Comment by rprend
2 months ago
Speaking as someone who tried (and failed) to build a competitor, merchants don’t actually care about the fees. We built a mobile payment system using bank transfer rails (ACH debits and FedNow credits) for ecom platforms. QR payments, just like AliPay, but for the US. We studied past failures at this same idea, and targeted specifically high ticket items (jewelry, luxury), because the fees are a bigger problem, and we could solve other problems with pay-by-bank like limiting botting/scalping and providing digital proof of purchase for resellers.
We raised some money, built it, and demo’d it to dozens of different business. Instant clearing, way cheaper fees, bundle fraud insurance, digital proof of purchase. But it was an uphill battle- people didn’t want it.
Merchants might say they care about the fees, but in practice they care about conversion and getting sales. If you want them to act you need to promise to bring in new revenue, not reduce their cost of existing revenue.
Second problem is the rails. Your only option to debit is ACH, and ACH’s can be returned by the customer for any reason up to 60 days after the debit. Even with return-risk profiling, we had issues with Russian fraudsters using stolen SSNs to onboard as a merchant, do a “custom jewelry” sale for thousands, then as soon as the merchant gets paid out, ACH R10. The “merchant” has RTP’d that money away so when we try to debit it NSFs.
RfPs on FedNow (if they ever get widely adopted) would solve this, because at least they’re irreversible. Until then the only competitor is crypto, but good luck getting US consumers to use a different currency at checkout without tanking your conversion (people have tried!!)
> targeted specifically high ticket items (jewelry, luxury)
My immediate instinct upon reading this is "of course those businesses wouldn't be interested". They are selling a brand and image first, and if it looked like they wanted people to download some new app and put in their bank details to make a purchase instead of swiping a credit card it would cheapen the brand. Luxury stores are all about a streamlined experience and the appearance that money is no issue.
Yeah. High-margin, high-end businesses can afford the fees. If there's a space to compete it's low-margin businesses where 3% really stings, even if it's 3% of a smaller gross. I used to work with a company that served mainly immigrants and blue-collar workers, and something lower-fee than credit/debit was a constant conversation (we were partway through building an ACH backend by the time I left, but I don't know if that ever made it into production given concerns we had).
We tried with SMBs (it was our original focus, low net margin businesses). But 1. Deployment times are way worse in person, 2. Merchants still actually didn’t care (they said they did! But there was no strong need). 3. conversion at checkout is lower for small tickets than high tickets.
SMB business model just didn’t work, with tons of white glove customer support needed for a customer we’d make $20-$50/month in fees
With high ticket sellers the purchases are high intentionality enough that you can convert customers.
Not only only low margin but even more low price products. If you sell ice cream for $1 there is not only 3% fee but also minimal transaction fee like 30cent.
I recently made a purchase in an Ontario used book store that only took debit cards and cash (and the clerk was behind a COVID shield). Today I went to a used book store in Buffalo, NY that took credit cards (and the clerk was roaming around the store). Somehow that openness and lack of friction got me to buy more books for much more money. And I would gladly return...
I think when the guy mentioned he studied past failures it's prime example of crunching the numbers and applying theories without actual common sense. "Ah yes, I wouldn't buy a Gucci bag for $999 but for $995 it's a deal done" you don't need PhD in economics to realize this is stupid.
The fact that the second part of his comment is full of acronyms "we ASDFed the GHIJ over KLMN" suggest it's yet another case of a manager completely detached from reality of average consumer.
Haha i wish i were just a bean counting manager. A number of venture backed startups have tried exactly this idea, and it was a tarpit.
Confused about your hate of acronyms. The bank rails are a practical limitation on how effectively a startup can compete in this space. Do you feel the same hate when people use technical terms about coding eg “we deployed with Kubernetes on AWS”?
This is ecom, not in person, and we found these places are brand agnostic about payments— they don’t control the look/feel of PayPal, Klarna, etc. And for every Hermes, there are a dozen luxury merchants less anal about the brand.
White labeling the payments infra as “their pay” did intrigue them, but not enough
I suspect high-end merchants get that the financially well-off potential customers who hold high-fee rewards cards expect to be able to use them. Worth the 3% on a high-margin purchase to attract the customer vs. annoying them.
The fee ends up split between the cardholder, bank, Visa/MC, maybe the card brand sponsor… everyone’s happy.
I’m still convinced that someone could play our playbook and it would work. Just someone with deeper pockets and deeper industry connections.
