (It used to be 25€ before covid, but they tried to incentivize contactless to reduce well... contacts)

There's also generally a limit over the volume and the amount of consecutive payments, so that if someone steals your card, they won't be able to spend huge sums with contactless. It is set by your bank though


Even when paying with a phone though? Here there is a similar limit with cards but with my phone it works (Samsung Pay). And I never have to enter a PIN either, I assume this is because I have to authenticate on the phone for every payment (biometric or separate PIN).

But I haven't been to France since I got Samsung Pay so I haven't had the chance to try it out. Here in Spain it works with any amount. Well, up to a few hundred anyway, I haven't bought anything over 1000 in ages :)


I had simply assumed it would be the same, but after a bit of research, on the phone, the legal limit is way higher (300€). It does require a pin code above 50€ though


> which require you to tap in a pin all the time

I really wish US credit cards would finally switch to PIN as well. We all end up paying for lost/stolen card fraud indirectly, and PINs are extremely effective at preventing that.

The downside would be if banks would use that as an opportunity to shift the liability for all remaining fraud onto cardholders as well, but the same scenario already exists with ATMs and debit cards.

> Also less fraud protection

Practically, not really. Most banks go above and beyond the legal requirements for limiting fraud liability for unauthorized debit charges and offer zero liability as well. The same chargeback framework that exists for debit also applies to most credit transactions.


While your waiting for your fraud process to finish, you don't have money in the bank. Also as you said, more fraud liability is shifted to card holders, so if someone stole your pin then it's even more pain.

While with a credit card, you do still have money in the bank and less instances where you are assumed to be the liable person.

Also culturally in the USA it's a common feeling that debit is not as good or the consequences are more dire with debit cards and fraud.

Bank balances are very important for most Americans to avoid late fees and so on to pay their bills, while you can hypothetically walk away from a credit card debt.

Card companies decided that the friction & support burden that PIN entry gives is not worth the revenue decrease vs. the cost of fraud AFAIK.

IMO I want push permissioned payments and not have this basically auth-free pull system of payments, but that wont happen for a long time. Subscriptions should be a subscription request send to a card, you approve in your bank app and then you can cancel unilaterally on your side on you app. None of this pull crap. Same with tap to pay.


> While your waiting for your fraud process to finish, you don't have money in the bank.

In many circumstances, banks are required to either resolve the issue quickly or provisionally credit you in case of disputes. Fraud liability is also limited by regulation, in addition to card scheme rules and bank policies:

https://www.forbes.com/advisor/banking/what-is-regulation-e/

> Also culturally in the USA it's a common feeling that debit is not as good or the consequences are more dire with debit cards and fraud.

I suspect that it's primarily that: Common knowledge with a lot of truth to it, but not entirely up to date and correct in many instances. Germany obviously has a lot of that as well, but with very different axioms leaving to very different outcomes in terms of guidance and behavior ("only cash is real money", "debt is bad/a moral failure" etc.)

> Card companies decided that the friction & support burden that PIN entry gives is not worth the revenue decrease vs. the cost of fraud AFAIK.

The problem is that due to market dynamics (leaving aside card scheme rules for the moment), it's really not up to individual banks to change that. The first bank to introduce a PIN on their credit card would lose a lot of purchases to their competitors due to convenience, forgotten PINs etc.

In Europe, it took heavy regulation to get banks to use 3DS – the dynamics there in terms of a first-mover disadvantage were very similar, and the existing (significant!) financial incentives were not enough.

> IMO I want push permissioned payments and not have this basically auth-free pull system of payments, but that wont happen for a long time. Subscriptions should be a subscription request send to a card, you approve in your bank app and then you can cancel unilaterally on your side on you app. None of this pull crap. Same with tap to pay.

The various stakeholders (card schemes, regulators, banks) are well aware of that customer demand. This industry is one full of legacy technology, and it'll take a while, but I think we'll get there eventually.


I use one for two reasons. One is that it puts a layer between my purchase and my bank. Any fraudulent purchases can be dealt with before any money is taken from my account. The second is for the rewards and the ability to build credit.


Why would I not use a credit card? It's essentially a better debit card in every scenario, except for when paying with a credit card has an additional fee.


1. Extra hassle of interaction with a second company other than your bank, extra credentials, tracking balances, etc. etc. When I was living in the Netherlands I had my bank-account-attached Maestro card (or sometimes cash) and that was that. Except when foreign companies needed a credit card.

2. Fees. The whole point of credit cards - for the CC companies of course - is fees.


> Fees. The whole point of credit cards - for the CC companies of course - is fees.

On the merchant side, yes.

On the consumer side, no. There aren't many examples than Amex which is mostly popular in US charging high fees for their credit cards.

Most credit card companies make money from merchant run programs and overdraft & interest on late payments and penalties. They make half of their profit from vulnerable and poor people to pay rewards.


Merchants can forward the fees they pay onto you. And, in fact, some definitely do. So cash/debit card price would be X, credit card price might be X + 1% or X + 3 EUR or whatever. Others just refuse to accept credit cards: Direct debit or cash only.


As others have noted, basically every bank in the US offers credit cards, but I do make use of American Express as my primary purchasing method, and for me this is a feature and not a bug.

They offer excellent customer service, the concierge offering has done quite a few excellent things for me (for free!), every time I have had to perform a chargeback the experience has been painless and the investigation concluded quickly, they generally have promotions related to merchants I frequent, etc. It's a much better experience as a customer than any bank I have ever had an account with.


Pretty much every major bank in the US issues credit cards, so you don't need to deal with a second company. For most consumers, there are credit cards without fees (the CC companies charge fees to merchants, but unless you're dealing with a place that offers a cash discount, that doesn't affect you at all).


> Extra hassle of interaction with a second company other than your bank

Nearly every (probably every) bank issues credit cards (they'll ultimately be Visa or MC, but cobranded by your bank) if you want to get everything from one place.

> Fees. The whole point of credit cards - for the CC companies of course - is fees.

What fees? There are no fees. In fact there are nearly always cash back (or points, or something) that benefit you.

Sure, the merchant pays CC fees, but those are bundled in the price of the item so you'll be paying those even if you pay cash. So might as well use a credit card and get all the legal protections that only credit cards guarantee + some cash back.


> What fees? There are no fees.

I guess that depends on the legal system. In some places the merchant frequently passes the fees on to the customer (and any contract between the payment network and the merchant which prohibits it is invalid to that extent by law). Then you need to consider the rules of the place you're in and decide which card to pull out, and you probably have your default card on Apple/Google/Samsung Pay set to be the debit card.

I think it's also common for a credit card to have an annual fee that probably doesn't apply to a debit card.


> In some places the merchant frequently passes the fees on to the customer

In the US that is exceedingly rare. The only exceptions I've seen are the government and a few discount gas stations.

But, you're right, in the end it's important to always be aware of the payment rules of each place and optimize accordingly.

> I think it's also common for a credit card to have an annual fee that probably doesn't apply to a debit card.

Most normal credit cards (at least in the US) have no annual fee. A good one is the Citi Double Cash card, no annual fee and unlimited 2% back on everything.

The premium cards have fees, those are rarely worth it unless you travel so much that you can take advantage of all the discounts.


I use it for cash back. It helps to significantly offset sales tax for me.

Yes, the money is always coming from somewhere and arguably products might be cheaper without credit cards. However, it’s the game we’re in, so why leave money on the table?


cash back *rewards.

Please don't use your credit cards for cash advances unless you REALLY know what you're doing and why.


For anyone downvoting the solid advice in the parent comment, please be aware that "cash back" has been a widely used term in some countries for getting a shop where you're paying by card to charge an extra amount to your card at the same time and give you that amount in cash. It was a popular alternative to ATM use here in the UK for a long time for example. However if you were paying using a credit card instead of a debit card then the same (often very expensive) charges and interest rates would apply as if you used your credit card to get cash at an ATM and sometimes people didn't realise that and thought it was a free and convenient way to withdraw extra cash (as it typically would have been if paying with a bank debit card instead).


I assumed they were referring to the % cash "back". For example the Apple Card

> Get up to 3% cash back on every purchase you make

https://apply.applecard.apple/

I've always assumed I'm paying that 3% so might as well try to get some of it back.


Apologies - I was indeed referring to the cash back rewards.


Don't think of it as a credit card. Think of it as payment mechanism. It comes with certains costs (to some users, and to all merchants) and also with certain benefits. It also comes with a certain aggregate cost to the whole of society, since essentially prices are increased to cover fees, and then some fraction of the fees are refunded to the wealthiest users (redistribution, just more subtle than taxes).


Predictability in cash flow and free rewards in India. Most places do not charge extra for credit cards and nor do you pay annual credit card fee in most cases.

It's an interest free loan for upto 45 days. Many banks will provide 3.5 - 6% interest without risk. If you spend a lot monthly, it's a free nice dinner every month without doing anything. If you can use the capital, it can be worth more.

They provide free lounge access and food at airport + concierge service for discounted bookings at hotels.

Chargeback protection is necessary in India.


> Chargeback protection is necessary in India.

Why?? Practically all transactions using debit card/UPI require PIN/OTP.


Scam and fraud from companies and vendors.

I've had official employees from a big company try to scam me. I now only pay using credit card.


1. Free one month loans

2. The law requires banks to pay for any fraud


For consumers in the USA, there's a negative take rate. You get cash back if you pay with a card.


Online payment?


As your post illustrates credit cards are really a solution developped for the deficiencies in the US banking system

Disagree.

This is like saying "This illustrates that the US bankruptcy system is a solution for the deficiencies in the US credit industry".

What you see as a "deficiency" I see as "pro-consumer". As a credit card customer, I carry almost no risk of fraud. Why? Because my credit card company controls payment and will just reverse it if needed. They are also happy to keep retailers in line by holding them to contractual obligations.

It's a system I'd prefer than some direct payment from my bank where the risk of fraud and its resolution is entirely on me.


>I was very surprised when later (about 13 years ago) a US friend told me that they were still using cheques for most things.

Your friend is strange, the only thing I used checks for 13 years ago was rent.


What you write is correct re: Germany but you've left out the part where everyone who wanted to order something on the internet (before widespread PayPal adoption) still got a credit card just for that. And maybe for getting money from international ATMs where our Maestro cards would not work (I know I am mixing up timelines here, the cards were Giro, not Maestro at the time and I don't really know the details)


Fortunately these days are finally over, with more and more banks finally issuing debit cards co-badged with an international and online capable scheme (Mastercard or Visa Debit), rather than just Maestro or V PAY.


The US credit card system is also the reason we still have magstripes and all the fraud that goes along with it because chip & pin is still not everywhere there. Not to mention making payments available using nothing but info printed on the actual card being a very bad idea.

Especially because in Europe we lack all the cool payment protection and insurance stuff that US cards offer.


The credit card companies strongly push merchants to adopt EMV chips by shifting liability for chargebacks onto merchants who are still using magstripes. I don't think I've seen a non-chip capable terminal in the last year.


The liability shift in Britain was on 1 January 2005.

In the USA, gas station transactions only had this shift in 2021.

> The magnetic stripe will start to disappear in 2024 from Mastercard payment cards in regions, such as Europe, where chip cards are already widely used. Banks in the U.S. will no longer be required to issue chip cards with a magnetic stripe, starting in 2027. [1]

My cards' magnetic stripes haven't been used for at least 10 years.

[1] https://www.mastercard.com/news/perspectives/2021/magnetic-s...


Oh great to hear that the magstripe is disappearing!

Not being able to use my card in remote areas abroad without chip+pin is not an issue for me. I'm much more concerned with skimming. Especially because even if the bank guarantees it, it's still a big hassle.


Good but still a decade too late. The CC companies won't remove the actual magstripe (and thus the vulnerabilities it represents!) until it's not necessary anywhere.

Here it's been banned from all payment terminals since 2014 IIRC. But skimming is still a thing because they send the card scans to other countries where magstripes are still permitted :(


We still use cheques a lot in France. Even without that we are the Middle Ages of banking on Europe.

As for charge back, this is not something you can do yourself, you need to complain to the bank. By law they have to credit you back and investigate (and possibly charge back)


credit card was common in France since the 90s, nearly every shop took carte bleu/crédit card. Going to Germany is like going back living in cave, it is crazy to be told to get cash at the ATM in the shop for 1000 euros worth of goods in media markt (Stuttgart, 10 years ago, I hope you went bankrupt).

However I love cheque, it is still available in France and I use them regularly. You can actually use it to pay your shopping, it is accepted in a lot of shops. It is perfect to pay something by mail, or to pay sports clubs license. No need to request the IBAN, no need to type it and hope you didn't make a mistake, no need to confirm with 2FA using your secret code and no need to wait for the transfer to go through.


Credit cards are superior to debit cards in every way.

Fraudulent charges can be reversed immediately, don’t impact you at all (since the money isn’t yours). Chargebacks can force a retailer to give your money back.

The benefits are endless.


> Fraudulent charges can be reversed immediately

This isn't really a benefit, it's a fix to a problem caused by credit cards that doesn't happen at all (or at least rarely) with debit cards.


They aren't a good solution to paying a friend $10 or your rent every month.


I can pay my child's college dorm fees with a credit card with no additional fee. At least I get a little cash back. But, yeah, that kind of arrangement is extremely rare.


It's a several-hundred-dollar a year fee to a middle-man. For a service that should be approaching free after a century of progress in telecommunications.


what's a charge back? (not joking: in the US and I don't know)


It's when you tell your credit card company that a specific charge was not valid. Generally because the person/company it was too did not fulfill their end of the transaction. Generally, you're not responsible for the charge until they've looked into it and determined who they believe is at fault.


thank you


And Germany invented mail order. It took two things: The German post office (one of the first in the world) and the high trust within German society.


yeah, even in India, most online businesses support UPI (unified payment interface) wallets and apps like paytm which can also easily work with subscriptions, and can be connected to your bank account for instant payments. they payments infra in India is unbelievably awesome


that's the thing; businesses don't want to have to rely on the court system to get refunds.

the x% CC processing fee is essentially fraud/non-payment insurance


That's the thing; lots of businesses outside the US have no problem using bank transfers. I only have a credit card for internet purchases outside Netherland; every Dutch site (including many international ones, like Steam) supports iDeal, which is far safer than credit cards.


Not really safer

"There is no chargeback right however, which can be considered a disadvantage for the consumer using this payment method."


...In the US.

Outside the US, credit cards are much less common outside the US. The alternative to credit cards isn't CoD, it's debit cards, which are connected directly to a bank account. Merchants love debit cards because they have near-zero transaction fees.

You don't need credit card for chargebacks, just strong consumer protection laws that permit the bank to claw the money back from the merchant.

