It goes unnoticed to the consumer because it didn't go unnoticed to the lawmakers. The EU caped the fees those companies can charge to merchants to 0.3% for credit card and 0.2% for debit card back in 2015 [1]. In the US it's less ignored because those fees to merchants are on average 10x bigger! (2% on average [2])
[1] http://europa.eu/rapid/press-release_IP-15-4585_en.htm
[2] https://www.hostmerchantservices.com/current-us-interchange-...
The payment processing market is a bit more complicated:
When you make a transaction:
1) Your bank charges Visa/Mastercard an interchange fee (this is the bit capped at 0.2%/0.3%)
2) Visa/Mastercard charge a payments acquirer a processing fee
3) The payments acquirer charges the merchant a fee - this final fee is likely to be a blend of percentage and fixed fee per transaction. There's no cap imposed here.
EU-domestic debit cards 0.31% (max 0.75€), EU-domestic consumer credit cards 0.90%, EU-domestic company credit cards 1.10%, foreign consumer debit cards 1.25%, foreign company credit cards 1.45%, foreign credit cards 1.65%.
No per-transaction fees, but card readers have a monthly fee (39-53 EUR/mo).
Finnish source: https://www.yrittajat.fi/uutiset/572780-maksupaatteet-hintav...
So let's say that you swipe your card at a retailer, perhaps an IKEA.
IKEA has a card payments processor (ie: the vendor that the little terminal you sign on / stick the card into is from). This processor deals with a network (usually Visa or MasterCard, although there are smaller vendors such as Amex, Discover, etc) who ultimately connects the payment processors to the banks.
Now, for each transaction, your bank charges a fee to the network (the interchange fee, limited in the EU to like 0.3% I think) as a percentage of the total transaction. The network then charges some fees to the payment processor, which includes the fee that the bank charged. Finally the payment processor adds in their own fees and charges some unified fee schedule to the merchant (in our case, IKEA).
The payment processor doesn’t belong to any of the credit card companies if they are tied to any institution they will be part of the acquiring bank but these days most of them aren’t, all they do is facilitate the transaction and there could be more than one in the chain.
The issuing bank as in the institution that issued the card charges a fee, as well as the acquiring bank the bank that actually receives the payment also charges a fee.
There are fees that are levied on multiple parties across the chain by multiple parties however at the end these tend to be mostly be then baked into the fees that are levied on the merchant.
Each of them charges a fee, and can be charged a fee. A credit card transaction is a multiparty transaction with a lot of small fees.
The payments acquirer will then send on some of this fee from the merchant to Visa or Mastercard (again the exact rate depends on the transaction type). Visa or Mastercard will then send on an interchange fee to the bank that issued the card the customer paid with - this is the bit capped at 0.2% for consumer debit cards and 0.3% for consumer credit cards.
So essentially, card payments is a 3 sided market. The merchant chooses which payments acquirer they want to use. The issuing banks choose which card company they want to use. Customers choose which banks they want to bank with.
The interesting thing is that the EU has capped the banks' interchange fee, but not capped the fees elsewhere. When the interchange fee was reduced, this was passed on as a cost saving to the payments acquirer. This saving might have been passed onto the merchant (especially if the merchant is big and sophisticated enough to shop around), but it was equally possible that the payments acquirer could just enjoy the higher profit margin, or that Visa and Mastercard could raise their processing fee.
For example in Denmark: "Due to the higher fees charged by banks for the use of non-Danish issued cards (that consist of foreign card network interchange fees plus Danish banks own fees), many Danish merchants only accept Dankort and Danish-issued credit cards, but not foreign cards." (https://en.wikipedia.org/wiki/Dankort)
I really hope that the EU adds some regulation that forces merchants to accept debit/card cards from other EU member states on an equal basis. Especially in combination with the fact that in some cases only electronic payments are accepted, which makes it pretty much impossible for anyone to pay without a national bank account.
The EU already solved (or at least mitigated) the issues with roaming in mobile networks. Doing the same for payments is the next logical step.
The cardless life was very strange in the beginning, but I learnt to love the absolute sense of freedom and privacy the lack of any digital records of my day-to-day life provided me.
I even stopped carrying my smartphone when I didn't need it. It was like back to 1990s.
https://qz.com/262595/why-germans-pay-cash-for-almost-everyt...
A short answer: because of history.
The individual banks seems to set the fees (card owner is charged) Most banks charge a yearly fee (~25$) (free transactions), though some banks charge as much as 1NOK ($0.12) per transaction on top of that.
EU drastically capped interchange fees a few years ago. The premise was that it will lower costs for merchants and effectively lower costs for consumers. However, most of the savings were kept by merchants, especially larger ones.
Some EU study confirming that: https://www.europeanpaymentscouncil.eu/news-insights/insight...
I remember when debit cards first came out in the US. There was actually a 1-2% surcharge that most merchants were charging (especially smaller mom/pop type stores) to use debits - because it cost them to use the payment system just like credit cards. Eventually the merchants just baked the processing fees into the prices of all goods because most transactions are done with cards. Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.
Correct.
> Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.
I don't know what checkstands are but I've never seen a check immediately pull from my account. (Just for example, I wrote a check Saturday and I'm sure the vendor deposited it immediately and it still hasn't posted to my account three days later.) In fact, that would be great, IMO. Instead anyone who wants immediate payment without the risk of a check not clearing (landlord first month's rent, or mortgage, or like a car) will demand a cashier's check or money order or wire, all of which are associated with an additional fee of $10-25. (Or will pull your credit to cover the float.)
