This applies to debit cards when used online, too.

Say you charge 1000 customers using a Visa/MC debit card an average of $50 per month each. Use a flat rate processor like Stripe/PayPal (2.9% + $0.30 per transaction) and you'll pay $1750 a month in fees. The interchange rate would only be $235 a month in fees. My merchant account provider charges 0.04% + $0.10 over interchange as their markup, so that volume would cost $355 a month. I have a few other fees to pay with that account, but they don't come close to that 5X difference.

For my SaaS businesses, regulated debit is 26% of the card mix. Flat rate processors are making a killing on their debit markup.

The flipside of this is most processors have not updated their fee schedule to pass on these savings to smaller merchants.

Square still charges 2.75% on debit cards. Stripe, 2.9% + $0.30. They are making a killing on debit cards.

If and when the processor market catches up with interchange regulations there may be a material impact on these companies' revenue models. (Square is already trying to diversify beyond basic processing.)

Yup.

http://ink.hackeress.com/2014/12/crowdfunding-is-too-expensi...

Treating everything by default like it's a credit card transaction is _the_ glitch in the matrix... these companies are not "like" a cartel... they are a cartel.

The screenshot in the article is from my friend's campaign to raise money for her dog that got hit by a car in AK.. We surveyed everybody, and they all donated with cash from their bank accounts (debit). Nobody put their donation on a credit card. Nobody does that.

Somebody should do one of these graphics for The Oatmeal's Exploding Kitten kickstarter campaign... Stripe has already made over $250K on this project alone (more profitable than 95 percent of Kickstarter campaigns).

I should clarify one thing: because debit interchange is primarily a fixed fee ($0.21), Square's percentage-only rate actually hurts them on debit transactions below $10. They lose money. Of course there's a correspondingly large margin on higher-value debit transactions for the same reason.

Also worth noting that Square Cash uses debit, so they're actually losing >$0.21 every time you send money with it.

Stripe definitely has a large gross margin in all cases. Even AmEx. However, one thing to bear in mind with both these guys is that the easier they make it to sign up and process payments with them, the easier it is for criminals to run fraudulent transactions through them, which they ultimately eat.

I honestly had no idea US banks took the piss quite so much, but I did have a vague idea that many still use cheques over there, EMV/chip-and-pin was barely known and you often get charges levied on debit cards.

That really isn't the case in the UK, certainly, and I don't think it's normal practice most other places - or am I wrong?

Is this actually normal over there? Would it be practical to bank with a bank based in another country?

I know everyone's going to roll their eyes, but how does this financially compare to transfers via Bitcoin?

I've used both the UK and US.

Electronic payments in the US are painful and slow. They often don't work at all on weekends, and certainly don't have the 2-3 hour speed of the "Faster Payments" system in the UK (which is often borderline instant).

Banks actually intentionally make it a real pain in the butt to send money to another bank, and stupidly easy to send money between accounts linked at the same bank. Last time we needed to set that up it took almost an hour, because of how they confusingly set up the UI and naming. Then the payment took a full 7 day week to arrive in the other party's account.

Plus in the US you have to have $1500 in a savings account (almost 0% interest "savings") and pay in your pay cheque and jump through a million other hoops just to get a free current (checking) account. So you'd assume the fees would be lower and customer service better? NOPE. Fees are higher than the UK, and CS is worse.

Everyone keeps saying "join USAA!" but unfortunately they closed the loophole that allowed non-military to sign up for a checking account right before I could. So no dice. Traditional banks are just horrible in the US, just awful, it cannot be overstated.

You're incorrect about the cost of accounts. I can have $2 in my checking or savings account, and there are no fees. I've never had a bank account that cost me money to keep. I also don't have to jump through any hoops, I merely walked into the bank and signed up for an account. Zero cost, zero hassle.

I'm also not sure what electronic payments you're referring to (transfers to others?). I deposit money and it shows up instantly. I buy something from Amazon.com via a Visa card attached to my checking account and it shows up instantly on my account.

>I'm also not sure what electronic payments you're referring to (transfers to others?)

I transfer money to and from my bank accounts using ACH transfers. It typically takes a few days for those to clear.