As for fraud, I don't have any data, and I'm sure there's plenty, but we have had chip-and-PIN in Europe for decades, and for more than a decade cards have been protected with 3D Secure and similar types of mandatory 2FA, so having the card number is not enough to complete a transaction.

People seem more wary of accruing debt in Europe; it's easy to lose control over your personal finances with a credit card. But we have middlemen like Klarna now that offer credit-card-like payment deferral. Klarna appears as just another payment processor, but takes on all the risk, similar to a credit card company.

The only thing I miss from US credit cards are cash back rewards.


Credit cards are more popular than debit cards in Japan. Its debt is monthly cleared from bank account by default and no fee/interest so basically no hassle but just useful, unless signed up revolving payment.


The thing about debit cards though, it's a different system and they don't work for online payments which makes them effectively useless.

> People seem more wary of accruing debt in Europe; it's easy to lose control over your personal finances with a credit card.

Well using credit means you're taking a loan, and subsequently paying interest on that loan even if it's just a month. Why would you pay interest on a loan that you don't need and pay an exorbitant amount in monthly fees just to have the card? Seems like absolute lunacy. And here it doesn't tie into the credit score system much so there isn't a reason to do it solely because of that.

Luckily these days there are fee-less prepaid cards that work like debit cards, but function as credit cards. That's my go-to.


>The thing about debit cards though, it's a different system and they don't work for online payments which makes them effectively useless.

Huh? That hasn't been my experience. At all.

I make online purchases nearly (yesterday I made two!) daily with my debit card with no problem at all.

Perhaps that's an issue where you live. I'm in the US, so YMMV, I guess.


In the US, Online purchases with a debit card generally do not use the lower fee debit card networks, but instead use the credit card networks. Basically every debit card in the US is co-branded by one of the credit card companies, and can be processed by merchants as if it were a credit card.

The lower fee debit card networks operated by the interbank networks that run the ATM system (Pulse, NYCE, STAR, etc) do not seem to be available for online purchases.

So while you absolutely can pay with them online from the merchant's perspective it is a credit card, and only the issuing bank is treating them differently.

While Visa et al do know this is a debit card, and could could offer lower interchange fees, I'm not sure if they do, and they certainly don't lower it to the same level as the debit networks.

This may very well be different outside the US, as they may not be fully seperate networks in every country.


>In the US, Online purchases with a debit card generally do not use the lower fee debit card networks, but instead use the credit card networks. Basically every debit card in the US is co-branded by one of the credit card companies, and can be processed by merchants as if it were a credit card.

Yeah. So what?

It doesn't make any immediate, practical difference to me.

Sure, it would be great if fees were lower. That would (presumably) reduce price increases over the long term and allow merchants to increase their gross profits. Having high "processing" fees is rent seeking at best and is likely a drag on the economy.

That said, GP's comment[0] (which is what my comment was addressing) that "The thing about debit cards though...they don't work for online payments which makes them effectively useless." is (at least in the US) flat wrong.

Edit: Removed extraneous editorializing.

[0] https://news.ycombinator.com/item?id=32503287


Ehhh, no? Our debit cards are used for in-store payments, and literally every single bank allows you to use them for online payments too. We just developed systems which don't depend on handing random people a bunch of "secret" numbers and hoping they don't defraud you.

For example, in The Netherlands *everyone* uses iDeal. Basically, the store does a 302 redirect on checkout to your bank, sending along the money owed and the destination account. The bank authenticates the user, confirms that they indeed want to pay it, and redirects back to the store. It... just works!


> literally every single bank allows you to use them for online payments too

Please tell me how the hell I should input a 19 digit debit maestro card into 16 digit credit card number slots. It even has letters.

> iDeal

Seems like it's only a Dutch thing according to the wiki.


If you want e-commerce use then get a regular Mastercard Debit. Maestro cards require physical presence of the card and electronic interaction between the card and the POS.


iDEAL is from the Netherlands, but of course many countries have similar systems (Belgium: Bancontact, Germany: SOFORT, Poland: BLIK, Sweden: Swish, India: UPI, China: AliPay/WeChat Pay, etc., etc.)


European debit cards such as Visa Debit or former Electron are practically no different from a credit card in making online payments. They work just fine.

There are also credit + debit combination cards, which have two different numbers to use. They also let you choose which side to use on the payment terminal.


Yeah though those aren't true debit cards, at least not in the original sense. They're credit cards that work like debit cards that I mentioned now exist.

Actual debit cards are issued by banks and only have the much longer account number on them.


How are they not true debit cards? They are issued by banks, directly debiting from an account. Sure, internally they piggyback on infrastructure originally intended for credit cards, but that's an implementation detail.

Maestro, given you mention it elsewhere, doesn't necessarily have longer payment card numbers than most credit cards (which are mostly 16, except for Amex which is mostly 15): it merely has a number made up of a number of different prefixes, and the final section is determined by the issuing bank… and several of these are variable length.


I think the grandparent may be from a country in which a separate debit network, operated jointly by the nation's banks, exists. In such countries banks have typically issued cards using these networks and they may be seen as "true debit cards". MC/Visa are then often used interchangeably with "credit card", even in instances where they are debit cards on the Visa/MC network. (I'm not arguing this is correct usage of terminology.)

Anecdata: I'm from Germany, which is one such country. I've recently had a conversation with someone who had a "credit card" that charges directly to their bank account.


>The thing about debit cards though, it's a different system and they don't work for online payments which makes them effectively useless.

Everything in your opening sentence is incorrect.


This very much depends on the country. In some places there are debit card networks which are neither MasterCard nor Visa nor Maestro. In such situations your bank's debit card may actually be useless for online payments. Even if the cards are Maestro and an online retailer happens to accept Maestro (somewhat rare in my experience), that may not help you since banks will often blanket deny any card-not-present transactions.


Tell that to my bank lol.


I've had both VISA and MasterCard debit cards, delivered from my Swedish bank. Both had 16-digit card numbers, not my bank account number.

The only hick-up is that they default to 2FA: using a smartphone (domestic bank system) or card-reader (chip-and-pin). My bank has supplied me with a small card-reader for home use, which I also use for on-line banking. To order from an on-line vendor that does not support chip-and-pin, I'd have to also log into my bank and temporarily enable "Internet payments". This has worked for me every time I've ordered from US, Australia or Japan.


I (limey brit) use my debit cards all the time online...

To be clear, they're VISA cards issues by the bank with a 16 digit main number and the payment appears on my bank statement within about 5 minutes.


I am an online merchant. The visa Mastercard fees are enormously high, so not. We are not "happy to pay it". The 3% is not to cover any consumer protection, that cost is born by the merchants. When a dispute is made by a customer, the merchant is assessed a fee, and almost always loses the dispute. The fees are so high that credit card companies give extremely high rewards back, which is in effect a regressive tax.

In addition, visa Mastercard can cut off any business from doing commerce, and often do for political reasons.

A much better system is one with: - extreme low fees (like 0.1%) - consumers can dispute anything within x days and merchants have to issue a refund. No administration. - any merchant with a bank account can use it (or similarly broadly available)


> consumers can dispute anything within x days and merchants have to issue a refund. No administration.

Er merchants will get instantly crushed with first party fraud. As soon as people realize they can acquire a good and then get an instantly approved dispute the day after, game over. Unless thats not what you mean?


Which is currently already happening. I work at a small online store, and we are extremely lenient when it comes to cancelling, returning, or warranty. And yet some customers decide to just do a chargeback instead, which costs us a significant amount of money. Almost all of the time we would've happily send them a replacement or given them a refund!

As a merchant, credit cards suck.


There’s at least some disincentive to doing this with card networks (have to talk to someone, do it too many times and they’ll cancel your card , etc). Automatic, no questions asked unarbitrated disputes would collapse the system very quickly, it’s an unlimited free stuff hack.


To be fair, you seem to be in the minority. The amount of time I've wasted by just trying to get my money back for items that never arrived, arrived broken...

No matter how you argue, the people who do not abuse the system and are honest to the degree of hurting themselves will always be at a disadvantage versus the people who either refuse to replace an item or just file a chargeback instead of even contacting the merchant.

Or the customer support is so bad that you enjoy filing a chargeback.

"Hello, the tracking site says the item was delivered. It was NOT delivered and I asked the neighbors, it's not here." "Thank you for contacting us, the tracking site says the item was delivered. Have a nice day!"


It should be like that in the EU (https://ec.europa.eu/commission/presscorner/detail/de/MEMO_1...)

    2.1 Why does the proposed Regulation cap interchange fees at 0.2% and 0.3% for debit and credit card transactions respectively?

    The 0.2% and 0.3% caps were proposed by schemes (Visa Europe, MasterCard, Groupement des Cartes Bancaires2) in competition proceedings and appear practical as providing legal certainty while not threatening the viability of these schemes. These levels are based on an estimate of the fee at which a merchant would be indifferent between being paid by card or in cash. The figures have been developed using data from the central banks of Belgium, the Netherlands and Sweden on the cost of payment instruments.
However in practice, fees are still 3%-5% for merchants. No idea why.


because people (intentionally) keep conflating interchange, card scheme fees as well as fees paid to the merchant's acquiring bank in order to make US/UK fees seem more outrageous. Just going off of Stripe pricing, the processing fee is 1.3% for EEA issued cards compared to 2.9% in the US.


Would you mind sharing your approximate gross profit margin? And, can you share info about your marketing spend as a percent of gross sales?

I ask because most lower-margin businesses tend to be brick-and-mortar and service-based, like a restaurant. If a typical restaurant's profit margin is ~3-5%, then going from 3% credit card fees to 0.1% fees could conceivably increase their profits by 60-100%. So, if your margins are <10%, then I understand how transformative lower network fees could be hugely impactful.

For ads: Many ecommerce businesses spend far more than 3% of their gross revenue on acquisition/marketing costs. So, in some ways the 3% credit card fee is closer to a marketing expense that increases conversion rates - and payment network fees are often less than overall facebook/google ad spend. So, if you're spending >3% of your gross revenue on ads, then the high conversion rates of credit cards factor into your advertising acquisition costs.


> The fees are so high that credit card companies give extremely high rewards back, which is in effect a regressive tax.

This. There's so much incentive to encourage shitty consumer behaviour on the CC side and it destroys margins on ecomm.

Those who are interested in learning more should read this article[1] on a cycling ecomm company and their issues with fraud and chargebacks. It's very accurate with what I've experienced.

1 - https://cyclingtips.com/2022/07/interview-silca-on-amazon-e-...


Every study shows that consumers are willing to spend more on a credit card than when they are using cash. Taxi cabs drivers for instance were against being forced to use credit cards until they realized they got larger tips.


>Taxi cabs drivers for instance were against being forced to use credit cards until they realized they got larger tips.

I only have anecdata about this, but every taxi driver (50+) I've ever discussed CC vs. cash (this is in NYC and limited to medallion taxis) has said they prefer cash every single time.

That's mostly because of the 5% CC processing fees on every transaction, as well as delays in receiving their money from CC transactions.

I imagine it's different elsewhere, but not (at least AFAICT) where I live.


You're forgetting about taxes though. A lot of cash-based transactions are not declared.

Edit: rather, it's easier to not declare cash income, than income from credit cards. Also keep in mind that the taxi company may take a cut of the revenue too.


>You're forgetting about taxes though. A lot of cash-based transactions are not declared.

In NYC medallion cabs, all taxi rides are recorded by the taxi meter in each car. It records the distance and the fare charged, regardless of payment method.

So that's not really the issue.



Paypal charges the seller $8 fee for every dispute, $16 if the dispute rate higher than 1.5%.

And $2500 dispute fee for each order deemed against their Acceptable Use Policy.


thats the chinese system basically and why the chinese online merchants ecosystem is much bigger


This. My company does payment processing for small merchants and all the complexity of credit cards is rooted in this dynamic.

- Consumers can pay stuff on credit

- Consumers can 'chargeback' if they feel something went wrong

These two mechanisms are the lubricant that provides a +% in online commerce greater than the % charged for processing payments.


Yep. Also one of the reasons crypto will never work (as-is) for online, digital currency/payments. Customers don't want irreversible transactions.


Whoever comes up with a way to encode this dynamic in a smart contract(s) could make a killing - or at least raise a lot of money hehe.


Plenty of escrow services exist to resolve this and there are a few variation of on-chain court for dispute handling such as kleros.

The reality is very few people know they can chargeback and most use debt & instant payment option for low ticket high volume transactions.

If something was holding crypto from being used to pay for daily essentials, it is not charge back ability.


Yep this is true. I work in online escrow. It's basically the original "smart contract", and until we are able to reliably digitize purchase events it's hard to beat. I have friends who talk about smart contracts, not understanding that it's currently very difficult for a computer to recognize events like "buyer has taken possession of merchandise", whereas it's pretty easy for a human.


The dynamic is having some trusted 3rd party to manage disputes. Which defeats the point of crypto.


It's just a useful feature the fiat system has.

The bigger point of crypto is that this trust can be parametrized and made transparent in a public ledger with less intermediaries. I see it as getting to feature parity, not as something that undermines trustless-ness - don't throw the baby out with the bathwater.


What actual value does this provide the buyer or seller? All of these blockchain solutions throw out a lot of buzzwords but after over a decade, I'm still yet to see any kind of benefit being provided.


I think it depends on the scenario. If you’re buying $0.50 worth of bananas at a farmer's market, then maybe irreversibility doesn’t matter. Could be even a $20 lunch bill, I've never done a chargeback at a restaurant before.


So what you're saying is that it's only useful for meaningless amounts? Sounds pretty pointless.


Something that is a meaningless amount for you surely isn’t meaningless for the person receiving it.

To extrapolate the idea some, I’d be comfortable using an irreversible payment method for various B2B SaaS subscriptions. Those can reach perhaps more meaningful amounts to you.

It seems that you’re rather dismissive of this conversation, so I’ll wish you a pleasant day/evening.


I think you make an interesting point about micro payments. Micro payments could be an avenue for crypto to actually achieve some legitimacy and usefulness.

Not only is the irreversibility less important, but potentially some of the usability/security issues for users (hacked/stolen wallets etc...) become less important as well (assuming users keep only smallish balances in crypto wallets).


> I think you make an interesting point about micro payments. Micro payments could be an avenue for crypto to actually achieve some legitimacy and usefulness.

I've been testing out the Lightning Network (Layer 2 of BTC) recently and it seems that the future has arrived. I can accept micropayments in BTC over LN, which get immediately converted to dollars and deposited to a bank account in USD. All for ~$0.01 fee per transaction. Here's how:

1.) Open an account at https://strike.me. This app is very similar to CashApp, but supports getting paid on the Lightning Network. I believe CashApp is also working on this functionality.

