This is another phrasing of what jackdeansmith says, but this is not right:

> Payments are transferring bits, and should be effectively free.

Payments is taking on a short term risk that the (slow) transaction between a customer's bank and a vendor's bank will not settle, because of (a) fraud, (b) chargeback-like issues, (c) insolvency. This isn't exactly right, but overally its not quite 0 risk without crypto, which people don't trust (from a UX perspective).

And all kinds of risk-taking charges for it: loans, mortgages, etc. If you want to shoulder the risk yourself and save the fees, pay with a debit card.

One thing that often gets overlooked with respect to payments is consumer preference (and this is actually the primary driver of cost).

Why do credit cards cost 2-3% to process? Because of expensive rewards programs given to the consumers who use the card. Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. Except in edge cases, merchants have no choice but to accept credit cards despite the cost.

While Visa, Mastercard & Amex frequently get the blame, the lions share of the processing fee flows to the issuing bank of the card, and the lions share of that fee goes to fund rewards programs. (There are other perks to credit cards that encourage consumer usage, including chargeback protections, free 30 days of float, near universal acceptance, etc)

Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. Or if you, as the merchant, have such market power that you can mandate a less preferred but cheaper form of payment (like cash or debit card or ACH - this is why you often can't use your credit card to pay a parking ticket or your taxes)

At many American gas stations, (I don't know how applicable this is in other countries) there is a lower "cash" price because the station doesn't have to pay credit card fees on the transaction. It's less convenient, because you have to park, go to the cashier, give them cash, go back to your car, fill up, go back to the cashier, get your change, and then go - versus put credit card in pump, fill up, go. It's ultimately a consumer choice and some choose each option.

I'd love to have something similar for online payments. Give me a price, then charge transaction fees for credit and lower fees for debit or ACH, etc.

I personally never understood the America style of paying for petrol first, and then presumably getting a refund at the end? As an Australian, I remember filling up in the US and the whole system baffled me (especially because the US bowsers did not accept my Australian Mastercard). Here, we just pull up, fill up, pay, and then leave.

There was an explosion of people driving off without paying like ten years or so ago, when prices were very high, and they changed to the pay-first system. It used to work the way you described.

Similar in BC, Canada. A gas station attendant was killed trying to stop someone from gas-and-dashing. Grant's law[0] was made in his memory.

[0] https://www.cbc.ca/news/canada/british-columbia/b-c-to-imple...

This is common in Europe too. I guess the point from the retailers point of view is that they eliminate the risk of you driving off without paying.

It's extra annoying on a motorbike where you only have a rough idea of what your fuel level is and you absolutely need to fill it to the brim (typically you only get 150-200 miles out of a tank). At least in a car you can wait until you have a quarter of a tank and the put 40€ and know it's going to be some where around 3/4 full.

But why not have security cameras that record your face/license plate? People steal fuel here every so often, and you can be damned sure that the police will knock on your door asking about it within 24 hours.

Yeah, they have cameras and even ANPR in the UK. It's probably a easy one for police to deal with in most cases, often where someone has driven off accidentally, but anyone really trying to steal from them would presumably have the sense to use fake number plates.

Every gas station in France does that. If you leave the station without paying, the station may report (sometimes in real time) your car to the police (which is sometimes very close on certain highways) and the manager can even submit a complaint against you.

They have those too.

That doesn't have to be how those transactions work. In the UK that goes: park, fill, go to cashier, pay. It's still a little bit more inconvenient.

Obviously it used to be like that everywhere (except where you can't pump your own gas by law) but I'd rather pay a little bit more to not have to wait in line behind all the people buying cigarettes, chewing tobacco and lotto tickets.

You pay the same price though. Some stations will also insist on prepayment at certain times of the day.

> Some stations will also insist on prepayment at certain times of the day.

I'm not saying that this doesn't happen but in nearly 20 years of driving around the UK I've yet to encounter it.

I’ve only driven in maybe a dozen countries, but so far the US is the only one where the pre-payment thing existed. I was glad to have read about it in trip prep, or I would have stood there staring at a non-functioning gas pump for far too long!

Companies like GoCardless exist for this reason. Problem is that fraud is still a thing and cash payments over the internet aren’t possible.

