Comment by pavlov
2 months ago
The credit card duopoly is another instance where the EU has done a good job with regulation, but everyone just takes it for granted until they’re reminded how much worse the rest of the world has it.
In the EU, card payment fees are capped at 0.2% for debit cards and 0.3% for credit cards. In the US, these interchange fees are about 2%.
US businesses pay over $100 billion annually in these fees to card networks. If the fees were capped like in the EU, 85% of that money would stay with the businesses rather than feed the duopoly.
The EU (the ECB) is actively working towards a system similar to SEPA (Single Euro Payments Area) but for cards [0]. This would enable card transfers to also become faster (SEPA is instantaneous even cross-border within the EU) also allow for operations not depending on Visa or Mastercard.
There is a major EU effort to develop an alternative 'instant payment' system that doesn't depend on Visa or Mastercard called Wero [1].
[0] https://www.ecb.europa.eu/press/pubbydate/2019/html/ecb.card...
[1] https://wero-wallet.eu
I had never heard of wero, despite living in Belgium and having been actively involved in fintech. Android also tells me that the app is not available in my country.
Sounds like it's supposed to replace Payconiq (which is currently the biggest mobile payment service in Belgium).
The fragmentation of payment services is starting to annoy me. I can use cash or cards everywhere in the eurozone with 100% compatibility. But every handful of banks in every country has decided to create their own payment "solution". Typically using Android & iOS apps that require an insane number of permissions (including location and wifi connections!?).
Looks like wero is just more of the same. Another non-standard that's only supported by a handful banks in a handful of countries. And I'll bet it won't work on rooted android devices, and that there won't be a web version.
At least it's built on top of SEPA Instant Payments, which is a step forward...
I believe Wero is just a service (doesn't have an app or anything like that). You'd activate it from your existing bank's app. For example, the KBC app has a Wero icon you can use to enable payments via the system.
But generally I agree it's not an ideal situation and I fully blame Apple for the current state of things - all QR-code based systems (payconiq, Bancontact, etc.) could've been avoided if apps could provide payments and access NFC from the start but here we are.
There is also the Digital Euro project. Though no timeline exists yet.
https://www.ecb.europa.eu/euro/digital_euro/html/index.en.ht...
wero is a private company, from Belgium, not an EU initiative.
In the same vibe you have Lydia in France that is successful.
I think the EU calls for a decentralised approach with multiple cross border providers.
Wero is technically from Benelux as there are origins in Belgium, Netherlands and Luxembourg. There are also other initiatives in Estonia, Finland, Sweden, Denmark, … to create alternative card payment system that is also resilient to internet failure.
0.2% should be about the correct rate. WeChat in China has zero transaction fee in the system and a 0.1% fee on withdrawals. Visa/MasterCard amounts to a private tax on the economy. Unfortunately I don't see this changing anytime soon, since the US allows rent-seeking middlemen like Visa/MC, TurboTax, and PBMs (pharmacy drugs), to continue their operation as long as they keep funding the right politicians.
As far as I understand with WeChat you can't disputes purchases and do things like chargebacks. If your phone is somehow stolen and account drained (they'd need to know your pin..) then you're probably be screwed?
So there isn't the concept of insurance as far as I understand.
Not to defend the credit card companies in the slightest.. but its a bit apples to oranges
EDIT: Arguably "insurance" is actually an artificial problem creates to justify the cards' fees. The intentionally didn't implement CC chips for the longest time, insisted on signatures, and now support insecure things like contactless payment - thereby ensuring theft/fraud still exists and necessitating insurance (for a very marginal increase in user convenience)
The only plus side I can see is that you can buy stuff from shady ass websites and sleep comfortably knowing you can do a chargeback later.
What are UnionPay's fees? That's the correct comparison, not WeChat.
PayPal/CashApp have zero transaction fee as well for person-to-person transfers.
People always cite the first-order benefits of this regulation but don't look into anything else. To be clear, I haven't either but what I would look for is: - are real prices cheaper for consumers? - is economic activity higher or lower (i.e. maybe credit cards encourage purchases?) - does making credit cards a less lucrative business lower credit card penetration? - is lowering credit card penetration, particularly for people bad at doing interest math a good thing? - is making cash or debit cards relatively more appealing good?