> Banks actually intentionally make it a real pain in the butt to send money to another bank, and stupidly easy to send money between accounts linked at the same bank.

If something is wrong or fraudulent (such as, say, exploiting a race condition in how transactions are handled) it's much much easier to arbitrate or reverse everything in-house.

I'd wager a lot of people here have--one time or another--written a bit of code saying "sleep X seconds to be safe", or "wait until you confirm Y had no errors". Same kind of idea.

I should have been clearer, it is a UI issue, rather than just a speed issue. Sure, bank to bank is slower, but the UI to send out of your own bank is designed to be as hard to do as they can get away with (e.g. I have to "pay a bill" and then instead of searching for the "company" I have to search and let it fail, and only then will it let me manually enter the other party's bank account info in raw text boxes).

I've never had a problem getting an actual, real, free checking account. I actually have several. (4 at the moment... don't ask) And 3 of them have free paper checks as well.

Congratulations for you.

I don't see your point? I didn't say it was hard to get a free checking account, I said they make you jump through hoops and open a bunch of related products so they'll waive the $10-15/month fee.

>I said they make you jump through hoops and open a bunch of related products so they'll waive the $10-15/month fee.

That hasn't been my personal experience. I've never had to jump through hoops or have a minimum balance.

I'm just sharing my experience which is apparently different from yours.

Oh wait... I had to pay a one time $5 fee to join one of my local credit unions.

that agrees with my experience. Simple.com for example. Super easy and a great service. No paper checks, but there are others with paper checks. No jumping through hoops.

They don't have brick and mortar offices, but I don't miss it.

A while back I even found someone offering business accounts for free.

Credit unions can't help with the abysmal transfer situation but at least they aren't out to get you at every turn.

> I did have a vague idea that many still use cheques over there

Almost nobody uses checks anymore. I do, but I'm old and cranky. ;)

Actually, the only time I use a check is to pay rent because check or money order is the only way my landlord accepts payment. Apparently there is something called "e-checks" or something but writing out a check once a month isn't a pain point for me.

And it was required to write out a check (or money order) to get my US passport.

My bank prints a check once a month and snail mails it to my landlord. As far as I'm concerned it's an e-check, and I think with certain vendors my bank will actually send it electronically rather than by snail mail.

Yep, that's what people were telling me an e-check was. But I haven't looked into it myself, I just haven't because I mail a check without even thinking about it. Its just been engrained in me as a habit.

Businesses do.

At least, several of them keep sending us cheques as payment for our products, even though we keep asking them to use wire transfers :/

All global card systems generally are funded by interchange fees (paid by the merchant to the card issuing bank), which varies depending on location and card type.

In UK the interchange for most EMV debit cards seems to be 0.08 pounds - 12 US cents, about half of the US level.

As someone who moved from Australia to the US... it's crazy.

I remember buying a computer in Australia with a cheque - it was viewed highly suspiciously. The merchant wanted to call the bank, wanted to know why I couldn't use a card, wanted to hold the computer until it cleared...

(Leaving aside options such as repo, which while feasible aren't really desired) - in the US, without so much as a call to Telecheck or similar, or my bank, I bought a $16,000 SUV with a personal check.

>in the US, without so much as a call to Telecheck or similar, or my bank, I bought a $16,000 SUV with a personal check.

That's atypical in my experience in the US. The dealer has always wanted me to get a certified (may not be the technically correct term) from my bank. Not that it's a big deal; you go to the bank, they put a hold on the amount in your account, and they stamp the check a couple times.

That said, checks still tend to be favored (even if they're issued directly from the bank) for many recurring payments, local service people, individual to individual casual transactions and the like.

Electronic transfer is used in the UK, for most bills and many individual to individual transactions. I've not heard of a bank posting a cheque on my behalf.

I found some statistics, but they don't include debit (or credit) cards, just normal transfers between banks: http://www.paymentscouncil.org.uk/resources_and_publications... .

Looking at "1990 to date", I'm not sure I'm reading the tables correctly. Were there really 265 million cheques processed in January 1990? That's 10 for every household. Last month was 46 million, 1.7 for every household — still seems high.

In any case, it compares with over 620M electronic payments for December 2014.