Interac Online in Canada offers this, for Canadian merchants with Canadian customers. It’s basically cash over the internet. Makes sense you wouldn't have tried this if you weren’t :) [1]

[1] https://www.interac.ca/en/consumers/products/interac-debit/e...

Interac Online appears to have been deprecated by most major Canadian banks in favour of Visa Debit. My understanding is the Visa Debit cards issued by banks like TD and Scotia are dual-mode: transactions will be processed through the Interac network when possible, with the lower Interac fees applying, and through the Visa network otherwise.

I don't know if the merchant fees for Visa Debit are any different to using a Visa credit card.

Looks like its 50/50. Banque Nationale and BMO only issue vanilla Interac cards, and in RBCs case, you get two debit cards: an Interac and a virtual Visa Debit. To your point dual mode Interac/Visa Debit are not eligible for Interac Online.

When at a physical point of sale, a Visa Debit card is processed over Interac rails, and I believe Interac interchange prevails. At one point back in 2009 Visa was going to set up their own debit network in Canada, but as of 2010, my understanding is they gave up on the plan. The value add from the Visa Debit rails is for international online purchases, for phone purchases and for international point of sale purchases, neither of which are well supported by Interac-only cards.

Do all American gas stations make you fill up your own gas?

IIRC, Everywhere except Oregon and New Jersey, where it's illegal to fill your own gas tank and petrol stations still have an attendant.

Not quite. Some gas stations choose to have full service even when not legally required, and some municipalities require an attendant when the state they're in does not.

I'm American and I've never seen this and I've been in a good amount of the country. What region is this in?

Works everywhere I’ve seen. Give it a try next time you fill up!

I guess I really haven't been paying attention!

> Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them.

That is very US-centric - for example, this all does not hold in Germany (many people are actually still cautious of credit cards there).

> Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens.

In the EU, there is: SEPA direct debit.

Or unless there's regulation, as happened in the EU. Rewards programs got largely killed in the EU by the interchange fee limits in the last few years: https://en.wikipedia.org/wiki/Interchange_fee#European_Union Card fees can be below 1%

That’s because the price is not allowed to be cheaper even if you post with “cash” like debit cards on the internet so of course consumers will use 5% credit cards when the price is the same.

In Europe there is quite often a fee for credit cards, cheap airlines come to mind. Why would a save consumer not decrease risk and get something back for the same price?

> Why are there expensive rewards programs? Because consumers like them!

I'm not convinced of this. The credit card costs are already baked into prices and so as a consumer I can either play the cc rewards game and get back a decent chunk of those fees or I can use cash and a few % of each purchase I make goes towards subsidizing the folks who do play the rewards game.

This is not a situation that can be resolved by consumer choice, because you'll never get millions of people to all voluntarily agree to give up hundreds of dollars a year in the vague hope of some change down the line.

Its 2% in europe too where theres no real reward programs.

The difference is actually wider, for example:

* Singapore 3.4% (https://stripe.com/en-sg/pricing)

* US 2.9% (https://stripe.com/pricing)

* Poland 1.4% (https://stripe.com/en-pl/pricing)

(+ some fixed amount in every country)

In some cases it can be even more expensive (see Adyen pricing for Amex or Diners cards: https://www.adyen.com/pricing)

This is a large difference and partially explains why the loyalty programs in Europe are not that attractive

I also kinda feel europeans would find reward programs stupid and call bullshit.

In the sense that someone would readily build a "no reward" chain and get adoption real quick.

I mean there IS reward programs somehow, but it's not like they give you 30% off sometimes like in the US. I always found them outrageous in a way when I was in the US.

The rewards points are nice but the primary reason I use a credit card is that it's a convenient way to pay and if someone is somehow able to fraudulently use the card they're not directly debiting my bank account.

This is just credit card stockholm syndrome. Nearly all the risk you mention is because of the insane and greedy design of credit cards.

In most of Europe, people pay with debit cards and the money goes straight off their bank accounts. If there's insufficient funds, there's no purchase. If the network fails, there's no purchase. If your bank goes bust 5ms before your purchase would clear, there's no purchase. I'm no banker and I'm sure there's some risk somewhere, but it's really not very much.

You can do that here but in the not-very-rare event of fraudulent use you have less protection and there's zero benefit beyond compensating for not being able to control your own spending. So I can't really see any reason why I'd use it.

