Comment by abalone
2 years ago
Fun fact: this is why crypto never took off as a replacement for credit cards. Too many entrepreneurs focused on “lower fees” as if it were some technical property. But it was never about the technology.
Interchange fees primarily fund consumer rewards programs and benefits. To become an appealing choice for consumers, any new payment method has to offer competitive benefits. Those benefits are funded by the fees.
Visa/MC/AmEx have essentially created a system whereby higher-spending customers are able to wrench more value from merchants in the form of higher fees. This is reflected in the fee schedules that slice and dice merchants by category and customers by card tier.
If you want to build a new payment system it is important to understand that it’s not just a negotiation between merchants and issuers. It’s a two-sided market where customers also leverage their spending power, directly or indirectly.
> this is why crypto never took off as a replacement for credit cards
If this were true you would expect crypto to have taken off in countries with low interchange rates. Europe, for example, has far less of a rewards and points culture for payment, and (compared to the US) much lower interchange.
Crypto never took off as a replacement for credit cards for many reasons - the biggest coins out there are simply too volatile to be usable as a currency, they lack the consumer protections you get paying with a credit card, and they’re simply too complex for an average person to understand.
Interchange is regulated in Europe. You would likely run into legal issues if you tried to jack up merchant fees via a novel payment method.
However, even if it were legal, I don’t think this would counter my claim. I’m merely saying that you’d need to match existing rewards schemes in markets where they are established. Introducing them into a new market is an entirely different matter. The system we have today evolved through many decades of negotiation and deal making among merchants, issuers and card networks.
You’re right about consumer protections —- it would be very expensive for a crypto-based system to provide those without an intermediary that can adjudicate and reverse transactions (chargebacks).
Surely that isn't the only reason
The complexity of crypto is probably the biggest.
The second biggest is the missing need: Most people don't have any advantage of using crypto. They go to work, get a salary, buy/sell things and thats it.
If you don't need to buy something illegal or really believe that there is still a soviety left to take some crypto in worst case scenario, fiat is great.
I have this pet theory that the idea of decentralized currency is a bit ahead of its time, and the best consumer use case is for frequent travelers since you could more easily sidestep foreign exchange issues, and hassles.
There's a bunch of backend and b2b use cases to be explored but those also take time.
All this assumes the volatility issue is solved.
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Crypto is complex but I don't think very many people could explain how Visa's merchant payment network functions. It just does, and no one has to think about it.
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Amother huge piece is that it (Bitcoin and most other major cryptos) is by design a deflationary money system.
Why would you spend crypto when you could get more for it if you wait a week?
You wouldn't.
And people don't.
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15-60 minute settlement times early on certainly didn't help
Visa/Mastercard have settlement times of over 24 hours.
Meanwhile, for over a decade now, Litecoin has had a settlement time of 2.5 minutes. And, for tiny (sub $100) transactions, it’s totally reasonable to just look up the wallet’s holdings in an instant.
For online transactions, you can always let the customer go immediately. Just wait 3 minutes before you ship :P
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>this is why crypto never took off as a replacement for credit cards
I thought it was because transactions take minutes instead of seconds.
And because it's uncompelling. I have a bunch of consumer protections around my credit card, why would I want to use crypto instead? Especially when it's a wildly fluctuating speculative asset and the burger I buy for $15 worth of coins today will be $60 dollars of coins tomorrow.
They can take either; waiting for confirmations is only a matter of reducing double-spend risk.
In practice, seconds after a transaction has been signed and broadcast, it is already very unlikely to double-spend. Miner incentives are such that the first-seen transaction is the most likely to be used. A delay of a couple seconds is sufficient to account for network-propagation lag.
You wouldn't do this for high-value transactions, but there's some threshold where real-world risk is lower than the convenience of a fast transaction, and that threshold is reasonably high.
That is almost certainly one reason and an important one. But as the other commenter to your comment shows, there is a lot more. Protections is a big one. I also personally side that, you need a way for people to interface with their crypto like they do with their current bank and as simple as possible. Normal people don't want to have to juggle around keys. Hell, Im a software engineer and I hate having to keep track of keys. So every time I get a new machine, I create fresh new SSH keys. My SSH keys are disposable to me.
Funny, because I would pay twice the CC fee for credit card transactions to be as painless as crypto. I'd rather scan a barcode and wait two minutes, compared to typing my address, handing over my phone number, confirming my zip, waiting for my CC's TOTP to arrive. Only for it to still fail 5% of the time for who knows what reason.
You should try Apple Pay (or maybe Google Pay?) It addresses all those pain points and more, while still giving you the consumer protections and fast transactions of cards.
I'm not interested in giving more parties access to my financial data, certainly not an ad company. And I'm not about to buy an iPhone to use it. Also, merchant support for it is abysmal. But, appreciate the tip all the same.
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This is where a lot of tech folks fail. It's almost never about the technology. Most of the time all you need is a spreadsheet.
Most tech things are various forms of spreadsheet.
Blockchain is a distributed and complicated one.
It's not just crypto it's any alternative payment system. Multiple payment vendors have tried to up-end the credit card companies by focusing on lower fees for merchants, but customers have no incentive to use that new system if they have a benefit to using their credit card, at least in the US.
It's why, though, there are a bunch of payments companies that have popped up in places throughout Asia that aren't competing with rewards systems off the back of interchange.
I had high hopes for https://www.prnewswire.com/news-releases/ternio-blockcard-wi... but it was just too much hassle to keep transferring in money
While looking up a representative link for that, I also saw that it appears Venmo is in that game, too: https://www.cryptovantage.com/best-crypto-credit-cards/venmo...
> Fun fact: this is why crypto never took off as a replacement for credit cards. Too many entrepreneurs focused on “lower fees” as if it were some technical property.
I always thought the big problem with crypto was that the fees were atrocious for any small transaction.
And the fees only get higher as the network gets busier. You can choose to have a send some money with a small fee, but the miners will never confirm your transaction, as each block is limited.
Not quite the case anymore—rollup fees are often below $0.05 per transaction.[1]
[1] https://www.gasfees.io/