I easily believe those numbers-especially if they include the "electronic payments" made from my bank's website that actually just involve the bank cutting a check and mailing it. I don't actually know how the payment is made in each case but I'm pretty sure that payments to, say, my trash collection company are ultimately via paper check from my bank.

I probably write 2-3 physical checks a month (housekeeper, random other service people, personal payments for various activities) and another 2 to 3 from my bank. And that's with doing all the automatic payments for utilities etc. that I can.

That was my point though — British banks don't post each other cheques on anyone's behalf. There's an older BACS system for electronic transfer, and a newer one called Faster Payments.

The numbers show 13× as many electronic payments as cheques, and I can believe 10 electronic payments per person (salary, six or seven bills, couple of credit cards, plus business use).

It's reaching the point where someone using a check at a store is an amusing novelty.

Lots more people pay bills and rent by check though.

I changed bank in September. The whole process was online, and I had the new account number immediately. My old account's balance, regular bill payments and details of people I've transferred money to online was automatically moved to the new account. (I was impressed with this, there was more information visible on the new bank's system than I'd been able to see on the old bank's clunky system.) Payments to the old account are automatically redirected for 13 months — my workplace was migrating to a new finance system the same month, and received an automated message when they paid my salary.

There are no fees for normal usage, in the last seven years with the previous account I paid one fee (international transfer). The new bank gave me £100 as a 'reward' for switching to them.

I didn't receive a chequebook, but I haven't used one for years.

Over here in the Netherlands i've never seen a check being used. I just checked my banks website, and they even stopped making them.

With online bill pay from my bank, I'm using fewer checks though. Pretty much any bill I get in the mail, I pay with the banks website that will mail a business a check on my behalf.

The only time I use check is for in-person things (when I don't have the cash); or for small school things (field trips, teacher gifts, etc.) where I don't want to send my kid in with actual cash.

Summary:

-Card payment processing for major banks took a regulatory profit hit around 2010. Per transaction fees dropped from $0.44 to $0.21.

-The lost profit from transaction fees has simply shifted to more checking account fees for consumers from things like ATMs and minimum balance/direct deposit requirements to maintain a 'free' account.

Banking in America, summed up in one sentence: "In other words, the more you need free checking, the less you are likely to get it."

That's banking in America in general. In my experience, the moment I needed to avoid having to pay fees (when I didn't have that much money on my bank account) I would get slammed with fees left, right and center. Most of the time I could get rid of the fee by talking to someone at the bank (Wells Fargo), but most people wouldn't do that unless they really needed it.

Now that I have a decent income and a healthy account, I haven't been charge a fee in years.

Basically, if you are poor you get screwed as much as possible.

> the estimated $1.4bn worth of card transactions that Americans make annually

This article seems to be off by a factor of 1000 on this number. $1.4 billion in debit card transaction for the U.S. doesn't pass the sanity check ($10 in annual debit transactions per U.S. household??). Source below confirms the number should be 1-2 trillion, not billion.

http://www.marketwatch.com/story/us-2013-credit-and-debit-ca...

The Guardian is from UK, perhaps they are not using the American billion but the one that means 1E12

'estimated $1.4bn worth of card transactions that Americans make annually.'

That's it?

Looks like that was supposed to be 1.4 trillion: http://www.statista.com/topics/1598/debit-cards/ (from a comment on the article)

It was actually both: http://en.wikipedia.org/wiki/Long_and_short_scales

Yeah, I thought the same thing. American Express alone processes around $500bn in card transactions every year.

Can anyone explain why the hell they need so much per transaction?

"Because they can" is the best explanation.

These fees do fund all the CC infrastructure (terminals, technology, cards, servers, chargebacks, fraud compensations) and the benefits that card issuers give to cardholders, but there's still a lot of space for profit. There's a strong lock-in as most merchants really, really want to accept cards instead of leaving the system, and little competition (the interchange is unified for all banks), so it's almost like a cartel where the prices go down only when/if forced by regulation.

I particularly liked the paragraph:

> As for the retailers who point to lower swipe fees in Europe, Aufseeser counters that they are so low that “credit card companies are finding it tough to make any money at all” there.

Why should it be easy to make money? Ahh, right, because with the regulations they want, they can.