Fraud is still possible with debit cards.

Chargebacks are also still possible. Disputing them is expensive.

Fraud is substantially harder because you always need to authenticate payments (above a tiny amount) with a PIN, even when buying online. It's been 2-factor authenticated for 2 decades now.

That you only have to pay after 30 days, chargebacks, etc.. they are all in your favor.

How do you buy online then? Prepayment? Good luck with that :-)

? Debit cards also work online. They're part of the same payment networks. "Visa Debit" etc.

Agree. I think that’s a very glaring omission in the original argument and one can interpret that as a simple misunderstanding or purposeful omission to misrepresent the totality of what comprises the cost to present a biased argument for more favorable terms.

It's basic human nature.

Out of sight, out of mind- and I could build it in a weekend.

But aside from that, the risk of payments is not intuitive. We regularly see threads on Hacker News where people pile on PayPal for 'seizing' the money of an entrepreneur with a business model that involves collecting payments up front and then delivering their good or service at a later date.

Unless you've worked in the space, or read the fine print of the agreements, it's easy to get upset about that.

This is true.

But what the comment is advocating for is systemic change/disruption. In that context, the whole complex (bank settlement, chargebacks, insolvency) are a single thing. There are always reasons for things being the way they are, but that doesn't mean that things can't change.

As the OP says, payments move bits around. There is no fundamental reason why this should represent such a big slice.

Besides technical challenges, and whether or not these can be overcome... I think the greater hurdle is entrenched structure and entrenched interests. Stripe is, at this point, a part of that. They have an overwhelming microeconomic interest in payments remaining a large "tax."

Imagine an imports "agent." Her job is to get your goods into country X and navigate the labyrinth of rules, chaos, fees and taxes on your behalf. The whole game costs Y. She earns a % of Y. She may have more, and more nuanced complaints about the labyrinth than anyone but... If Y becomes less, she will earn less.

_credit card_ payments are like that, but there is no technical reason for payments to work like that anymore.

Couldn't much of this be scaled back if we removed some of the layers and intermediaries?

If we had a single state-run bank (even if it were just as the fulfillment "back end" behind different consumer-facing servicing organizations), then a transfer would occur on a single ledger in a matter of milliseconds, rather than waiting for the East Podunk Bank, Trust, and Pork Cannery to pull a batched update file over a T-1 they put in in the first Bush administration.

Fraud could be handled better than it is now. We have terrible security/convenience compromises (Chip + Signature, anyone?) and when we try to improve matters (3-D Secure) it is presented so badly and clumsily that it basically dies on arrival (it's coming back, but mostly because the EU is cramming it down people's throats)

Chargebacks are a weird case. It feels like they come from two places-- either as the first response to a fraudulent transaction, or as an escalation for when there's no other way to get satisfaction. If you're fair with your refund policy, your chargeback rate should be close to nil.

Your basic assumption is that you only have one government involved - and that's ignoring all the technical issues.

As a customer of Stripe too, I almost[1] couldn't disagree more.

Running a global online/SaaS business is hard. So much complexity everywhere. I wish Stripe would handle MORE problems & complexity and would happily pay for it.

Just a few examples Stripe could handle:

- Checkout + Portal is a great start, but it still takes too much (expensive) design+dev brainpower to create the entire experience of a high quality trial-to-paid and existing-customer billing management in a SaaS app.

- Running a SaaS company at any scale is full of Support headaches that Stripe Dashboard simply does not handle well - stuff like tweaking a billing date, and doing combination (e.g. wire transfer + credit card) payments, "can you re-send my invoice but with my VAT ID on it this time?" and many more. At any scale, lots of effort is spend on custom billing support tickets and building internal tooling even if you use all of Stripe's features.

- Are you a SaaS company selling all over the US? Good luck being complaint with all 50 states in terms of sales tax reporting without expensive legal/accounting help. Did you hire any remote out-of-state employees? Good luck -- now your financial compliance got even more complicated.

Stripe doesn't do any of these things well today. And if they did, it would likely be much cheaper than the in-house solutions everyone is coming up with instead. I think Stripe should handle 10x as much complexity for a SaaS company than it does today, and of course they should get paid for doing so.

[1] I agree it would be amazing to see Stripe come up with smoother flows for supporting payments that bypassing the expensive card network's fees.