2.) Set up your own self-hosted install of https://lnbits.com (or use cloud hosted version at https://voltage.cloud for ~$10 USD/mo).

3.) Connect LNBits to Strike. (Note: there is an open PR for this, if you want to test then check out the PR on Github)

4.) Set up a Point of Sale (or paywall, or event tickets, or tip jar, or line-item invoices, or anything else) on LNBits.

5.) Collect a payment in LNBits.

6.) That BTC is immediately forwarded to Strike, converted to USD and available for withdrawal to your bank account.

Following these steps you can collect micropayments in USD for next-to-nothing fees and have no exposure to the volatility of BTC.

Your potential customers can hold their balance in USD as well, if they don't want to hold any crypto. They just deposit some USD into their Strike account to pay these micropayments.


There's nothing about cryptocurrencies that mandates irreversible transactions. A decentralized buffer/escrow system is quite possible, it wouldn't surprise me if it already exists.


True, but then you need someone to manage the escrow payouts. And doing that requires a trusted third party to do work, and so they charge fees to finance that. So, basically reinventing a credit card company, but on a blockchain.

And these services do exist and are in use on some tor network marketplaces.


> So, basically reinventing a credit card company, but on a blockchain.

I don't expect fees to be much lower for a third party human-in-the-loop escrow system. And there's nothing wrong with "re-inventing" either. I think it's critical however that you can have strong censorship resistance and opportunity for innovation. So personally I'm more interested in the unknown unknowns, rather than recreating exactly the same.


> provides a +% in online commerce greater than the % charged for processing payments.

While possible, this is a claim made without evidence.


I don't think anyone disagrees with you in terms of the value of credit cards, the issue is whether their fees are worth it. Their huge profit margins, as well as how they previously fought tooth and nail against, for example, allowing merchants to levy a credit card surcharge, suggest that their duopoly position is allowing them to charge exorbitant amounts for their services.


Well 3% fees on every purchase on the planet is a pretty astounding amount of fucking money.

Explains why so many real world shops are still cash only.


Also, taxes. Card networks issue 1099-K forms in the USA and report earnings to tax agencies.

That's a major reason Argentina is taking steps to mandate acceptance of debit cards - so that income is accurately reported for tax purposes: https://www.bcra.gob.ar/MediosPago/Politica_Pagos-i.asp


In many countries the fees are capped much lower than 3%. In these countries you see the opposite - small shops and restaurants now don't want the expense of dealing with cash, which has to be stored securely, counted, reconciled and banked. All of these things take time and money.

Cash isn't some 'free' panacea for a business.


Transaction fees are much lower in Europe, there are some laws about it. That means that credit card rewards are nowhere near as generous.


Worth it to whom? It costs money to deal with transactions. Whether that is cash or credit. 3% can actually be easier and cheaper than dealing with large sums of cash


Abnormally large profit margins, as outlined in this article, mean that it's the lack of competition that is responsible for keeping fees high.


The fees are 3% only in the US and the bulk of that is returned to buyers as cash back or loyalty points, and to offset the cost of loan origination and warranties.

The EU has capped debit interchange at .2% and credit at .3%, Australia in the low 1s if I recall correctly. They just don’t really have rewards.


Nobody really has rewards.

We don't have them in Europe, and some people in the USA think they have them.

What they have is crazy high credit card fees and the need to juggle a bunch around to get a few things credit card companies decided to buy for you en masse.

When I buy a $5 latte, I give Visa $0.01. When you do the same, you pay $0.15.

Come the hell on. "REWARDS". Smh.


The Amazon/Chase credit card gets you a 5% Amazon credit for everything you spend at Whole Foods. That pretty much destroys their profit margin on a lot of what they sell. Given that I do all my grocery shopping there (for now), and I spend a lot on food, that's $840/year plus or minus.

My regular Chase card gives me 1.5% of everything I spend back as cash. That's typically about $1k/year.

I pay nothing in (direct) card fees at all.


Store co-branded credit cards encourage you to spend more at that store.


Well, my wife and I are kind of the degenerate case of getting credit card rewards since we are “digital nomads” traveling across the US, staying in mid tier Hilton hotels, using Uber, and flying everywhere. This means that 100% of our personal spending[1] goes on credit cards unlike most people who have car notes and mortgages/rent that they can’t put on credit cards.

Just on credit cards we get:

- 7-10% back on flights (Amex Platinum and transferring points to airlines)

- 10%-14% back on hotels (Amex Hilton Aspire)

- 5% - 8% back on dining and groceries. (Amex Gold)

- 4 - 8% back on Uber (Amex Green)

- 2-4% back on everything else (any of the above cards).

This doesn’t count hotel and airline loyalty points.

Yes, I’m taking into account annual fees. But all of the cards above have enough perks that they more than make up for annual fees - Uber credits, Clear credits, credits for hotels and airfares etc.

I’ve estimated that’s about 6.5% back a year on our budget. That’s more than we were paying in state taxes before we changed our official residence to a tax free state.

I also work in consulting, while I only travel 5-6x per year for work, many of my coworkers spend 40 weeks a year traveling a rack up credit card rewards by putting expenses on their personal cards and getting reimbursed. But they keep the rewards.

There is also an entire culture of “churning” credit cards for their sign up bonuses.

But I agree, for most people it isn’t worth it.

[1] we do have investment property that we have to pay the mortgage and a few bills on.


> 10%-14% back on hotels (Amex Hilton Aspire)

> This doesn’t count hotel and airline loyalty points.

Can you show your calculation for this? Hilton pesos get devalued on a daily basis in my experience, and they even nerfed their free weekend night with the Aspire credit card so that it is only useful for “standard” reward nights and not “premium” reward nights. Of course, all the nice hotels like Waldorfs and Curio will require premium reward nights.

I have never seen Hilton points worth more than $0.005 per point.


You’re not going to get a great value by staying at a Tru one night paying with a combination of points and money in East MiddleOfNowhere Nebraska.

But I’ve literally been looking at points vs money in every major city in the US and a few in Canada as I’ve been creating our itinerary.

With Hilton, when you pay with all points, you don’t pay taxes and fees and if you stay five nights and use your points, you get the 5th night free.

We stay exclusively at Embassy Suites, Homewood Suites and as a last resort Home2Suites so we can have two separate rooms (Embassy and Homewood) or at least have more space and a full refrigerator (Home2Suites). I work remotely and need the separate room to work.

You can’t really stay at a Waldorf or Curio when you are staying at hotels 280 days a year. During the winter we stay at our 2nd home/investment property.

Next year, we will be staying at the following places with all points for 7 days and getting values between .7 cents and 1 cent each: Los Angeles, San Diego, Santa Fe, NYC, Chicago and San Juan. This is just staying in mid range Embassy Suites. San Juan is at the Caribe for 10 days.

We won’t make it to the following cities until 2024. But I’ve seen good values in New Orleans, DC and Hawaii.

I was just referencing credit card rewards above. But you get 10x per dollar at Hilton, 10x for being a Diamond member (automatic with the Aspire card) and 14x with the Aspire.

The calculation was based on .007 * 14.


Glad it works for you but sounds like a personal haha


Sounds like a personal?


I get a minimum 2.6% cash back on everything I purchase, but most things I get 3.5% to 5.25% cash back.

There are a bunch of free 2% cash back credit cards, so people would at least break even if they wanted to.


Generally those types of deals require either parking six figures out liquid assets at the issuing bank and/or paying high annual fees (which of course favor the biggest spenders who amortize the cost over lots of volume). Either way the current system definitely favors the rich over the middle class.


> system definitely favors the rich over the middle class

This is correct. But it's a far cry from "nobody really has rewards." Framed a bit differently, our credit card system is a regressive tax on consumption.


In my case, it does not have to be liquid. Any investments count, including IRA/529 and other accounts. The 2% cash back cards generally have no requirements.

I am going to have those same investments anyway in VOO at one brokerage or another, so there is no opportunity cost.

You are correct that it is sort of a wealth transfer from poorer to richer. But merchants are free to offer discounts for non credit card purchases, and they do many times.


> I get a minimum 2.6% cash back on everything I purchase, but most things I get 3.5% to 5.25% cash back.

Which credit card do you have? I'd like to ugprade to that one.


BoA customized cash rewards and premium rewards with the 75% bonus by having $100k at BoA/ML. And Costco citi visa for fuel and appliances (due to extra 2 years on warranty).


Citi Double Cash is a 2% cash-back no annual fee card.

Interchange benefits merchants too - there's real costs associated with holding cash, and average cart sizes are significantly bigger for credit cards. They also miss out on fewer sales.

You may not value rewards programs but customers, card issuers and certainly those who operate those programs do. They're massive business. Frequently the only profitable part of a US domestic airline is its frequent flyer program - which gets the bulk of its money from credit card reward programs.

Credit card companies have even provided debtor in possession financing for airlines in the US by pre-purchasing multi-billion dollar blocks of frequent flyer miles. Here's when Amex did it for Delta in 2011. [1]

[1] https://www.eastvalleytribune.com/money/american-express-rea...


I note recently they've recently changed it to present as "Thank You" points at a rate of 100-to-the-dollar.

The cynic in me wonders how long before they devalue them. It's easier to start changing the rules for "points redemption" when they aren't saying outright "You have $112.75 in cashback value" on the statement.

They recently had a promotion-- use the points directly to buy on Amazon, but if you paid that way, it was debased-- something like 120 to the dollar. It was actually better for me to buy what I wanted on credit, redeem the points as a bank transfer, and settle the bill at the end of the month.


It could be a devaluation precursor, or it could just be psychological. Points-denominated rewards break the association with the actual dollar value. Folks feel better (irrationally so) about earning 100 points each worth $0.01 than they do about earning $1.00


>Citi Double Cash is a 2% cash-back no annual fee card.

Wells Fargo Active Cash is the other such card that I know of among big banks.


So can we consider the airline a division of a major bank?

Chase - United

Citibank - American Airlines

AMEX - Delta


> some people in the USA think they have them

You're wrong, the rewards (cash back) is real.

At some philosophical level you're correct. Sure, the merchant is being charged extra fees and the cash back is less than that.

But pragmatically, the merchant already included that cost in the price of the item so it is what it is.

You buy that $5 latte cash, it costs you $5. You buy it with a debit card it costs you $5.

I buy it with a credit card it costs me $5 but I get 10 cents back at the end of the month.


'Rewards' are paid for in merchant's fees, which are in turn paid for by all consumers (even those who don't use credit cards). This is why non-credit customers should prefer businesses which have credit card surcharges: it's like getting the 'rewards' at checkout.


As others have called out, the rewards are real. Let's look at a fairly premium offering, the Chase Sapphire Reserve:

Its annual fee is a seemingly ridiculously-high $550.

However, it automatically offers reimbursement for the first $300 in "travel". The definition of travel is very broad - we're not just talking airplane tickets, this can be taxis, parking lots, trains, buses, highway tolls, hotels, and many other things. And I do mean automatic - I don't even need to log in and select which charges, it just happens.

As such, the annual fee is really $250.

Still too high? Let's say you ignore other specialized perks (reimbursement for TSA Precheck/Global Entry, premium memberships such as Doordash (through 2024) and Lyft (in the past, expired now). Let's ignore real perks such as PRIMARY rental car coverage that means you can decline the pricey loss/damage waiver when renting vehicles and Chase takes care of any claims before your insurance - there have been years when I made most of that $250 back from that single perk alone. Let's just look at cash back.

At an absolute minimum, you're getting 1% back on everything. 1% means 1 Ultimate Reward point, or UR. At an absolute minimum, you can redeem 100UR for $1.00 in straight up cash/statement credit. The actual value is higher (we'll get to that later) but we'll start with this baseline.

You get 3% when dining or travelling (with the same broad definition of "travel" above that probably covers some of your commute to work if you take transit, pay to park, or pay tolls). If you pay attention and use Chase's portals for various travel purchases you can earn 5-10% back (to be honest I'm lazy and almost never bother).

So we're already at the point where depending on your lifestyle, if you put 15-20K on credit cards each year (that's less than $2000 per month) you're probably breaking even - assuming the absolute lowest valuation of points. But why do that? It's trivial to redeem the points at 1.5x for travel by booking through Chase - that is, if you use their portal you can book a $150 hotel room for 10000 UR points. So now we're at 1.5% on everything or 4.5% on travel, and needing to spend only more like $12000-16000 per year to come out even. During the pandemic they made it even easier and let you get reimbursed for various purchases such as restaraunts at that same rate, so even when I wasn't travelling I was getting that full benefit.

If you want to minmax and are flexible on your destination/time, you can transfer UR to various airline/hotel portals and get higher values: https://thepointsguy.com/guide/sweet-spots-chase-ultimate-re...

Did I mention that when you sign up, if you spend enough in the first few months you get a bonus of enough UR to more than make up for the first year or two of fees?

I've had a CSR for quite a few years now (back when I signed up the bonus was 100000UR) and have redeemed the points I've earned each year for more than the annual fee. That is, every year I've had this card I've profited to the tune of hundreds of dollars.

In response to other complaints about spending requirements, the Chase Freedom line earns UR points (without the 3X dining multiplier or the ability to redeem at 1.5X on travel) with no annual fee and no deposit requirement.


Yeah typically around 1.5% in Australia. Which is often passed on to the consumer at the point of sale.

We do have a non-Visa/MC payment system here in 'eftpos', which is ubiquitous. AFAIK this is exclusively debit not credit, but this isn't my area, I'm just a consumer.

https://www.eftposaustralia.com.au


EFTPOS got kicked to the curb when paywave-with-no-pin started. And then the pandemic reinforced that idea for a lot of people.

I don't know when I last used EFTPOS.


Aah so am I not actually using it? Like I said, no idea. Most consumers don't.

There's a terminal, I wave my [phone|watch|card] at it, it beeps, I walk away. Happy days.

In that case if it's a Visa card, is Visa the processing entity?


I am wishywashy on details too sorry. There is a combination of your card (debit/credit[visa/mastercard]) and the merchants setup. I am not sure who processes the payment on the merchant/supplier side for EFTPOS vs credit.

So, if you have a Visa credit card, and the money comes from your credit account, like many, then it is clearly using Visa Paywave.

But historically, it was Visa and Mastercard that started it with "no pin required" as an opt-out thing(IE it was enabled for you by default), and their main market is credit. Most people just rolled with it.

Using the phone NFC however should give you more control I would think. But I honestly have never set it up.


EFTPOS started in the 1980s as a full-electronic network when Visa/MC transactions still used a manual imprinter and paper slips with carbon copies. Visa/MC have also gone full electronic since then, so EFTPOS has kind of served its purpose.


It's worth noting there's some real economic disparity in just who can get rewards cards with significant incentives in the US.


