Comment by AnthonyMouse
2 years ago
> You're making a huge assumption that their markup is the same for credit card transactions!
We can take this from the other end though. A merchant who accepts ACH via Stripe pays 0.8%, one who accepts $20 on a credit card through Stripe pays 4.4%, so the merchant pays 3.6% more with a credit card than ACH, and 4.4% more than accepting physical cash. It doesn't matter how much of each is Stripe's profit unless there is some competitor a small business could use to process credit cards for less. Is there?
> You're also making broad oversimplified assumptions about the what merchants do in response to transaction fees.
In a competitive market, increasing every competitor's costs would cause them to pass on most/all of the costs, because the competition is keeping margins thin and their alternative is to go out of business. This is not an oversimplification, it's what actually happens in real commodity markets.
> Multiple implausible things need to be true for high end card users to be losing out on this scheme.
All that's required to happen is that the merchants are passing on more of the credit card processing fees than the amount of the rewards. Since the fees are higher than the rewards, this is not that implausible.
1. You're missing the very important detail that there are multiple combined fees, and you are trying to compare a rebate for one of those fees to the combined fees.
2. Commodity markets literally are an oversimplification.
3. You are conflating unassociated fees! See 1.
> You're missing the very important detail that there are multiple combined fees, and you are trying to compare a rebate for one of those fees to the combined fees.
The combined fees are the cost of accepting credit card payments. The entire collection of them is avoided by accepting cash.
> Commodity markets literally are an oversimplification.
Only in the sense that everything is an oversimplification.
If OPEC cuts oil production, the price of gas goes up all over, because it's a commodity and the gas stations can't just eat the price increase. If the DRAM companies were colluding to constrain production and they get caught and have to stop, the price of DRAM goes down all over, because it's a commodity and buyers will take the lowest price. But if the price of DRAM goes down, that doesn't mean the price of iPhones go down, because iPhones are not a commodity -- only Apple makes them -- and then they don't necessarily have to lower their prices just because their costs went down.
Real competitive markets can actually behave like idealized commodity markets, or as close as makes no difference under reasonable sets of assumptions.
> You are conflating unassociated fees
If they're unassociated then how does a small business pay only the interchange fee and not the rest of them? If the answer is that you can't, they're not unassociated.
> Real competitive markets can actually behave like idealized commodity markets,
Sure sometimes, but transaction processing markets are not that simple. They are 2 sided markets, i.e. both the merchant and the merchant's customer are customers of the credit card company, who charges the merchant and the merchant customer varying fees based on how valuable the customer is to them. Then you have a merchant services layer on top of that. Then you have the variety of markets and goods that use all these services, all of whom may have different terms and fee structures with the credit card company and/or merchant services company. Merchants will pass on or absorb fees based on many factors, and possibly even varied within its goods and services. It's really complicated, and commodity markets are a gross oversimplification of how it works. Trying to model it would be a nightmare.
> If they're unassociated then how does a small business pay only the interchange fee and not the rest of them?
If interchange fees were 0 then you would still pay the other fees, which do not go to the credit card company. The fees are related, but not associated.
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