Fully agree, I don't have a problem paying Stripe if it means they are properly incentivized to help me run my business.

I'd be happy to throw them a few more percent if they could handle more of the complexity you've mentioned above. Right now, Stripe is both too complex to set up and too simple from a feature perspective.

I'm optimistic though since it seems companies like Paddle, Chargebee and others are blazing that path. As much as I love Stripe and what they originally did for online commerce, they're already starting to look like the lazy incumbent compared to the challengers right now. Market dominance is not a great incentive to create better products.

Do you know of anyone who does a god job for SaaS companies?

Paddle, they take on literally all of your tax and VAT compliance globally.

Where is this handled now? We do this ourselves, but then I hit the google, and got this page:

https://stripe.com/docs/orders/tax-integration

but the header says the service is now deprecated. Is there a new one?

I don't know, I use Paddle, not Stripe.

> Payments are transferring bits, and should be effectively free

Payments are also about establishing trust, which goes wrong a lot. You can in practice make payments very cheap with some cryptocurrency schemes, but don't get fraud protection, chargebacks, and customer service that credit cards provide (unless you introduce another party in the middle taking a cut).

It seems to me the innovation required to actually reduce costs would replace the credit card system, not build on top of it.

I worked on a project where the client wanted to switch to Authorize.net from Stripe midway through because of Stripe’s cost. From a developer perspective, it was a lot more miserable to work with than Stripe. Other projects I’ve worked on have had a similar motivation for not using Stripe.

Annoyingly, the cost of implementing the replacement and getting it working with React Native (which involved creating native modules for iOS and Android) ended up costing them as much as several years of fees. Also the client was a startup that went bust, so they never really got the value out of it that they hoped.

Yea, when companies really want to lower the cost, they implement directly with the bank, like say JP Morgan. That makes authorize.net even seem good. Stripe is really a pleasure to work with as a developer.

Interestingly, I tended to prefer Authorize.net to other alternatives. But a lot of that is likely a 'moment in time" thing when I got into development.

There were a few years where Authnet was the "default" gateway. Other gateways offered compatibility modes for their SIM and AIM APIs, and if you had some random off-the-shelf cart, it probably spoke AIM out of the box.

Part of the difference in experience is also likely due to their model. The Authnet model was very much "take direct card data and relay it to your server and then to us", and the Stripe model is very much "JavaScript up your checkout process to do tokenization, so you never see the card number." If you're at a point in time when JavaScript is a bit sketchy (the IE6-is-the-dominant-browser era), you might be more willing to go for a worse PCI compliance scope in exchange for the comparative bulletproofness of doing things server-side.

Now I work for a firm competing with both of them, so I can hardly express a preference today. :)

Could it also be you only care about transaction cost because everything else works so well? The time I spent on customer support with paypal/visa/plaid, ridiculous documentation from other payment processors and payouts snags make me appreciate Stripe even more.

EDIT: As in I haven't touch my stripe code for 2 years. They still work.

Here in The Netherlands, we have a platform called iDeal. All dutch banks are connected and all webshops accept it (it's hard to find a place to use your creditcard here). Transactions are instant and non-refundable. Costs are around 0.35 per transaction and NO % fees. Just a fixed amount per transaction. For big volumes, that per-transaction amount can be lower. It's amazing and I wished they'd just roll that out worldwide. No risk for merchants at all.

It's also much less reliable than the credit card networks. Fundamentally it's not ready to be a large instant payment provider, as it's still based on the same slow batch processes that run your normal bank transfers.

This doesn't really solve the problem, it just shifts all risk onto the buyer. Under this system, if you take my money and run, I have no possible recourse

It's something that works very well here in The Netherlands. Also, because it's directly linked to bank accounts and you have to identify yourself, etc. to set it all up, it really isn't a problem here. If people see they can pay with iDeal, people will trust it and it really has not been an issue that I know of.

do they handle sales taxes? for in country vs out of country sales?

Here in The Netherlands, everyone is charged sales tax (it's always included in all prices that's communicated to consumers, required by law).

Companies pay sales tax to the state and can deduct sales tax they paid to other companies.

There are rules for applying sales taxes to other EU countries and it get's complicated fast; once you do more than X amount in another EU country, you're supposed to register in that country and file taxes in that country. Thresholds here: https://ec.europa.eu/taxation_customs/sites/taxation/files/r...