Yep, but also, those vanilla no-rewards Visa cards only have interchange rates as low as like 1.5% whereas those high-end cards like an Amex Platinum can cost as much as 3.5%. [1]

[1] https://www.bankrate.com/finance/credit-cards/why-american-e...


Yet the price the purchaser pays doesn't change, so the less fortunate end up subsidizing the rich. Credit card rewards are egregiously regressive.


Interesting. How much money is lost by banks giving out cash back rewards to Americans using credit cards in Europe?


I'm not sure, but note that many banks make money on currency conversion, such as by offering non-market conversion rates.


Some of the best traveler-focused US rewards cards, like the Chase Sapphire Reserve cards, have no foreign transaction fees, even zeroing out what Visa charges them. And these cards are okay not only with frequent travel but even foreign residential addresses (only for customers who relocate - US address required at initial signup). I have one of those, used it while living in Canada, and soon expect to use it while living in Europe.

They do of course make money by charging a high annual fee, but another commenter already explained how the rewards offered by this card can still give more in value than the annual fee costs. This is absolutely true in my case.


None. When an American uses a rewards card the merchant pays 3% interchange so the customer can pocket 1%. These are high fees compared with a local using a card with the fee capped at 0.3%.


Credit cards don't do jack shit for fraud protection. They simply market it as 0-fraud liability and the rest of the participating parties eat the costs (at least for online transactions and pre-chip days). Before there were chips, guess who got hit with the loss if fraud happened on a card? It was the merchant. For online transactions, merchants are still hit with the loss since the chip is not used. If you want actual fraud protection features you have to pay extra for products like Stripe radar or Siftscience. With chip finally some fraud liability shifted to the merchants, but partially because it's pretty much impossible to clone a chip card.


Think he meant that they protect the consumer


> Also, modern B2C SaaS is built on credit card subscriptions.

That seems like circular logic. If there were alternatives to credit card and CC companies, SaaS would use that. In fact, in some countries, there are and it does.

> The ability for a merchant to pull payments on a recurring basis from a credit card requires an incredible amount of trust.

Why? If the merchant can't pull this month's payment, then services stop. Perhaps you mean making a large payment in arrears?


> In fact, in some countries, there are

Such as?


How about we start with:

Andorra, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom, Vatican City

They all use the same system, namely SEPA Direct Debit. It has only been around for 13 years or so. The Stripe website has a decent introduction: https://stripe.com/docs/payments/sepa-debit

So yeah, as a Dutch person all of my subscriptions use this. In fact, I get a bit annoyed when someone does not offer it, because I do not own a credit card.


> I'm sure online merchants are happy to keep paying their ~3% fees as long as sales continue

There might be an opening in subscriptions. Those merchants know their customers, and may be willing to take on fraud risk for material bump in revenue.


I think the opportunity is for platforms that can manage risk. Consumers are more likely to give direct bank account access to platforms that they trust. For example, Apple's App Store is well-positioned to run subscriptions over ACH, and they have the consumer trust to get some adoptoin.

But, then you're trading one evil for another - because Apple will want their cut, too.

At the end of the day - it's a battle between value centers and cost centers. Businesses would generally rather make more money than save money.


> Apple's App Store is well-positioned to run subscriptions over ACH, and they have the consumer trust to get some adoptoin

You have to get one side to trust it. Visa and MasterCard succeeded by making it easy for consumers. The counterpunch is likely in winning over merchants. If Netflix or Spotify gave me a small discount for running over alternate payment rails, I don't need to trust the intermediary, I trust Netflix or Spotify to not screw a decade-long customer over pennies.


But I am sure they would prefer paying 1% fees for exactly the same service.

Or a 0.1% fee.


> Visa and Mastercard are the privatized court systems of the internet.

You make it sound like that is a good thing. They are loose cannons that time and time again have shown they shouldn't be trusted.


It's better than flying to China and hiring a Chinese lawyer to dispute some aliexpress purchase.


> reversing that purchase would be incredibly difficult

The institutions (at least in my country - UK) are not interested in dealing with that. Police will not view it as fraud (unless they get a massive number of enquiries, but still they may be ignoring for a long time before it comes on their radar), the Trading Standards will say talk to your bank, bank will say I should have done more due diligence. Then you won't be able to take the seller to court if they used fake address. Police will not be interested in finding it for you. You can hire a private detective to locate the seller, which will cost probably many times over the loss. Now even if they locate them, they may not have a permanent residence, which again makes it difficult to lodge the case in court and before it happens you have to first try to mediate. Good luck with that. Basically the current system is created for fraudsters to thrive.


The Achilles heel of this setup is that not all transactions are equal risk. Very low risk transactions are paying near identical fees to very high risk transactions, despite orders of magnitude differences in fraud rates.

How long will Apple selling in-store products to 800 FICO score consumers be willing to subsidize eBay vendors and gift card resellers?


They’re not. The 3% is a blended average. The rate varies by the specific card kind, the card brand, the specific vendor in Apples case when they have leverage - or the merchant category code when they don’t have leverage. Even chargeback history matters.

Apple likely has a deal that borderline costs merchant acquirers money and that gift card vendor is probably paying 10%.


Merchants pay different fees depending on their risk category. High risk merchants can pay 15% or more.


> If consumers had to push payment every month or year to continue subscriptions (instead of having it automatically debited), then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.

Disliking wallet-draining, hard-to-cancel subscriptions, I'm not entirely opposed to this scenario.


Of course then there is Google and Apple where if you dispute any charge they will erase you .


> If consumers had to push payment every month or year to continue subscriptions (instead of having it automatically debited), then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.

Recurring bank transfers are not that hard to setup and would probably be even easier by now if credit cards weren't available. If your argument is that this would give users better oversight of their recurring payments and the ability to cancel ahead of time without restrictions then I fail to see how this is an argument for the current credit card system.


The fraud protection aspect is spot on, but I think most people are not risky buyers. Like most of my purchases happen on Amazon or other high trust merchants. I have never ever raised a dispute and the only time I did it was when I accidentally bought a powerball ticket online with recurring option. So for most single time purchases, the fraud protection on a CC is an overkill IMO.

The recurring option, yes I wouldn't give out a bank account or a debit card for recurring payments even with high trust SaaS merchants, even if they accepted one ( most don't ).


CoD. How did that even work? I mean how was fraud prevented? Did money get counted and balanced every night? How did they prevent drivers from getting robbed or inadvertently losing money (miscounting etc?$


Most of this isn’t that mysterious in practice. Apply whatever you know about how supermarkets, bars, and other cash accepting businesses operate. Then add in the fact that yes, drivers would occasionally get robbed, it was a risk of the business and priced in much like shoplifting is for a supermarket.


Yes, payment for “cash/collect on delivery” is made on delivery rather than in advance. If the goods are not paid for, they are returned to the retailer.

American page:

https://faq.usps.com/s/article/Collect-on-Delivery

Canadian page:

https://www.canadapost-postescanada.ca/cpc/en/support/kb/sen...


These days of course you pay electronically on delivery. No actual cash involved. My grocery delivery does that, because the final cost depends on the weight of certain items as well as if I have any old crates or bottles to return.

So on delivery I pay either contactless by NFC or by QR code. Super easy, barely an inconvenience.


I bought things CoD in the days when eBay still did that (90s). The postman would come to your door with the CoD bill and you'd hand over a cashier's check to them, then they'd give you the package.


FYI, in the UK we have a scheme called Direct Debits where you authorise companies to take recurring payments from your bank account directly (including of variable amounts eg for utilities). So you don't "need" credit cards for that. You can cancel them immediately via the bank and you're fully protected against bad charges.


Given how large ecommerce has gotten in China, it begs the question, are credit cards truly the necessary pillar? ECommerce even in the US is extremely top heavy, with Amazon having ~40% share, so while the allure of a random ecommerce site is an interesting example, thats not the pre-dominant usage pattern.


> If consumers had to push payment every month or year to continue subscriptions (instead of having it automatically debited), then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.

Reeeeally now. You don't say?

What a wonderful world that would be.


> And, suing a merchant is prohibitively slow, expensive, and arduous.

Is that true because credit cards mean there's no incentive to make the court process more efficient?

That is, without credit cards playing that role courts would become more efficient and less expensive.


Just for the record, as an attorney who somewhat specializes in this field, or at least has a concentrate and practice in this field, reversing a bank transfer is actually quite easy. You don’t have the same dispute rights as credit, but there is a dispute mechanism.


I was under the impression that the non-reversible nature of wire transfers, especially to banks in other countries, is why they are a preferred payment method for scammers.


> Visa and Mastercard are the privatized court systems of the internet.

My issue is that that they should be regulated as such.

They shouldn't be allowed to unilaterally withdraw access (eg wikileaks).


People are happy to pay 3% fees because it can be cheaper and easier than using cash. Freaking with large sums of cash can be time consuming and expensive.


> then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.

That sounds amazing. Let's do that.


In some ways, Visa and Mastercard are the privatized court systems of the internet.

Agreed. A dispute resolution mechanism baked-in would go a long way toward making crypto a more viable alternative, especially if it delivered more effective justice than the credit card companies' stale policies and their opaque decision makers who don't really give a crap.


some arbitrary "justice algorithm" OTOH would "give a crap" ? I mean you are indicating an algorithmic system towards dispute resolution that just takes the bits from one party or the other, right? having "people" do it means you have authoritarian figures involved which I thought not having that was the whole point of crypto.


No, I'm not envisioning an algorithmic approach.

Systems of justice are probably the earliest institutions of civilization, and have evolved over millenia. There's lots of runway to learn from what's worked and what hasn't.

A potential starting point might be an arbitration approach where multiple parties are selected at random from a pool of candidates who gradually build reputation as fair and impartial adjudicators. They'd review evidence and arguments independantly and issue their vote for the verdict.

Commerce, including crypto, is as much about people as it is anything else.


To note, all of these work on PayPal, with a bank account.

PayPal are a dick on fraudulent merchant account detection and it’s well know assets can be frozen on a whim, but at this point it’s the one of the few other options.


PayPal is a joke when it comes to addressing fraud, it's completely hit or miss on both sides. My younger brother got scammed out of like $100 trying to order a chair from a furniture website that turned out to be some guy in China scamming people. The "online store" only accepts Paypal and when checking out, instead of the usual PayPal process is directs you to a page that's already completely filled out to send the correct amount as a personal friends and family transaction. He realized something was up literally minutes after completing the transaction when he saw that the email confirmation listed a random Chinese email address and saw it sent as a friends and family transaction and immediately called PayPal support and they basically told him to get bent and refused to reverse the transaction, because they don't offer any guarantees or protection on personal transactions, completely refusing to address the fact that this guy is scamming people using their platform.

He had to do a chargeback with his credit card company and got his money back that way, but of course PayPal banned his account in response.


At least going by your retelling, I'll say PayPal was right to refuse reversal.

Mindlessly clicking through OK buttons is end-user negligence, not fraud. Your brother presumably had multiple opportunities to notice something was not okay before completely signing off on it. It's tantamount to signing a contract without so much as even glancing through the terms, then turning around saying you never meant to sign it.

Fraud protection does not absolve someone from being a responsible adult.


Some arbitrary policy they happen to have about personal transfers doesn't absolve them of the responsibility of policing their platform to ensure it's not being utilized by scammers, and shutting them down when they find them, or when they are EXPLICITLY REPORTED TO THEM. That's what I was referring to when I said they're a joke about addressing fraud. The website is still up, it still directs you to the same form to send money to the same exact account. I highly doubt my brother was the first person to call them and complain about this person, but their account is still active and apparently in good standing. What a fucking joke. It would take them literally 5 minutes of investigation to go to the website, see how it presents itself as a retail store, and to go through the checkout process that eventually leads to a page for a personal transfer, which is clearly not correct, and no goods are ever delivered, and clearly it's entirely meant to fraudulently separate non-savvy buyers from their money. But they clearly have zero interest in doing any of that, since they still get to collect their percentage on every transaction sent to him, they couldn't care less.


This seems like textbook fraud to me. It doesn't matter if there are hints here and there, if the "merchant" is directing you through a flow that will direct funds somewhere other than you intend (or other than they claim), it's fraud.

See: https://www.law.cornell.edu/uscode/text/18/1341


Fraud detection is difficult when there's no uniformity in experience.

PayPal's "redirect the user through our services" flows provide more uniformity than some random site with a hosted-- or even baked-into-the-shopping-cart-- credit card form-- but I wouldn't say it's uniform enough that people would be able to reliably identify something outside the norm.

Just think of currency-- could you spot a decent quality counterfeit? Particularly if you're dealing with a more edge-case design that you don't encounter every day (say, a Series 1934 $50 note)?


TBF, is there any way to do fraud protection on personal transfers ? Imagine you sent 100 bucks to your cousin and 10 min later requested your bank to get your money back because you sent it to the wrong cousin.

I hate to say this, but there will always be loopholes as long as scamming js lucrative enough.


>TBF, is there any way to do fraud protection on personal transfers ? Imagine you sent 100 bucks to your cousin and 10 min later requested your bank to get your money back because you sent it to the wrong cousin.

When it's easily verifiable that actual fraud has taken place I would say yes. It would've taken them literally 5 minutes of their time to investigate by going to the website, seeing it presents itself as a retail furniture store, and to go through the checkout process and seeing that it ends up at a form for a personal transfer, and that no goods ever end up being delivered, all of which clearly indicate the transaction is 100% intended to be fraudulent by the supposed seller.


Playing PayPal'd advocate, that's a lot similar to home made "give me money to finish this personal project" and you're expecting a faceless service to go spend 5 min on one of the hundreds of thousands of claims they receive every day. Including of course the ones where you actually sent the money to your friend who already spent it out of PayPal, and PayPal has to front the money for your chargeback.

Fraud management is hard. Most actors in the domain are also jerks, but that's orthogonal to it being hard I think.


Lower fees matter most for low-margin businesses. If your business has 5% margins, then taking your payment processing fees from 3% to 1% is transformative for your profits.

The reality is that most low-margin B2C businesses are brick and mortar service-based businesses, such as restaurants. And, therein lies the problem for Paypal and for crypto payments: The low-margin businesses that care about CC fees are not early-adopters of payment networks. Restaurants can't conceivably introduce a non-traditional payment network as their exclusive provider.


Yes. There is a huge divide between online and offline.

For online your choice is to poney up the fee or not get paid at all. You’ll also probably target a wider audience and region restricted payment networks become less viable.

Offline credit cards processing currently has super low fees, but it’s also a field where there is already way more competition than VISA/Mastercard, in particular there will be national card networks, and prepaid NFC that rise up as an alternative.

> Restaurants can't conceivably introduce a non-traditional payment network as their exclusive provider.