These are for debit, not credit transactions, so I don't think charge backs or fraud apply.

Yes, credit cards "cost more" on fraud issues and that's why they get different, higher interchange fees.

But in general it depends on the place - US has a strong legal difference between fraud on debit and credit cards, but there still is some fraud protection even for debit cards and in (for example) EU the consumer rights for debit cards also includes chargebacks for unauthorised transactions and compensation of losses with stolen/fraudulent credentials above a certain level (100 EUR if I recall correctly); and banks still require a lot of monitoring infrastructure and security people to reduce debit card fraud simply because customer satisfaction requires that the fraudsters don't run rampart.

Banks in the US don't really care about credit card fraud "that much" since the onus is on the merchant. Since debit cards require a PIN, the only fraud that even comes up is cloning and PIN scraping via fake ATMs (chips might help here, but they have these problems even in Europe, so I'm not certain).

Know more about EU set up but the reality is that there is a lot of infrastructure costs and some fraud as well (~4.04bsp @$101 average). So costs for ~$2000 in fees can be up to ~$400. Signature cards are not secure whereas EMV cards hit a 0.42bsp fraud rate ($148 average).

Of course still room for profit but the above numbers show why merchants are interested in EU fees and security.

It definitely does. It didn't use to be the case, but many banks now offer the same protection from credit theft as a credit card. My local bank only requires that I alert them as soon as I notice it, but their map-reduce jobs have always caught the crooks before I would have ever known.

You don't have to assume nefarious motives and evil bank lords (But have fun with that if you like. I'm sure some are bad, some are good, but let's be charitable and assume other folks are intelligent and well-meaning, at least for the duration of this comment).

The reason is very simple: banks are established entities by the government. Banks have very complex, old, and unwieldy ways of doing business. There's a huge chunk of infrastructure feeding and maintaining the existing system: COBOL programs, call centers, technicians, offshore IT, and so forth. All of this was funded assuming that the current status quo would continue. Worse, nobody can really afford to replace all of that crap in-place. Some banks are lucky to get basic UI changes done to their website under any kind of cost control.

Usually, when some new way of doing business comes along, the new guys start from scratch. All their stuff is new and cheap. Customers get more cool stuff for way less money. But that's not how it is with banks. New guys are not allowed. They own the game.

So they're stuck, and we're stuck. Voters can get angrier and angrier and get more laws passed to "stick it to the bankers", but at the end of the day, unless you want to destroy your banking system? Customers have to eat any costs of change. Meanwhile all these neat startups around banking are paying out the ass and taking on huge risks just trying to tinker around the edges. This is what a non-competitive market looks like.

If you think about it, what PayPal accomplished was nothing short of a miracle. Kudos to those guys.

Because it's very difficult to under-cut them as a competitor.

Gotta make the nut for the next quarterly earnings report.

I don't understand this market. In Germany all bank interactions are basically free, you pay nothing (or little) for a bank account, everyone gets one (by law), credit cards are free and if you're lucky you also get about 1% of interest on your money. Why do american banks have to charge that much?

If you pay with your EC card (Germany's own debit card system), the merchant pays at least 0,3% with a minimum of 0,08€ for the transaction. The payment is guaranteed and thus similar to US debit cards.

The merchant can also use direct debit, which is almost free (0,05€ for fraud prevention), but leaves him open to chargebacks.

They charge this to merchants, not to the users.

Read the article again

It says retailers, not consumers

I'm in the US and I don't pay anything for my bank accounts, checking or savings. I also don't pay anything for a debit / check card. I never have in fact. It varies by the bank.

Sign up for a rewards checking account and get some money back off the interchange fees: https://www.depositaccounts.com/checking/reward-checking-acc...

You can sign up for a direct bank and have a free checking/savings account with higher interest and no fees. They even pay ATM fees up to a certain amount a month.

I still don't know why people have accounts at the big banks.

My first reaction was... The what fee?! Is this the Onion? Who charges debit card fees?!

Reads like an advertisement for Bitcoin....

Not sure where credit unions figure into all this. They haven't been evil to me, even without hearing about what the big banks do. I'm not getting charged any "account maintenance" fees anywhere.