Comment by AnthonyMouse
2 years ago
That still depends on what the split is. If the average fee is 3% and the high-end customer is getting 2% back, the merchant could be passing on e.g. 2.1% and causing you to come out behind while still passing on only 70% of the cost.
And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.
> If the average fee is 3% and the high-end customer is getting 2% back ...
You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely.
And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
> The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense.
That's just the interchange fee, not what merchants are actually paying. Stripe charges a flat 2.9% + $0.30 and this is considered competitive:
https://stripe.com/pricing
For a $20 transaction, that's 4.4%, and that's for everybody, not just the people with rewards cards.
> and this is considered competitive
Stripe is hella expensive! But they are easy to get started with.
Competitive rates depend on the type of business, i.e. their volume and their fraud risk. The most transparent form of pricing is called “interchange plus” where it’s a flat markup on the interchange schedule. High volume merchants should be able to find a markup in the fractions of a percent.
It is my understanding that the big Stripe customers negotiate lower rates with them as they scale.
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> That's just the interchange fee, not what merchants are actually paying.
What you pay Stripe is for the combination of interchange fees + Stripe's own service fees. The Stripe service component of the fee would be charged regardless. Whatever markup a merchant makes for Stripe's fees are not recoverable and irrelevant to the comparison.
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