In my experience they do. They always have cash as the fallback, so they can pick and choose more freely than other businesses (think of all the restaurants that won’t accept anything other than cash)


Yeah, but the danger is that cash-only businesses will have smaller check sizes, and at the end of the day that probably translates to less in alcohol sales. So, if sales decreases because of unfavorable payment methods (such as cash), then it's the high-margin item (alcohol) that probably gets affected most.


If we’re pondering about how to run a restaurant, I think that’s a complicated and nuanced discussion that will have different ins and out depending on what restaurant, where, serving who.

For instance a lot of lunch focused restaurants won’t serve much alcohol if at all. High volume low check size restaurants also abound. Do we also call cafes “restaurant” if they serve hot food at the table ? etc.

A tourism oriented restaurant will go so far as to accept American Express and swallow the fees, while a local restaurant can refuse anything other than cash and the local prepaid card, it really varies a lot.

PS: we might be missing context on if we’re only taking USA, as the article is about that, or on more global range, which I think is more interesting on the Visa/Mastercad discussion.


Living in New York City, I've noticed that there are a whole lot of businesses that are either cash-only or card-only.

I always understood the cash-only ones. If you can get plenty of customers who are willing to pay in cash, why would you want to pay credit card fees?

The card-only ones were harder for me to understand, until I realized that handling cash costs money, too. Somebody needs to count it all at least once a day, if not more. Employees can steal it. Robbers can steal it. You need a safe. You need cash registers. You need to get the cash deposited in the bank, by paying someone to go do that. You need to maintain an inventory of smaller bills and coins to make change. You need to train people on all of this.

Even just the accounting costs might make up the 2-3 percent in fees. "Your register said you made $150 in cash that day, but the deposit that night was only $135." That's what you pay accountants to deal with, rather than just exporting from your Square account to Quickbooks or whatever.

I had this realization because I went to a new coffee shop that had opened up. It appeared to be owned and operated by just one lady, and she was really nice. So, as I normally do for the nice local business owners in my neighborhood, I got out some cash instead of a card, thinking it would benefit her business. But then she told me they were card-only and it dawned on me: she's just one lady running a store by herself, _of course_ she doesn't want to deal with cash.

So, I'm not sure the 2-3 percent fees are all that bad, though I could be convinced otherwise. Plenty of small business owners seem pretty happy just setting up a Square reader and not dealing with the headache of cash. I think there's a lot of value in that for them.


The other side of this is that card only businesses de facto discriminate (not in an illegal way, of course) against people who don't have/can't get cards. Not being able to buy a cup of coffee from one particular coffee shop might not seem like a big deal, but it sends a signal as to who is/isn't wanted in the shop. Further, if it becomes a trend and all coffee shops go card only, spreading to other business like grocery stores, etc., then it starts to be a problem.


What's wrong with that? All sorts of things discriminate against certain buyers. Primarily the location, the signage, the prices, the languages the staff speak, etc. And, in fact, not everyone is comfortable using cash, so even cash-only locations discriminate against people who don't want to carry cash, or people who don't believe in cash and want to do business through bartering.

The Federal Reserve Bank of Atlanta did a study showing 97% of consumers had some kind of payment card(debit, credit, prepaid), and 99% of consumers used cash. So there is probably still some consumer that is not being satisfied by either payment cards or cash. If I was running a business, I don't think I would particularly care about that small of a slice of users to base my decision on it - it would probably come down to other things like overall cost of supporting cards or cash.

https://www.atlantafed.org/-/media/documents/banking/consume...


I'm pretty sure card only is illegal in NYC for precisely this reason. I come across them occasionally and I think the pandemic made it a bit more common place but it's technically against the law here to not accept cash.

https://abcnews.go.com/US/cashless-stores-restaurants-banned...


Wow, I had no idea!

I work with a lot of unbanked individuals in low-income areas of NYC, so I am familiar with some of their struggles. I can't say I agree with this law, though. There was a store near me robbed at gunpoint not too long ago, and I felt so bad for the worker who had to go through that, not to mention how scary it is to feel like armed robbers are casing my neighborhood. So I feel glad for people like the coffee lady I mentioned, who have chosen to avoid that risk entirely.

I understand the good intentions behind the law, but I think there are other ways to help unbanked individuals that would still allow business owners to chose how they accept payment.


I've seen posts on Reddit[1] that say that cashless establishments in NYC will just give you your food for free if you try to pay with cash. Never tried it though.

[1]https://www.reddit.com/r/nyc/comments/vcebns/im_an_ex_employ...


I dunno about US law but in the UK the law of legal tender requires you to accept payment of a debt in (exact) cash and if you've already eaten the food then a debt would certainly exist.

This would not apply in a shop of course as they could just refuse to sell you the goods.


It's the same in the United States. You have to accept cash to settle a debt but if you haven't received anything, the concept of "legal tender" doesn't really exist yet. That's why laws that require accepting cash are generally done at a municipality level.


There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise.


I know that. However you must accept cash to settle a debt. It's literally printed on every bill.


To be fair, writing on currency doesn't necessarily have to be legally binding. The bills also say "in god we trust", and yet I'm free to not trust in god and there are no legal consequences.


You're missing the point. Under US federal law, if I owe you a $100 debt and I hand you $100 in cash paper money then I have settled the debt. You cannot then sue me, demanding to be paid via Visa or PayPal or whatever. But this applies to debts only, not purchases.


I think you're missing my point! I'm not saying that the law doesn't actually require this; I'm just saying that there's nothing in general saying that something printed on every bill has to be true. In this case, it happens to be, but saying that it's printed on the bill isn't what proves it.


Nonsense. What's printed on the bill absolutely proves it. What kind of fantasy world are you living in?


Eh, "This note is legal tender for all debts, public and private" doesn't leave a lot of room for nuance.


My point is that the writing on the bill isn't what actually makes the law enforceable. If Congress passed a law that required the mints to print the words "this is a flamingo" on every dollar bill, it wouldn't make it true. The fact that cash is required to be accepted is because of the law passed, not because the magic words on the bill say so.


The writing on currency doesn't have to be. In this case it is. Or rather, the federal laws that back up that particular writing are.

In the US at least.


Why couldn't someone use a prepaid card instead of cash?


For one thing, they cost extra to buy and use, sometimes more than the person may have in cash to begin with.


Requiring card only payments if you pay after you eating sounds like a recipe for confusing customers. The only places I've seen doing card only are coffee shops and quick serve restaurants where you pay before you get your food.


Posts in that same thread also suggest that they won't.


In my country, the state-owned bank (normal bank that happens to be owned by the state, not the central bank) came out with an automatic, free checking account so that everyone can use cards. It's not perfect because it has some less than ideal fees, but it helps getting over this problem.


Who can't get a card? Anyone should be able to get a prepaid debit card, although it is a bit of extra hassle. Those work on the Visa / MasterCard networks, and are accepted by any business (except perhaps certain hotels and online services).


Cards require bank accounts, and bank accounts require home addresses. Not shelters, not PO boxes, not halfway houses. Home addresses. That takes out a large number of people who likely need banking services the most.


Wrong. Prepaid debit cards do not require bank accounts.


The homeless probably have struggles getting a card.


I am pro-cash but the filtering effect of requiring people to pay a small amount of money to be in whatever establishment is a HUGE positive for the user experience. I live in the SF Bay Area; I do not want to hang out anywhere that allows homeless people inside, period. Is that callous? I dunno. I don't hate them or wish them ill, I simply don't want to be around them for obvious reasons not least being safety concerns (I am a 5'4" woman).


Indeed, while I also often prefer to use a card, I believe it is essential to retain cash as legal tender.


The "cash only" businesses in NY are generally cheating on their taxes. A congressman was arrested a few years back for tax fraud on the profits from cash only businesses he owned in the city. His defense was that "this is a well-known common practice in the city".


I don't doubt that for a second :)


This is a false dichotomy. Other countries have debit systems that solve all of the problems you outline and charge 0.1%.


Fair point, and I'd be happy if my coffee lady could get a better deal on card processing. I'm just saying that I don't view it as such a big disaster for card processors to be charging fees in general, given that it does provide a significant value to the business owner.


3% off the top is quite a lot. Grocery stores, for example, tend to operate at around a 2-3% profit margin.


credit cards provides plenty of benefits to the customer which debit cards won't. Fraud protection, charge backs. This in turn, makes consumers use more credit cards stimulating the entire business economy


I get the same protection on my debit card as I do a credit card here in Australia. Fraud protection, chargebacks, tap to pay and chip in card.

In fact over here, Credit Cards incur more fees for the business than debit cards. In all my years of being alive, I've never understood the need for a Credit Card.


I was the same until recently. Nowadays I don't see a good reason for not using a credit card over a debit card. My bank charges me like $2 a month for a Visa. My Mastercard is free and has a tiny cashback. It's not gonna make me a millionaire, but so far I haven't experienced any downsides.


That's fair, I must be lucky in that I don't have a monthly or annual card fee for my Visa debit.


I wouldn't require someone to be able to provide change, but "accepting the currency of the nation you live in" seems like it should be one of the basic requirements of civilization.


I bought a house and was required to wire transfer the down payment. Would it have been reasonable for me to drop off a briefcase of cash? Was this transaction somehow unreasonable?


Yes, that would've been reasonable, and it wouldn't have been a briefcase. Fifty thousand dollars in hundreds is a stack less than three inches thick.


https://www.moderntreasury.com/learn/what-is-fednow

> FedNow is an instant payment service for both individuals and businesses. Once launched, the initial transaction limit will be $25,000. This means that FedNow be more useful for small businesses and retail payment needs until it is widely adopted and the transaction limit grows.

> In early 2022, the Federal Reserve released pricing and fee details for their real-time settlement network. Because FedNow is government-operated, it’s mandated to break even and not turn a profit. A possible advantage of this is that FedNow may offer more competitive pricing than other payment systems, which encourages widespread adoption at a faster rate.

Merchants can pass the CC surcharge through; I’d expect them to do so when a very low cost immediate settlement option is available. This will allow consumers to self select if they want the benefits of paying with a credit card (but paying for the privilege). Credit can be extended if needed by a financial institution, without using CC rails. Net 30? BNPL? Special financing arrangement? Pick your poison either prior to or after value transfer has occurred. The innovation is utility priced financial infrastructure, cutting out the rentseekers mentioned.

(my note: it’s about five cents per FedNow value transfer transaction)


Perhaps this is an irrational fear, but one of the reasons I like credit cards is because when a charge happens, no money leaves my personal accounts. If a charge is fraudulent, it gets cleared up without me being out some amount of money until it gets cleared up.

I assume with FedNow (same as if I were to transact using debit cards), money leaves my bank account more or less immediately when a charge happens. That means if someone manages to fraudulently charge something, I am out that money (up to $25,000!) until the dispute process is resolved.

Also, do I really want the central bank to have a record of all my transactions? Not sure I do.


That fear isn't irrational at all (at least, it wasn't). About 20 years ago, I had a debit card number stolen and my account was cleared out. It took about a month to get resolved an, in that time, I had some very unpleasant conversations with quite a few people including my landlord about my inability to pay my bills. In the grand scheme, I suppose it didn't harm me--but it was an extremely unpleasant situation to deal with.

Since then, I've only used a debit card very sparingly and usually more as an ATM card in the event I need cash.


If you want only an ATM card and not a debit card, you might be able to get one. Banks don't advertise it, but I got an ATM only card from Bank of America.


I don’t understand the difference and Google doesn’t help.


ATM cards only allow you to withdraw cash at a PLUS ATM - https://en.wikipedia.org/wiki/Plus_(interbank_network) , but they don't allow you to make purchases via the MasterCard/VISA interchange network.


An ATM only card lacks the Visa or Mastercard logo. It can only be used on interbank networks like NYCE PLUS STAR. Or maybe only at that bank’s branches. You always have to key in your PIN and there is often withdrawal limit of $500/day because a debit card and PIN is immediate cash.


How can someone clean out your account with just the card number? Was there no 2FA?


A couple of things. First, I used the phrase "debit card number" to basically mean, "they didn't have my physical card--but they did have the information to be able to use it."

Second, this happened circa 2004-2005. In the US, at the time, all card use was magnetic strip swipes. Debit cards occasionally used a pin at terminals equipped to do so; but, it wasn't a requirement and most use didn't involve the pin. As an example: a grocery store terminal at the cash register might require your pin; but, if you paid the bill at a restaurant, it would get swiped like any Visa/MC.

At the time, in an online setting, asking for additional information like CVV or using address for AVS wasn't standardized so not all merchants required anything beyond a card number and expiration date.

In that era, nearly everyone I knew had experienced a debit card or credit card stolen and used in this manner--and those with debit cards paid the extra price of actually losing our money for a time.


Debit cards in the US are still mostly swipe + PIN or chip. With the ATM there's daily limits of withdrawal amount but that's it. Maybe some issuers have a 2FA feature but none of the banks I've used have.


Chip+PIN is 2FA. Something you have + something you know.

The issue is that you can process most debit cards through the credit network without the PIN for convenience.


When contactless payment was new in NL, it was possible to pay up to € 25 without PIN, which set of all sorts of alarm bells in my head. € 25 isn't much, but the idea that payments could be done without my PIN felt deeply wrong, so I disabled it. I only really started doing contactless payment when it was supported by the banking app on my phone, which always asks for PIN.

That said, PIN isn't terribly secure either; for a common 4-digit PIN, there are only 10,000 possibilities. Too many to test by hand, but trivial to automate if you have access to the algorithm. And for the first PIN cards, the data was on a trivially readable magnetic strip. So if you have the algorithm and the contents of that mag strip, it's trivial to just run through all possibilities. That algorithm was a closely guarded secret, but still, security by obscurity isn't great, so later they replaced the mag strip with a chip that doesn't spill its contents so easily.

So not all 2FA is a guarantee for good security.


Doesn't FedNow just provide transit? Whether the payment comes out of a deposit account or a credit account seems beyond the purview of FedNow and up to your arrangement with your bank, similar to how VISA is used to provide transit for credit cards as well as debit cards, depending on your arrangement with the card issuer.


> Merchants can pass the CC surcharge through; I’d expect them to do so when a very low cost immediate settlement option is available.

Canada has had low-cost Interac debit cards for a long time, and although they've been very popular, merchants generally don't impose any credit card fees.

Also, even Canadian online businesses generally don't bother implementing payments with Interac online, so for online shopping it's not even an option.

Perhaps some of this will be better at US scale.


A significant number of small low margin businesses refuse to accept credit - at least in Vancouver. A large number of foodtrucks and a small number of restaurants will refuse service for credit card customers.

The fee rates are pretty dramatically different.