My vague impression is that the studies on these questions are mixed (am I wrong? A quick Google found several EC funded ones which I'm a little suspicious of). Note that the US has 4 credible payment processing networks but the fees have remained constant. My suspicion is that 3ish% is the optimal value or a very large anti-trust investigation (not a price cap) is in order.
They're set at whatever the payment networks can get away with. There's nothing that says that's good for anyone else, although it is very good for Mastercard and Visa.
There are several ways to reduce costs underlying payments. One is better IT. Notice that IT infrastructure has improved and dropped in cost by immeasurable amounts since those 3% fees were first instituted. Another way is to reduce card fraud. Notice that we’ve had excellent solutions to many types of fraud for decades now, but online shopping still requires us to enter 16-digit easily-stolen numbers into websites, and so fraud is enormously higher than it needs to be. With biometrics and modern smartphones, in person fraud should be very low.
A better way to look at these networks is to understand two things: the first is that at one level, they’re an insurance business that makes a profit from insuring against fraud, and reducing fraud would reduce the profit margins they can make from that business. And a second way to understand them is as guardians of a hugely profitable network portal that’s very hard to compete with, and they’re charging as much as the market can bear for that service.
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> They're set at whatever the payment networks can get away with. There's nothing that says that's good for anyone else, although it is very good for Mastercard and Visa.
MasterCard and Visa are more like clearinghouses. The decision makers are their members having "access to the rails", issuers and processors, which are either banks, subsidiaries owned by banks, or companies sponsored by the aforementioned two (which very often includes one or more banks getting an ownership percentage).
> My suspicion is that 3ish% is the optimal value or a very large anti-trust investigation (not a price cap) is in order.
Why do you have this particular suspicion when you claim you haven't actually looked into ~any of the questions you raised?
> does making credit cards a less lucrative business lower credit card penetration?
It doesn't, EU uses card payments much more than the US. So end of discussion there, it got cheaper with no negatives, just positives.
That's false. It's 66.7% in the US. Only Iceland, Luxembourg, Switzerland, and Norway are higher.
https://genderdata.worldbank.org/en/indicator/fin7-t-a?gende...
(also, you answered - incorrectly - only one of the questions that I brought up)
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I think that there's very little reason to suspect that a rent-seeking middle man getting a bigger piece of the pie is in any way good for the efficiency of the value transfer system, first order or not. You're kind of crab-walking around making a point here.
If credit card networks disappeared today, would we want them back? If the answer is yes, then they deserve a fee. Unclear to me why a certain % is morally correct.
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Oh come on. You are going to debate whether a 3% parasitic tax is good or bad. Interchange is paid on debit card transactions too, it's not credit card specific.
Parasitic takes for granted that credit card companies do nothing. Anyone who works in finance could tell you that's very false.
(I'm open to the idea that this is a market inefficiency that needs government correction - but you need more than just saying "3%" to prove that)
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and along the same lines, how good is the fraud prevention, detection, and recovery?
US banks lose about 3x more to fraud than average and about 10x more than some countries with sane regulators. Those are direct losses, not accounting for "prevention, detection, and recovery" costs.
that's only a very recent change, and not universally rolled out. for decades shops charged ~£3 "connection fee" for paying by credit card, no matter the purchase amount, and many still (probably illegally) enforce a minimum spend if paying by credit or debit card. like when paying or withdrawing money abroad, it's just a lottery as to the "fees" you'll be charged not because there are such fees, but because someone in the '70s created super advanced tech to detect usage outside the country of issuance, and everyone got used to that
A bit pedantic, but especially relevant in a conversation about government-permitted monopoly power: while requiring minimum spend might be in breach of the payment networks' contracts, and may give rise to _civil_ liability (and punitive measures towards the merchants), we shouldn't use language like "illegal" that implies that government would have any interest in, or capacity for, proactive enforcement.
When we use language that evokes the mechanisms of state and implies they'd be used to enforce a monopoly power, we imbue that power with the gravity of those mechanisms, and further entrench it as a "way of life." We should be especially careful of that when said monopoly/duopoly essentially creates and enables a private taxation of the primary source of credit to many in the world!