In some countries and places, credit cards are not even accepted because of the possibility of a chargeback and much higher processing fees.
In essence, many people here treat Visa / MasterCard as just "electronic cash", and therefore spend only the money they actually have.
In my own EU country, only about 1% of private bank customers own a credit card. These are usually the wealthiest people in the country, who have no problems paying the balance back on time.
The credit cards themselves provide very few benefits apart from the international health insurance for the entire family, and 0% fee for up to 45 days.
The reward programs are almost non-existent. Just like the general idea of spending the money one doesn't have.
It might sound like a very conservative society, but people here are a way more relaxed about their personal finances than in the US.
Instead of trying to earn reward points, they try to plan their expenses upfront, and focus on staying debt-free as much as they can.
That's because most Europeans have stable jobs with stable salaries which can neither grow, nor decline by a lot. Therefore, almost nobody expects to become very rich or very poor, and lives accordingly.
I don't claim to be a typical credit card user, but I do like to game their system and make money off of them (paid for by people NOT paying their balances off monthly and racking up dumb fees). I don't see a downside to it. It's not like they're getting more data on me by using a rewards card. They already know all of the purchases I make with them.
At the same time, I am glad that the EU provides a more conservative alternative and style of living.
I think the US is more about getting rich, and the EU is more about not becoming poor.
And for a money-savvy person the US might provide much more opportunities than the EU can.
Yet, the majority of people are not money-savvy, and the "high risks, high rewards" game inevitably produces more losers than winners.
That's probably because people pay online only at a very limited number of places they trust, and it's easier to solve issues with the local merchants directly.
Another reason might be, that many online payments are made via direct bank tranfers / SEPA, which can be both, fee-free and instant, across the entire EU.
Essentially, everything is based on trust. Nobody puts his debit / credit card details into a form of a website he never heard before, and nobody risks his business reputation if he has managed to earn it.
what makes you think debit cards are less safe than credit cards? as far as I know here in EU all debit cards are smart cards with PIN code protection, what exactly is the unsafe part?
are you confusing debit cards with magstripe cards?
I don't use a CC in Europe so I can't comment on how expensive those are here.
As for who is paying for it? Once you have a payment system set up its really not that expensive to maintain it. Driving around armoured vans with money is actually more hassle.
> to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places
That's basically the definition of hard to replace.
For all my disagreements with major payment processors, I must say that there is a lot more than meets the eye in these networks.
Having visited the fraud detection apparatus of a couple payment networks, I am thoroughly impressed. Most of them were doing machine learning at an industrial scale at least eight years ago.
I’ve travelled quite a lot, but everywhere I’ve been there has been the same - Visa, MC, and a local alternative or two that might be popular within the country but don’t extend elsewhere.
Is there actually any other network elsewhere in the world that is of a similar scale? I assume China must have something?
Doesn't that suggest VISA & MC are not making obscene profits? The upstart being more expensive than the incumbent is often a sign that the incumbent is not just resting on their laurels with fat profit margins.
AMEX has been issuing charge cards since 1958 and Discover has been issuing credit cards since 1985.
https://www.npr.org/sections/alltechconsidered/2017/06/29/53...
One fun bit is that it uses SIM applications[0], something that's barely used for anything serious except for m-pesa (and its spin-offs) but exists practically across the entire GSM infrastructure.
China did the same thing by banning Google and supporting Baidu.
In Baidu's case, they're a locally grown replacement. Per the article, local credit systems didn't really take off; a researcher in the article states their belief it's due to different attitudes on debt in China.
With data being ever more valuable and a small group near monopolistic companies in position to siphon most of it, it's going to be difficult to lead a private life.
https://www.bloomberg.com/news/articles/2018-08-30/google-an...
Yeah. It's called "cash" and "checks".
As the parent comment explains, nearly every electronic money system in Europe uses Visa or Mastercard as a backend, creating a unhealthy duopoly. The free market needs some competition so it can thrive.
I think that’s nearly every credit card system. Many countries have debit card systems that, AFAIK 100% outside of Visa and MasterCard, traditionally work across most banks in the countries, and nowadays work across the Single European Payment Area (28 EU countries plus six others. See https://en.wikipedia.org/wiki/Single_Euro_Payments_Area).
But ApplePay is actually more pleasant than both. I can pay with my phone and my watch. It is a faster transaction than both cash and credit, and no need to pull my wallet out.
With one big exception! There are a few places in the city that are starting to only accept credit/applepay/etc., but when their terminals go offline, they’re screwed. I saw this exact thing, for some reason they had no backup system to accept cash. I assume this is a rare issue, but still, I couldn’t believe they couldn’t resort to cash.
To accept cash as a back up you have to have all the items in place to accept it all the time basically. You need the register and to have enough cash on hand to cover giving change plus the accounting and tracking at the end of the day to make sure cash hasn't walked. So if a place has the ability to accept cash intermittently they might as well accept it always.
Has some issues wrt theft (portable pay terminal with boosted nfc signal/antenna) - but certainly convenient.
I used to get cash back at the grocery store. Very easy way to keep the wallet stocked since you're there 1-2x a week
I often wonder how much goes into the pockets of these companies who are essentially providing an easily replaceable service if it were not for the entrenched reality. (IE; to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places)
That said, I can't complain too much about VISA; which (Apple Pay and Samsung Pay also uses on the backend, there is no escape in Europe) -- they seem to be processing things fairly well, even if I don't understand how much both parties paying for such a service.