Visa/Mastercard are looking very overvalued to me. When fednow comes out, I see very little reason for people to use those legacy options anymore. Its like the market is completely oblivious to the impending doom coming for these rent seekers.

Every single app/store/site is gonna be begging you to enroll in fednow and will be offering 2-3% discounts/bonus points for any purchases made through it.


Debit card interchange for big bank debt cards is 0.05%. Sites/stores/apps don't offer debit cards discounts except gas stations. Big merchants offer their own payments/credit cards for up to 5% cash back, they aren't going to switch.

FedNow will get adoption as a replacement for ACH / Check writing. Paying bills and getting paid. Instant deposits of paychecks will a big benefit to a lot people living paycheck to paycheck. It will displace a bunch of Zelle market share.


Zelle doesn't have a marketshare. Its owned by all the big banks and is designed to keep money in "the system". it's essentially digital cash.


I don't like the ability for arbitrary app/store/sites to be able to pull/push money directly from my bank account. The credit card companies provide a nice buffer between my wallet and the payee.

I could see it being useful for interbank transfers and for bank to billing (e.g. credit cards, etc.)


Zelle, Venmo, and PayPal are the ones that should really be worried.


Zelle doesn't have a reason to worry. Zelle is essentially all the big banks and is designed to keep money in "the system". it's essentially digital cash.


>Merchants can pass the CC surcharge through

Unless things have changed in the last 20ish years, if you accept credit cards you’re not allowed to charge different prices for CC vs non-CC payments (although there are apparently some carve-outs for gas stations).


It’s now allowed almost universally. I believe there are a couple of states that still don’t allow it, but for the most part, you can add a credit surcharge now. This was part of a massive lawsuit by retailers against the CC processors that was eventually settled.

Here are the Visa rules for it. https://usa.visa.com/support/small-business/regulations-fees...

Basically you can add a small surcharge amount, but nothing more than the actual cost of the transaction.


Things indeed changed, in most US states, in 2013[0].

[0] https://smartpay.gsa.gov/content/surcharges


That is just a merchant contract isn't it? In Australia government passed law that disallows such clause in contract and it is very common here to pay a credit card fee (the fee can only recoup the extra cost for CC transactions and not be a profit in in itself).



IIRC it's only for non-cash payments that you can't charge a different amount for; cash discounts are allowed across the board.


In the EU (whole EEA actually) the merchants are not allowed to charge a different amount for cash and personal cards (debit or credit cards). They can charge the transaction fee they pay for business (company) cards and they need to inform the consumer in advance.


In the US, there are legally few limitations as long as you inform the customer. However all of the major credit cards have "most favored nation" clauses in their service agreements that prohibit charging any less for competing payment systems.

As a side note, many government services aren't allowed to eat the transaction cost, so they actually do pass the cost to the consumer (e.g. when I pay my annual car registration, an ACH (electronic check) payment is the same as paying cash in person, but a credit card has an additional fee tacked on.


> Unless things have changed in the last 20ish years

They absolutely have.


This is not enforced, though. Almost every store near me charges a surcharge on small purchases (<$10) made with CC.


There was a relevant Supreme Court decision in 2017. Credit card surcharges are considered part of the first-amendment rights of the merchant (although they seem to be regulated on a state-by-state basis). No, I don't think the first amendment justification makes sense either.


You're not allowed to charge more for using a CC, but you are allowed to offer a 5% "cash discount". Extremely common in New York City.


FedNow is only allowing depository institutions to participate and layers on top of them. The base price for a transfer might five cents, but I'd expect the bank to charge a fee on top of that. And if this scenario is a customer paying at a store, either online or not, there's almost certainly going to be another middle man (or multiple) between the merchant and the depository institution. Each of which will have its own set of fees, and one of which is likely to be a % of the transaction.

Basically you get a similar cost.


Debit card?

Consumers already have a choice that has lower interchange fees to merchants (but also has way less chargeback protections) and that’s a debit card.


I wonder if this would prevent sites like tumblr or pornhub to be forced to take actions at the whims of their payment processor provider


> This will allow consumers to self select if they want the benefits of paying with a credit card (but paying for the privilege).

My guess is that they'll just raise their prices to include the fee no matter how the customer offers to pay for something.


> Merchants can pass the CC surcharge through

Can they? I was under the impression (unverified) that they are under contract to provide the same prices for CC customers as they do for cash or debit card.


That used to be the case, but changed in 2013 when a lawsuit settlement was reached that more or less did away with these sorts of contract terms[0]. That's why (at least where I live) gas stations that charge different prices for CCs and cash/debit are everywhere, some restaurants will offer some percentage off if you pay in cash, and some online services, even, pass credit card fees on to customers.

I believe there are a few states in the US left where merchants can still be required to charge the same, but in most places in the US that's not the case.

[0] https://smartpay.gsa.gov/content/surcharges


This seems like a good overview - sounds like there are still some big caveats: https://constantinecannon.com/antitrust-group/payments/devel...

The no-surcharge terms are plainly anticompetive and should have been reigned in a long time ago. But customers get really mad about extra fees and think it's the merchant that is ripping them off and not Visa/Mastercard.


Gas stations in California certainly have different prices for CC vs cash, but they have to show both prices I believe. If you just charge extra for credit cards, that's a surcharge and falls under different rules.

I think you can also advertise the credit card price and offer a cash discount.

Debit cards still have transaction fees, though lower ones I believe, so they usually get the same price as credit cards, but none of the benefits like points.


It’s complex, but I believe Visa and MC voluntarily gave up their anti-steering requirements, while Amex fought the legal challenge against them and won[0].

[0] https://en.m.wikipedia.org/wiki/Ohio_v._American_Express_Co%...


I don't know if its state specific but there were some lawsuits in the past that removed this restriction and a cash discount is okay or a surcharge for credit card should be disclosed before you pay.


In Brazil many stores are dropping credit card and allowing only PIX (instant debit transfer) cause it's cheaper for business (0,22% avg transaction fee vs 1%-2% of credit cards - src (pt-only) https://g1.globo.com/economia/pme/noticia/2022/03/23/pix-e-m...).

The President of Brazilian Central Bank recently said that "credit cards will soon cease to exist" src (pt only) https://www.poder360.com.br/economia/campos-neto-diz-que-car...


This should be hire up. I live in the US but went to visit family in Brazil, and after setting up my PIX payment, I was honestly kinda shocked at how incredible it seemed. It boils down to a very well implemented, super versatile, public Venmo-like system. I'd hazard a guess that startup ideas around leveraging this new infrastructure may be a great idea the moment.


I presume instant payments don't have the chargeback feature of credit card? That is the main benefit I care about credit cards.


PIX does have a chargeback-like mechanism. It was introduced a year later its release though. PIX is actually more than just instant payment, it includes other things like Pix Saque (withdraw) and Pix Troco (change).

Src (pt only) https://www.poder360.com.br/economia/bc-libera-mecanismo-de-... and https://www.in.gov.br/web/dou/-/resolucao-bcb-n-103-de-8-de-...


My guess is charge backs are probably a US/Canada thing. Many countries have credit cards without the protections. It happens to work in the US because there is a credit score system, high volumes and most people play by the rules.


You are right that in practice it's a US/Canada thing, but it's available everywhere. Customers simply don't know about it, banks don't advertise it and if you try to take advantage of it it's very likely you'll stumble upon a clerk who genuinely thinks that "it's impossible". But it is certainly possible and universally available. Consumers should simply know their rights and refuse to be pushed over by banks.

Personally I have made use of "impossible" chargebacks in Romania, Austria, and Germany. Of course the process was obtuse and frustrating compared to the US.


The EU also has charge backs as well. I would have assumed all credit cards would have this as a feature.


How does it work with travellers & tourists then?


Credit card is still common, all good. I've seen an exception though.

If you're in a "tourist destination" area, then no worries, I'm sure they will offer credit card as a payment option to keep you in business, but it's likely to be more expensive than paying using PIX.

When I was in the south of Brazil I used the "iFood" app (biggest food delivery app in Brazil) and I could only pay using PIX. In other regions, other options were available such as credit card.

Even if you need to do a PIX as a traveller, you can simply pay in cash to some person (hotel recepcionist I guess) so they can use their account to pay the PIX for you. Technically this person will scan a QR code and pay using their bank account.

If you want to have a PIX account yourself, at the moment you need to have a bank account in brazil afaik. After having your account, you have to register it using specific types of identifier, for example your mobile phone. Non-brazilian numbers are accepted in the standard, but not all banks accept them for now. It certainly will go over changes. It's a relatively new technology.


> After having your account, you have to register it using specific types of identifier, for example your mobile phone.

AFAIK, you only have to register if you want to receive payments with a short identifier (like your CPF, which is the Brazilian equivalent of the USA's SSN, or your phone number), and even without registering you can receive them using your full bank account number (the registration exists just to map the identifier to the bank account number); you don't need to register to send payments, having a bank account is enough.


Does this require a phone and an internet access?


I don't understand how this is possible:

"Merchants hand over some $138bn in fees each year; according to the National Retail Federation, a lobby group, it is their second-biggest cost after wages."

Unless they're talking about more than just credit card fees? From the same article:

"But credit-card fees are unregulated and meatier, usually sitting at about 2% of the transaction and rising to 3.5% for some premium-reward cards."

Are they saying that retailers pay less than 4% of the retail price to acquire their goods? They pay more for credit cards than rent?


That jumped out at me too -- so I looked up what appears to be the source [1] and it does indeed state:

> "Regardless of size, the fees are most merchants’ highest operating cost after labor"

but I'm as incredulous as you are. Obviously things like cost of goods, and also usually rent, are also going to be higher.

I can only assume it's based on some really misleading survey, and I'm honestly surprised to see The Economist, of all publications, repeat something so obviously economically questionable. (To be sure, they attribute the claim rather than state it, but they present it as if it's true.)

[1] https://nrf.com/media-center/press-releases/retailers-say-sm...


I would assume that in this context, the cost of goods is not measured in the operating expense. Notice the keyword 'operating cost'. It is common to have the COGS vs OpEx separated in the financial balance sheet.


I presume inventory is not considered an "operating cost", which is fair enough. Rent absolutely should be one though.


Not sure what criteria they used. But I totally believe this for any e-commerce store or company that doesn't have a physical presence.

You also get charged for each chargeback, which is likely included in that $138bn number. And if you have a high enough chargeback rate you will be fined an additional amount.


    I don't understand how this is possible
Here's the explanation:

    according to the National Retail Federation, a lobby group
Spoiler alert: most lobbyists are professional liars. If pressed they'll put up a smokescreen of "well I meant _operating_ costs, which of course are far smaller than cost-of-goods" but the lie is still printed in the article...


I'm pretty confident Visa's dominance is a completely natural monopoly. There are plenty of 3rd party payment options (Amex and Diners' are still both fairly widely accepted) and nothing is stopping consumers from having multiple cards.

But I think the network effects are too strong and we are seeing a pretty normal Pareto distribution. Even if you added 20 new market entrants with good coverage, consumers and businesses would still prefer to have Visa as the lingua franca of payments.

I think it will also be pretty hard to get away from that 3.5% processing fee. That covers a lot of fraud prevention work that credit card companies take on for consumers and businesses. Will consumers be happy to give up those protections and reap back a percent or two on prices? And emerging payment technologies seem to create more opportunity for fraud.


Here in Japan there has been an explosion in QR code payment services over the past few years since the barrier to entry is so low (and traditionally credit card payments have had relatively low uptake compared to the west so it's seen as a wide open market)

It's extremely common to be confronted with a display like this at the register of a chain store detailing the bewildering array of supported payment options https://i.imgur.com/jmYrgHR.jpg


3.5% isn't what merchants pay unless you're tiny. Highest interchange is around 2.5 and maybe you'll pay 0.25% in settlement fees.

What interchange covers mainly is the cost of capital to give a consumer a 60 day interest free loan. Capital isn't free and this has real world costs to the bank underwriting the loans. Why you Chase or BOA debit card interchange rates are 0.05% because they aren't lending out their own money.


Not all, but a lot of fraud can be prevented with good 2FA. Chip+pin is usually hard enough for low effort fraudsters, and it's tried and tested in large parts of the world for decades.

The US has effectively no effective 2FA. Signature is never verfiied in practice, and magnetic strips are dead simple to clone.


It's not a 'natural' monopoly if they require heavy lobbying etc.

It's not the 'network effect' it's that the financial institutions i.e. the banking system want it that way, and will thwart any system otherwise.

It'll be easy to get away from the 3.5% fee we know that because of how it works in other countries.

America, shockingly, still does not use PIN chip cards, it's unbelievably nuts.

The simple addition of a PIN and a few other things can help reduce fraud substantially.

The complexity of the VISA network and disintermediation of 'ownership of the customer' creates problems for fraud tracking. At my bank the 'VISA' dept is totally separate from my other accounts - the entire customer service and data chain is separate. It's nuts.


Yeah, I think a lot of people are better off just paying 3.5% more but with the fraud protection. However, I still think this will be a huge improvement for a lot of other stuff like moving money between accounts at different banks or paying for large purchases which are guarded by a proper contract such as paying rent, buying a car, etc.


The Finance industry is especially attuned to this type of distribution mostly from dealing with pretty intense risk. The strongest players rise to the top fast and a moat of trust weeds out the rest. Crypto despite the ideological objectives is not immune to this.


European Union solved big part of the problem many years ago in 2015 with a new law. They capped the fees of Visa and Mastercard at max. 0.3% of the transaction volume on private consumer cards.

It has many upsides (especially increased acceptance). The only downside: There are no real or good cashback programs (like getting 1-2% back) in Europe because of this.


Maybe I just hate money but IMO there are no good cashback schemes. A merchant-to-consumer wealth transfer that piggybacks on every transaction? Has a smell of fraud or corruption but not stinky enough for American regulators. Good job to the EU on this one.


I wouldn't say that's a huge downside as in theory prices should be that little bit lower


And yet, they are higher. Of course, not because CC fees, but regardless of the reason, as the price of virtually everything that isn't a staple is higher in the EU, the fact that lower CC fees make prices trivially lower in this particular case is somewhat of an irrelevant point.


Interchange yes, but that's only a small part of the price. Companies still have to pay 1-3%.


The whole premise of the article is dumb. Lots of small businesses like to cry about credit card fees, which is absurd given the value offered for the price charged.

Not only do they drive spending, but they eliminate the casual embezzlement and pilferage that plagues cash businesses. My grandfather ran pubs, and use to quip that he’d fire any honest bartender, because the guy was smarter than him.

When I was in college I worked for a company one summer that installed parking gates with credit card payment systems at big institutions. One customer was a hospital who reported 28% increases in parking sales… the guys who worked there were skimming the toll for years.

