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)
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.
[0] https://www.cbc.ca/news/canada/british-columbia/b-c-to-imple...
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.
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.
[1] https://www.interac.ca/en/consumers/products/interac-debit/e...
I don't know if the merchant fees for Visa Debit are any different to using a Visa credit card.
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.
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.
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?
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.
* 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
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.
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.
Chargebacks are also still possible. Disputing them is expensive.
How do you buy online then? Prepayment? Good luck with that :-)
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.
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.
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.
> 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.