Transferring those bits with just the right logic for each transaction scenario is what still costs something. I'm sure the margin is massively excessive today. But I don't think it can be quite 'effectively free'.

Debit e-transfers in Canada are free (and have been around a long time). It makes the Venmo thing a real head scratcher.

They're only free in certain circumstances: personal transfers, and only for some bank accounts. It wasn't that long ago that all e-transfers cost $1, which makes them pretty impractical for giving a few bucks to a friend to split a pizza or whatever. Venmo's been around longer than free e-transfers.

I pay for each etransfer what bank are you with?

Really? I thought it was universally free.

Simplii, TD, Scotiabank.

I understand the sentiment but I don't think you understand what exactly Stripe does that actually makes it cheaper than alternatives.

They are an ISO, payment processor, merchant bank, payfac and gateway all rolled into one.

Add all of those up and you can see why its actually, generally speaking, cheaper.

To that end at least allow payouts in USD to the non-US banks.

We charge in USD and we pay for our infrastructure in USD, so the hit we get on the double currency conversion is really unpleasant... as it is completely avoidable.

This has been asked of Stripe for AGES and they did nothing. The only explanation is that this is by design, which means that they have no problem bleeding merchants with unnecessary fees just like all other payment companies. It's just that these fees are disguised differently.

>>Please Stripe, work on reducing the costs to transact online by 1-2 orders of magnitude, where it should be.

I agree with the could and should. Payment costs could be a tiny fraction of current. It is a tax. I'm dubious of the who. Stripe is now a big player. They're have no interest in turning their $X00bn sector into a $Xbn sector.

Incidentally, I think the current economy harbours a lot of sectors that could be orders of magnitude smaller. This has always been a debate in the financial sectors. Today though, there are some (IMO) less ambiguous sectors/companies.

Does facebook actually need $70bn in revenue to operate facebook. Could it be done on $7bn? To me, it seems like an obvious yes. Quite a glaring inefficiency, IMO.

It seems like a lot of people are defending credit card pricing, but the idea that they’ve been charging the same % since before the internet and are still absorbing the same “cost” of fraud protection is absurd.

I would love Stripe to start advocating for lowering credit card fees, either through regulation or providing more avenues for competition.

Be careful what you wish for the EU mandated reduced fees - the backs just stopped doing cashback cost me almost £20 a month.

Of course the reduced savings where not passed on to the end consumer

That working as intended. Now vendors can lower prices for all users instead of being held hostage by credit card banks/processors/users taking money from cash/debit users to divide among themselves.

No they took it for themselves

It’s too late. Much of that extra savings on fraud protection has already been funneled back to the card owner in the form of cash back or reward points. Not a whole lot can be done to break that unless the government comes in and legislates something as they do in Europe.

The benefit went entirely to the merchant the consumer lost out in the EU

If your merchants are charging monopoly prices then you need antitrust enforcement.

There are many costs that remain stubbornly fixed as a portion of GDP (Ads has been 2% of GDP for > 100 years). Fraud as an industry, and corresponding fraud protection services likely fall under this umbrella barring substantial technological innovation.

Has the internet decreased or increased fraud.

You barking wrong tree here, what USA needs is new competitors to credit card giants if you go about anywhere world there is already pretty good competitors with superior user experience to credit cards eg Mobilepay(Denmark and Finland),Swish(Sweden) and of course Alipay(chnina) etc.

As a user of stripe I agree

However the biggest slice of the pie is Visa and MasterCard.

Stripe could release no new features in a year, if they could lower my rate by .1% I would be far happier.

The best thing I read was Australian regulator capped cc interchange fees at 0.5% and allowed merchants to charge as an extra fee over the price. I guess it'll never happen in the US but maybe Europe? https://en.wikipedia.org/wiki/Interchange_fee#Australia_and_...

Adyen is probably cheaper, but maybe not enough to matter: https://www.adyen.com/pricing

Adyen has also high requirements for companies in terms of volumes, so it's an alternative but available only to a subset of companies

Exactly. Fraud doesn’t exist. So why should I have to pay for it.

Decent fraud protection alone is worth so much. I honestly think you are a bit spoiled by modern payment processors. Their tax is hard earned.

Turns out private taxes aren't good!