You also need to pay labor to count the tills, manage the cash, etc. In any case, show me someone whining about a 3% fee and you’re showing me someone who’s out of touch with their business.


I think this is completely wrong.

It's not the 'credit' that drives this, so much as the 'digitization'.

That can be achieved without credit.

European countries have been doing it for a long time.

Canada has 'Interac'.

There is utterly no need for VISA/MC.

A fairly simple banking standard could make it so that you could pay for stuff with some kind of card + PIN and that's it. There'd be a tiny fee which would help take care of fraud. Done. It already works in large economies.

The US has regulatory capture by large corporations.


> There is utterly no need for VISA/MC.

Unless you're a visitor who doesn't have access to the local system.

As a traveller, it's now possible to travel to other countries and never touch local cash, because everything can be paid for by credit card. In the US, tips have historically been the outlier, but while Venmo is increasingly taking over, that's not something you'll have access to without a US bank account.


I suggest you'd be able to get a 'card' on the system that is 'cash only'.


Perhaps, but the US has a very different journey. Canada for example has like 60 banks. The US has 10,000+ banks and credit unions, and probably 3x more when the system started.

Interop is different.


It really, really, really depends on the business.

Most places still accept cash as well so they still have all the expenses around cash management, that's not going away. And most places also have records/safeguards to see if employees are skimming -- bars are one of the few exceptions where it can be trickier, simply because almost no cash-paying customers want a receipt and it's dark and busy.

And when you factor in the fact that cash income can be hidden from the IRS in a way that credit card income can't, you can see how certain businesses might really wind up "paying" a lot more than just in credit card fees... ;)


For all the red-tape and corruption we have here, I still think India has done a phenomenal job with UPI payments. I mean I don't even remember the last time I used my credit card considering I have even forgotten the pin codes now.

One or two other thing I love about these UPI payments is that it doesn't seem to incur any 2 or 3% commissions(1) which is both great for the consumer and the merchant (as these costs would eventually be passed to the customer anyway). Also almost every cc machine, website and panwala has a the QR codes now so no need to carry a wallet or plastic cards. I can make payments of Rs.5 and that's fine.

I don't even carry a wallet anymore to a mall or any place since my driver's lic/reg is in the digilocker app(2) and the credit card is the gpay/phonepe app.

(1) Not really sure if there is or will be later, since I'm not a fintech person, but from what I can tell I don't see any commission on UPI payments yet.

(2) https://www.google.com/search?q=digilocker+license+valid


I actually designed software that could integrate with existing POS systems (the really hard part) that allowed for interchange free commerce using a card or Apple Pay integration.

I showed it to an investor. His only response was, "This is a very fast way to end up dead."

You don't fuck with monopolies that bring in hundreds of billions to trillions of dollars in profit a year. People get killed for way less.

On a secondary note, when I was working in payments, I once met the SVP of Payments for Wells Fargo. I got him drunk. He told me that when WF internally separated out their business units P&Ls, payments/interchange made up 64% of WF's total public Net Income.


> You don't fuck with monopolies that bring in hundreds of billions to trillions of dollars in profit a year. People get killed for way less.

He didn't mean that a corporation would literally kill you, because that comes with the possibility of unimaginable risk. He meant that they had effectively-infinite resources to fight you for decades with an army of lawyers and politicians.

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

https://www.opensecrets.org/orgs/visa-inc/summary?id=D000029...

https://www.opensecrets.org/orgs/mastercard-inc/summary?id=D...


There is this naive modern believe that killing people is something exceptional and difficult.

It's not.

1 out of 2 homicide is unsolved in the US: https://www.statista.com/statistics/194213/crime-clearance-r...

As for straight murder, it's the cause of death of 5 persons out of 100000 (https://ucr.fbi.gov/crime-in-the-u.s/2019/crime-in-the-u.s.-...). Diabetes is 20/100000 in comparison (https://www.cdc.gov/nchs/products/databriefs/db427.htm).

And that's mostly by people with no master plan for the killing in the first place.

If you die, NCIS will not come to your house to do a full tv show like murder solving. They will send an average joe cop, probably eating a sandwich on the murder site putting his print and crumbs everywhere, he will suspect your close ones, and ask a bunch of questions, because that statistically the only thing that works well. If the killer is obvious, it's solved. If not, nobody will ever know.


Correct. Not to mention when my life was credibly threatened in another business situation, they described in detail several other murders they had gotten away with and how easy it was. They made them all look like suicides and all were ruled suicides. Murder is just another part of big corporate business.

He also made it clear (and demonstrated) he had very high connections at the FBI to make sure he would never be investigated.

I wouldn't have believed it either until I experienced it first hand.


No, he made it very clear they would kill me.

I've had my life credibly threatened before over business in big deals. It comes with the territory and isn't as uncommon or unbelievable as people think.


When I read "fast way to end up dead", I naively though as a company, meaning that you have no chance of getting traction and breaking into the market...

I am still actually wondering if this would get you killed or you would face simply an uphill battle in the market and never get traction.

In a sense it is similar to the two party system in the US. I wonder if there isn't a viable third party still today because people are so used to voting Republican or Democrat, and because all the institutions (including media) are set up in a way that makes it very hard to start a third party or because third parties that actually want to change the game are infiltrated and threatened behind the scenes.


In this case, he meant physically dead. A few years later, my life was threatened credibly by a billionaire I was doing business with and it opened my eyes that murder is just another part of corporate America (usually made to look like suicides).


> payments/interchange made up 64% of WF's total public Net Income.

This is wrong and not possible. WF is a public company so you can look up their financials: https://finance.yahoo.com/quote/WFC/financials/

You can see that interest revenue > non interest revenue always so there is no way interchange can account for 64% of their revenue.


The only thing I don't want to happen is for the duopoly to be broken up into a billion different little fiefdoms each with their own unregulated space. One of the reasons credit cards are so good is because there's a fuckton of regulations built into the legislation behind them in order to give an individual consumer a fighting chance against the financial industry.

All these fintech companies wanting ACH access to my bank account? If a transaction gets fucked up (i.e. someone puts the decimal in the wrong place) it's my immediate and hard to fix problem. I have to deal with my bank's bureaucracy and their goodwill. In the meantime I have no access to my money. If someone fucks up the same using my credit card number it's one call and the company takes care of it and because it's in arrears I still have all my cash.

Nope. It'll be a cold day in hell before I give any fintech get direct access to my checking account for payments.


That's how it works in Europe (SEPA mandate) and it doesn't appear to be a problem.

In Germany, very few people have credit cards, and mostly for online purchases. Everything else is done via direct debit. Fraudulent charges can be reversed just like a CC payment.


I think, I am living in different Germany, as for last 4-5 years, I only see oma/opa paying in cash. Everyone else carries one form or another of EC Karte or Debit Master/Visa. I rarely see some Gebuhrenfreis now and then, but most people have somekind of Debit ones.

Even certain kebab/doner shops located near bahnhofs now accept cards, but inner area ones are still cash-only. Most asian shops are generally cash-only sadly.


Are you talking about the Girocard (EC-Karte) system? Because there's also a lot of direct debit cards around that are all Mastercard/Visa branded.

It's true though that using "real" credit cards is relatively uncommon.


Yes, Girocard. Much lower fees. EC card is actually an older system that isn't really used anymore but the name stuck :-)


1.4 billion people in China use WeChat to pay for everything. They don't even bother with credit cards.


And in India they have UPI which is similar in the use of QR codes, but facilitates interbank p2p payments


We also have rupay, which is now international as an alternative to visa and Mastercard.

Credit card usage has been declining in India.


How much does WeChat charge in fees?


0.6% for business transactions

0% for peer to peer transactions

0% to transfer from your bank account to WeChat

0.001% to transfer from your WeChat to bank account


this. this is crazy.

ewallets are taking over.


A single point of failure, leverage, unilateral negotiation, and control. Horrifying for all people and businesses (especially competitors).

Real Standard Oil situation there.

Not that our own duopolies aren't also problematic.


Since this is China, a better mental model is probably more along the lines of a utility company that is technically private, but in practice under such government oversight that it is quasi-governmental. Any sufficiently large company in China is better thought of as a quasi-governmental entity.


The grandparent is exaggerating somewhat, it's split between Alibaba and WeChat.


Much better, but five or so peer competitors is best for consumers and other businesses.

Of course, as a business, you want to be a monopoly.


They have advantage of a functional govt. If Tencent/Alibaba abuse there market position, they'll be hit swift and hard.


Fortunately, phones never get lost. Or broken. Or stolen. Or discharge. Or malfunction. Or lock people out for no good reason.

I can put a $100 bill through the washing machine and it's still perfectly usable. When I can do that with a phone, maybe I'll switch.

I ran a credit card through the washer and dryer last month, and even though it got bent, and the stripe doesn't work anymore, the chip does. And the numbers can be punched into a POS terminal if all else fails.

E-wallets are putting your finances into a single point of failure. Tech people should know better.


I mean, you can always log into that WeChat account from another device... your WeChat username and password are maybe a bit more secure than all those numbers printed ostentatiously on your card, but are they really that different?


What other device? If I'm out and about and my phone gets stolen, broken, or even the battery just runs out, how do I pay for my transit ride home, where I -- maybe -- have a backup device?

This is the -- pretty common -- failure case I worry about. And yes, I know it's also possible for physical wallets to be stolen. But cash doesn't "break" or run low on charge. Software bugs or internet access issues don't cause paying with cash to fail.

Example of stupidity: I can pay for transit in my city with my phone. However, there are newer payment readers on a small percentage of trains here that just don't like my phone, and insist "Invalid Card". The company that manages support for the readers has been unable to help me. The older readers on older trains work fine. The older readers on all the buses work fine. But I have to carry a physical transit card with me all the time anyway, and -- amusingly enough -- it's more convenient to tap the card than to unlock my phone and hope it works.


You borrow someone's phone? Have people forgotten how to talk and help each other? It is very rare for phones to get stolen or break down, and when they do it is a lot easier to borrow a phone to pay for a Taxi than it is to beg for the money for a Taxi ride, so the situation still seems better than what we had before.

Main thing stopping this would be that most phone OS doesn't seem to support guest logins, but that is an easy technicality to fix as long as there is demand for it which there will be as phones becomes more important.


You can use eWallet as the primary payment method and have some cash as a backup.

A smartwatch would be more convenient than taking out the phone/card.


Despite all this, the largest community on the planet is using it just fine.


Do they use it because it's "just fine", or because there's no alternative? How many people have daily problems with it (problems they might not have if cash were an option), but we just don't hear about it.


> E-wallets are putting your finances into a single point of failure. Tech people should know better.

Actually, multiple single points of failure.


Tech people know how to back up their devices, passwords, photos, etc.

Hell most apps are good enough that people are backing up these things without even realizing it.


The majority of the world is not "tech people".

And even with backups, you still need to buy a new (minimum $100?) device if yours gets lost, stolen, or broken. Should it really cost $100 to replace a payment card? For many of us here, $100 isn't a big deal, but for a lot of people, that amount determines whether or not they eat this week, or manage to pay rent this month.


In India, the duopoly is already broken by UPI (Universal Payments Interface). UPI provides zero-cost transfers and mobile payments between linked bank accounts and every little streetcorner store and sidewalk vendor accepts UPI payments. Also 2FA using SMS is required and enabled by default.

You can pay by scanning a QR-code, or a mobile number, or a UPI ID. There's also an effort to allow "scanning" an audio-signal to enable non-smartphone devices.


It's actually broken by RuPay cards (Rupee+Pay not Russia+Pay) which is a direct alternative to visa/MasterCard. It has like 30% market share already.

Few years back the central bank realised that depending on a foreign company for such a basic thing might not be the best idea. And they were proven right with the Russia/SWIFT episode.

Interestingly both Visa and MasterCard are currently lobbying (bribing) with the US government against RuPay


True. RuPay is exploding in rural areas. I like the ideas. Competition is good.

However I wish Govt fixed UPI glitches like as of now UPI doesn’t fail/succeed decisively at the time of payment attempt (this often causes huge inconvenience and sometimes monetary losses) and they must bring chargeback option to UPI.


I still haven't understood why credit cards companies need to go through this complex multi-hop "settlement" pipeline that takes almost a day for transactions to get "processed". Is it because some banks still depend on mainframes doing batch processing?


> Is it because some banks still depend on mainframes doing batch processing?

Pretty much all banks use mainframes to do batch processing. "SFTP runs the world".

I got heavy into fintech a couple years ago, and at first I thought "This is all insane." I was coming from a SaaS world where it's easy to think about transactional guarantees with API calls.

I finally "got it" when I realized that pretty much all of our financial system in the US is based on the digitization of manual processes from the 50s and 60s. If you think of how banks worked before computers (e.g. large binders of ledgers that were manually reconciled), that's basically how it still works today, those big binders have just been turned into digital files that are processed by machines.

I'm no fan of crypto, but the one place where I can see real utility for blockchain is as a backend settlement service for banks.


> Pretty much all banks use mainframes to do batch processing. "SFTP runs the world"

This isn't an anachronism. Batched net settlement is inherently cheaper than real-time gross settlement.

Canonical example: if I send you $10, then you send me $5 and I send you $2, in net settlement, there is a single $7 transaction; with RTGS there are three transactions of $17. The first system not only has lower transaction costs, it also scales better on account of needing less capital. TL; DR If there is a real-time settlement system, it is always possible to build a net settlement system on top of it that's cheaper (albeit slower).


Why should transaction "cost" anything? It is just running arithmetic instruction on a number in a computer. I would argue batch processing makes no sense. If you send me me $10 and I send you $5 and bank wait for a month to run that batch, you might have already been bankrupt and have nothing to send so somehow you sent me money, I never received it and now everything is in big limbo. Transactions should be instant.


> Why should transaction "cost" anything? It is just running arithmetic instruction on a number in a computer.

Every dollar that crosses a payments platform has a non-zero chance of creating some combination of legal, regulatory and customer-service costs. Frictionless transactions are as real world as their physics counterpart.

> would argue batch processing makes no sense

It does, from a deeply fundamental level. The only case where RTGS is equal to net settlement is if we make some Econ 101 assumptions (frictionless transactions, infinite borrowing and lending capacity) together with zero or negative rates. (Even then, one could be a stickler about the cost of computation.)

> you might have already been bankrupt

Clearinghouses.

My point isn't that net settlement or RTGS are inherently better. They're not. But they're fundamentally tied, and net settlement on top of an RTGS rail will always be cheaper in the real world than that same underlying rail. On the cost side, net settlement will win. On immediacy and counterparty risk, RTGS. A strong system offers both options.