Better words is: against terms of visa/Mastercard rather than illegal. Businesses have valid reason for minimum payment. There is minimum fee in visa or master card like 30cents or so. If shop selling candy bar for $0.5 they are loosing money if someone pay with card.
Visa and Mastercard have a net profit margin in the order of 50%. Do you think that's justified for the service they're providing, and is indicative of a healthy market/competition?
It's indicative of a healthy bankroll to fund superPACs and that's what matters!
As I remember it credit card minimums were only a thing at smaller shops but usually didn’t apply to debit cards.
Credit card chargebacks are very expensive for a vendor, you don't want credit card purchases for 1$ items.
> The credit card duopoly is another instance where the EU has done a good job with regulation, [...] In the EU, card payment fees are capped at 0.2% for debit cards
No it hasn't. The right cap is 0, like in Brazil. It doesn't make any sense to have 0% payment fees on cash and 0.2% on cards. Cash is easier to fake.
It also doesn't make any sense to be a percentage. It takes the same number of bits to transport the number 10000 as it does to transport the number 10.
Even 0.2% is essentially just a privatized tax.
That money goes to buying off politicians though. So it’s a good investment to make the American people pay for their own robbery.
Unfortunately this only applies for physical transactions. For online payments this is still around 3% - reason why stripe cannot be cheaper. Wish we had something like transferwise is a wrapper around those QRCide payments so can pay cheap internationally as well
It's a great example of how quiet, unsexy regulation can have a massive impact
Is there information on EU vs US credit limits?
How do the account fees compare between EU and US?
Most credit cards in the UK at least (same cap) have no standard account fee. Those that do come with other perks / beyond the 'world elite' etc side Mastercard/visa aren't seeing that money - its going to the issuing bank. Bank accounts also generaly have no standard fees (and a lot of other things we take forgranted - faster payments (if I send money to a friend/business I can do it instantly for free without needing a third party solution), standing orders, direct debit etc. - that make banking far easier than in the US).
There is also regulation in place that restricts predatory fee practices, getting customers into revolving debt and protection that makes card issuers liable for purchases (Section 75 - e.g. if I order something paying with my credit card and the merchant doesn't pay, the card issuer is legally liable / I can claim from them and its on them to get it from the merchant)
>Is there information on EU vs US credit limits?
I would be very interested in this as well.
My understanding is that cashback cards of the type we have everywhere in the US (e.g. Amazon Amex = 5% back on Amazon purchases, Wells Fargo Active Cash = 2% back on everything) don't exist elsewhere.
Another example: I just earned $1000 from Chase Sapphire as a new customer bonus for diverting $5K of the spending I would do elsewhere on that card over three months.
That's just your bank giving back some (but not all) of those 2+% interchange fees.
Basically, in EU you have low fees, so credit cards are boring, they offer almost zero perks (because there's no money to finance those). No one really cares about what brand of card they get, only about their credit limit. In the US you are charged high fees on every purchase, and then the bank uses your own money to bribe you, or encourage particular types of (excessive) spending, or just make you addicted to credit card debt.
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That's a card with a $800 annual fee... And the Amazon Amex requires a Prime membership, so you are paying at least $140/year for that card.
Credit card companies aren't stupid, they offer a few loss leaders but they make it annoying and time-consuming to come out ahead. And most of the big perks are one-time only, they have gotten much better at banning "churners".
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I was really surprised that it was normal to have account fees in the US. In the UK banking is free, at least until you hit an overdraft charge. They even made Bank ATMs fee free whatever bank you are with around 2000 (non bank ATMs still have a charge.)
If you pick the right bank, you can get the same deal in the US.
Actually, you can get no fees at any ATM
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Other than Amex for airline points I don’t spend a penny on banking, all the standard services (eg transfers, bill payments, cash withdrawals, deposits) are free (in the U.K.) with no monthly fee.
I pay 3€ per month to "Nordea" for "unlimited" accounts and one VISA debit card.
My banks pays me more than that per month to use their debit cards.
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