> Every dollar that crosses a payments platform has a non-zero chance of creating some combination of legal, regulatory and customer-service costs. Frictionless transactions are as real world as their physics counterpart.

Yes, but pretty much all of those costs are a factor of the originating individual transactions. In reality net settlement is just one additional transaction where things can go wrong.

Again, I'm no fan of crypto (WRT how it's currently used, scams, etc), but there is no reason a permissioned blockchain couldn't do millions of transactions a second, all with real-time settlement, at a cost lower than batch processing.


> all of those costs are a factor of the originating individual transactions

Correct, to a degree. Hub-and-spoke systems (clearinghouse, with banks at the periphery) are cheaper and more efficient than an everything-connected topology. The clearinghouse can run cheap rails because it knows it has pushed those problems to the periphery. The main missing factor, however, is float.

Float makes RTGS more expensive than batched settlement. If you give me RTGS rails, I can batch on top of it and recycle the yield on float into savings, possibly rebates (or credit, e.g. how banks front credit against deposited cheques).

The batch mechanism will always be cheaper under real-world conditions. That's what I want to emphasize. This isn't an artefact. It's fundamentally inescapable.


Net settlement is a useful abstraction. Instead of a fully meshed network with every bank account in the country that was active that day having to be settled against each other, you can reduce the number of nodes to “just” the 14,000 banks and credit unions in the USA. Even that is simplified by running interbank settlement through a central clearinghouse at the Federal Reserve.

As long as operating a connection between two accounts has a non-zero cost and resolving consistency problems has a non-zero cost net settlement will be cheaper and easier.


Tangent: this faster payment layer with delayed settlement is exactly how the Lightning Network on top of Bitcoin works.


>I'm no fan of crypto, but the one place where I can see real utility for blockchain is as a backend settlement service for banks.

So... what does the crypto provide there that a simple authenticated communication protocol with a few redundant centralized servers doesn't?


There are large benefits to not relying on a few redundant centralized servers in that case. We have "clearing houses" now, and in most cases they shouldn't be necessary. If you had something like a "permissioned blockchain", any financial institution could easily validate that everything was settled, in real time.


Well someone has to write the code and run the nodes. I’m not on the side of clearing houses but I don’t see the improvement bid switching to a system run by a crypto foundation and a few blockchain validator companies.


A blockchain will allow all these operators to transact safely. It's really just more secure because it's open (otherwise very quickly compromised). And blockchain tech has shown to be reliable when it comes to up-time and security (if you keep it simple).


> blockchain tech has shown to be reliable when it comes to security

Seriously? You would trust billions of dollars to this?

https://web3isgoinggreat.com/?theme=hack

To be clear, the cryptographic underpinnings of blockchain seem solid, it's just that both implementations and actual usage are by fallible humans. And because everything is irreversible, even if you manage to guard against hackers, you still can straight up incinerate money by (say) mistyping a receiving account number (wallet).


See no mention of Bitcoin or Ether in that page, only centralized shitcoins such as Solana and a few buggy smart contracts. Also, if the system is to be operated by only the banks then transactions _can_ be reversed when needed due to security issues. I don't have a strong opinion whether this is a good option or not, just saying that it's not as absurd as it may seen.


But they are talking about permissioned blockchain which are essentially clearinghouses.


Indeed; check settlement used to be small planes flying the checks to the nearest Federal Reserve every night where all the checks from all member banks would be reconciled and money transferred from the bank where the check was drawn to the bank where it was deposited. Then the checks themselves, having been stamped, would be flown to the originating bank and kept on file. A "bad" check would get stamped and returned to the depositing bank.

The bank where you deposited a check would in fact be lending you the amount of the check until the settlement was complete - hence the daily deposit limits and such to limit the bank's exposure.


Is this still universally the case?

The Eurozone has been working on SEPA Instant Credit Transfer for a few years now. It allows transferring of money within 10 seconds, even to a different bank in a different country. The maximum time is 20 seconds in exceptional circumstances. How would this work with batch processing?


Authentication and capture have different processing requirements and availability needs.

You want to have 100% uptime for authorize, but correctness isn't strictly required; if you allow too much in charges, you'll probably end up collecting user fees, which is not a negative for the bank. On the other hand, you want exactly once processing for capture, and you don't really need that to have 100% uptime, since the financial industry is built around batch processing.


Rupay in India seems to be doing it.

Non affiliated video about it: https://youtu.be/B_AY4a3_-GQ


Visa and Mastercard complained to US Govt about Indian Govt backing Rupay. I am sure they will lobby against any attempts to break their monopoly in US too.


> Households that bring in more than $135,000 a year recoup in points or perks around 0.6 percentage points of the interchange fees they pay.

This is bizarre to me. When the Citibank Double Cash credit card exists for no annual fee and pays 2% back...

why does anyone ever use any card that provides less? The only cards I use besides that one are the ones that give me 3% or 5% back in special categories.

The idea that people average only 0.6% back is absurd to me. Am I missing something here?

And we're not talking college students here with no credit history. This is households making more than $135K a year. Are people just not bothering to pick up free money?


Obviously not all credit cards are the Citibank Double Cash card.

But, there are multiple answers:

1. Some cards have features other than cash back that people want instead. i.e. promotional interest rates.

2. Some people carry a balance, in which case the benefits of using a lower interest card may way outweigh any cash back

3. Not everyone with incomes 135k+ have good credit scores.


Can the duopoly be broken? Yes, you can have Pix, the system created by the Brazilian Central Bank for instant, verified payments and some credit/installments features. It's cheaper for business but then a central bank will know all your transactions. There are some talks of sharing the system with Canada and other countries.


Well, in Denmark you can use Dankort(https://en.m.wikipedia.org/wiki/Dankort), which does exactly the same as Visa or Mastercard, but the transactions are handled by Nets instead.


I would like to show you the national payment system in Norway, BankAxept[0]. It's used in 8/10 purchases in physical stores. The system verifies the card has a sufficient balance before the transaction is verified, and charges the account instantly on purchase.

The subscription to the network is 150 NOK/month, with each transaction costing 0,21 NOK each, before volume rebates. 1 EUR/USD is worth roughly 10 NOK at the time of writing, so about 15/0,021 for the subscription/transaction cost. I don't know much about VISA and MasterCard costs, but I would hazard a guess they're higher.

I think the only time I ever use VISA is when purchasing things online, and even then I'm not quite sure it's always VISA. Fun fact, BankAxept stopped accepting the magnetic strip in 2011. Now chip & pin or NFC are the two main ways of paying, with NFC transactions under 500 NOK not requiring the PIN to be entered, except periodically for verification.

[0]:https://en.wikipedia.org/wiki/BankAxept


Haha. Ask American Express. They’d love to help.


I doubt they care, as their business is built on quality, not quantity.

Average Amex cardholder already charged to their card roughly 10x of what the average non-amex cardholder charges.


HaHa, yup, but it seems they're fat & happy where they are, with high fees on both sides. Their services are so much better than V/Mc that they could rapidly swamp V/Mc, IFF they'd reduce their fees. But they are obviously not interested in any other than the market segments they've got.


AMEX won't lower their surcharge. Until they do, they will always lose business to Visa and Mastercard.


It's pretty rare that my AMEX card gets refused...


Maybe USA-specific, but I've been AMEX-only for around 20 years, and have no regrets. They handle fraud and chargebacks with almost no effort or followup required. Very infrequently, I'll run into a cheap-ass merchant who doesn't take AMEX, and I will either not do business with them or just pay in cash.


Yeah, AMEX has lots of issues getting accepted outside the US. Some places won't accept tap-to-pay for Amex, but only chip+pin, or various other oddities, if they accept it at all.


Might depend on the country. It happens a fair bit down in Australia


The government of India has a competitor that is actually quite nice to use called Rupay. All public sector banks issue cards almost entirely with rupay now.

Being government owned, it has 0 MDR.


Sure, but it requires a fork of the EMV/global platform protocols, and a technology change that obviates payment terminals. It will always exist as a legacy integration, but you basically need a parallel infrastructure with better economics.

An open wireless tap protocol for cryptocurrency hardware wallets would do it, and then there would have to be a delegation wallet / cash register version where you can delegate payment collection to an employee without giving them the whole bank account, and then some kind of insurance to backstop inevitable fraud, and a market for securitzing and trading the bonds for that insurance, all with transaction fees that are competitive with cards and interac. Nothing current crypto exchanges and companies can't do today.

I actually foresee these becoming popular as a reaction to CBDC's and the cashlessness that will very severely marginalize people and cut them out of the economy. Further, I could see shops themselves polarizing, where just like you may not go to a McDonalds (I haven't been in one in decades), there are places you go, and places you don't, and the places that only accept govt fiat will be the places you go when you don't have a better option. It will be like going to a small town greengrocer who accepts crypto or gives credit by private arrangement repayable in crypto vs. some globalized big box store. There's a floor on how stupid and overreaching regulations can be before the economics of peoples individual risk/reward calculation switches to evading them. It's literally the mechanism behind pervasive low level corruption in authoritarian regimes, where past a point, governments themselves have invented the incentives for citizens to evade them, and created massive underground economies as a result. Worse, the state benefits from the black market money and turns a blind eye to the criminals who support it, and that's how you get places like Chicago, Baltimore, LA, and to a lesser extent, Vancouver.

Yes, the duopoly will be broken, but it will be the side effect of emerging cashless society policies from some spectacularly naive policymakers.


India is breaking this dominance by government backed Rupay and UPI payment methods. Both have 0 MDR charges.

Rupay is a direct alternative to Visa and MasterCard. UPI is peer to peer payment system for any bank account linked with a phone and debit card.

So far government has been successfully in both of these endeavours.

https://en.wikipedia.org/wiki/RuPay?wprov=sfla1

https://www.business-standard.com/article/economy-policy/rup...


>Both have 0 MDR charges.

Possibly not for long - https://www.thehindubusinessline.com/money-and-banking/rbi-m...


In Brazil we have pix: https://business.ebanx.com/en/resources/payments-explained/p...

It is mostly a novelty here. It allows simple payments to be made using a smartphone, smartwatch... you can use an app to transfer money from one person to another. Basically everybody is using it now. You can buy popcorn in the streets and pay via pix. In many places it is common than paper money and, I think, it is already more popular than credit cards. It also pays much less taxes.

I do think the credit card duopoly can be broken.


they also provide tremendous value. however, looked at from a disruptive innovation perspective, i think two questions are critical:

+ where can startups take the edges off the market, without taking them on front-on? certain segments, use cases, etc.

+ what tech innovations exist today (or are on the horizon) which a startup could leverage faster/better than visa/mastercard to better serve certain use cases better than v/m (e.g Dell (when they were a startup) was so much faster than IBM to incorporate Intel's new tech every cycle, which resulted in Dell customers getting more capable and less expensive pcs)


No problem at all. See Russian example. 10 years ago it was 50/50% Visa/Mastercard on the Russian market. Today it is like 30/30/30 Mir/Visa/MC (Mir is the national payment system). And even those 60% are not "real" Visa/MC, since they are being processed through a centralized platform, owned by the Russian Central Bank. For example, it helped to save all the cards in working condition when Visa/MC exited Russia


Mir is a poor example. Government simply started to issue the paychecks through Mir, and this was a big deal in a country where government owns a huge share of the entire economy.


Revolut is well positioned to launch an alternative p2p multi-currency (fiat) for both consumers and businesses with the partnership with Stripe [0].

This would challenge both Visa-Mastercard and SWIFT.

[0] https://www.bloomberg.com/news/articles/2022-07-06/revolut-p...


Maybe start by not having banks that are so bad at actually doing what a bank should do that visa and mastercard can just move in and fill the gaping holes with credit cards. Until I moved to North America from Europe I had zero reason to even own a single one because banks just... you know... did banking. It's both possible and easy to send and receive money, without caring which banks are involved, instantly, for free.


Mercado Pago, from the article, represents a merchant processor, and certain consumer services. However I think the big change in Brazil is Pix, offered by the central bank. It allows instantaneous bank transfers for most cash accounts. The fees are 0 or nearly 0.

As far as I understand, Mercado Pago's big thing is installment plans. You can buy almost anything in Brazil "em ate 12x sem juros" or up to 12 installments without fees.


They should look at how India is trying to break this with both UPI (bank to bank transfer) and Rupay (India's own VISA)


I know the title implies USA but in the global credit card market, there actually is a 3rd contender called UnionPay. In fact, by volume, it already exceeds MasterCard.[1]

[1]https://nilsonreport.com/upload/Cover-1224-600.gif


The Interact network has done an extremely good job at breaking it in Canada. So yes, yes it can.


It is broken in many countries including India and China. The issues are the duopoly over global transactions, the monopoly over the transactions, and the dominance of the US dollar in situations where other currencies would be more efficient.


Does anyone sincerely believe FedNow will gain traction for consumer payments? The fees don’t seem particularly cheap (at least compared to something like Solana Pay), and the FedNow website does not inspire confidence.


If checking accounts get debit-only RTNs for cheap/free, this could potentially catch on. $0.06 per transaction with $25/month subscription fee is incredibly cheap, plus no chargebacks!

Biggest issue I see is that the larger banks might not offer this to their customers so as to not cannibalize their credit card businesses and/or in-house payment system.


Over in Europe I pay €2.20 / month for my account. Transactions are completely free for private individuals. A business account is closer to €8 / month, with a transaction fee in the range of €0.10-€0.15. Discounts apply if you have a large transaction volume and integrate with their systems, of course.


> $25/month subscription fee is incredibly cheap

Cheap?! That's $300/yr, and is more expensive than most credit card annual fees (for cards that even have annual fees). And with FedNow you don't get any credit card benefits. I mean, I pay $550/yr for one of my credit cards, but I get like $2k of value out of it per year in benefits. Why would I want to pay $300/yr for something that lets me do something I can already do, for free or "cheaper than free"?


That $25/month fee is for accounts that accept payments. I don't think debit accounts will have such a ridiculous fee.


The way I read it is that $25 per month is only for RTNs that can receive credits. If you just want to pay for things (like a credit card) then you don't need to pay any subscription fee.


I don’t see the value add from the sender side.


I'm just grateful it's a duopoly and not a monopoly. Can you imagine how much worse the situation would be if one company soft-owned the entire space the way Facebook does with social media?


I'm not sure how facebook is a monopoly on really any level (see tiktok, twitter, youtube, snapchat, etc etc). Visa Mastercard duopoly also has 10x the barriers of entry that social media has.


My reasoning was that, across all Facebook-owned properties, they have ~7 billion MAU. All their top competitors combined are roughly half that. [1]

This is all illustrative, of course. My salient point is that monopolies are only really held in check by the law. In this case, at least there's a significant competitor.

1: https://www.searchenginejournal.com/social-media/biggest-soc...