Luxury is struggling in 2025 and is losing to the resale market which is growing 3x faster. They’re especially struggling with gen z. Build a branded luxury-only payments network that owns the category “buy to resell”. Attach purchase metadata to pay-by-bank identity for digital proof of purchase.
You have to play it right (digital proof of purchase generates social media posts and a verified stamp, ie buying it to flex). But that way you can convert young customers from rewards cards AmEx etc without having to compete on rewards
AliPay, WeChat Pay, and PayPay succeed because they don’t target this market at all — they target cashed based transactions and provide cash-equivalents. The whole reason why people use them in Asia is because people could use cash but it’s inconvenient to collect and store. These are far and above lower value transactions where fees are important but not as important as simply existing.
I think QR payments can exist in the US if they do the same things that happen in asia: you charge via cash and the balance is stored with the provider. There aren’t any ACH transactions to reverse. If you allow charging with ACH you only cover a small amount and you control risk accordingly.
Ya we looked in to the wallet fund model and while it solves fraud concerns, it introduces new frictions (funding the wallet) that makes growth tough.
Cashapp pay is leading in this department, and since they own the POS terminal Square they’ve actually been able to implement QR payments in some SMBs. They get terrible adoption, though
I think the other issue is that "crypto" is not "money". There is no card I can carry that I can take to an ATM and convert crypto to money knowing before I left my house that day exactly how much I would get down to the penny.
Crypto has value the way Gold or pawnable items do, and until that barrier has been crossed the people will never embrace crypto as an alternative to cash and credit.
Realistically the only way for that to happen would be if the US replaced their currency with a government backed crypto, but that is unlikely to happen without a coup.
Visa and MC could still offer lines of credit in such a system but they would not be the primary purveyors of capital motility and therefore their entire business model would collapse or require extensive restructuring.
Stablecoins do seem to address all these concerns. USD backed, and I believe Visa/Mastercard are adding stablecoin support so that there will soon be stablecoin debit cards.
Our thesis on crypto was that American consumers will never pivot to a foreign currency to do retail purchases. That’s just too much friction. It’s possible we get proven wrong, though
Not being the #1 priority is very different than not caring at all. It may feel that way when trying to sell the alternative, but the merchant would still disagree at the end of the day.
The alternative to new competition (which would probably also raise its rates as soon as it became popular enough) is regulation on the fees, as seen in Europe. This makes some sense as the problem is less with the capabilities of the systems which exist today and more with the size of the fees of established players. I don't see the US going down this route any time soon though.
Most likely, in my mind, is the world (and maybe eventually the US) moves away from US based solutions in this space over the coming decades as other governments continue to consider this something to act on.
The merchant would disagree, but the merchant is lying to themselves, haha. The tough lesson i had to learn was people’s stated preferences often don’t match their revealed preferences. I really wanted it to be true so i gave them a ton of benefit of the doubt, but still lukewarm response.
Regulation on interchange worked in Europe. The other option is government mandated support for bank transfer rails. That’s how UPI in India and Pix in Brazil took off- they were mandatory.
The US has FedNow, but it’s push only (not user facing, too high friction for checkout). RfPs are there but still low adoption.
Are you saying if MasterCard offered the merchant a 0.2% fee instead of the 2% fee, with all else equal, the merchant would actually prefer to keep the 2% fee?
To me the situation described sounds a lot like "I thought people cared about cheaper healthcare but when I offered them free clinic visits in Antartica nobody wanted to come. I guess they are just lying to themselves" - completely ignoring the reason for the rejection was the overlooked additional friction which actually raised total losses, not disinterest in lower cost itself. Offer a solution without the additional friction but with the improvement in the metric and I'm convinced you would find they are not lying to themselves about wanting to have more profit. Of course, the hard part here is creating such a solution would be extremely difficult (you'd have to onboard hundreds of millions of active users before you could pitch your solution to businesses, a bit of a paradox) - hence why MasterCard gets away with the rates and competition can not form (rather than confused merchants).
Do you think a FOSS version of this would be possible? Or is the infra too complex or require working with regulator bodies? I have been thinking how to empower individuals to collect payments without relying on Visa, Mastercard or Venmo necessarily and putting a pretty wrapper around ACH sounds nice.
I’ll talk to my cofounder about open sourcing.
In payments, though, the code isn’t the hard part. The hard part is the licensing/regulation and most of all the risk analysis. You need a partnership with someone with an MTL to move money; you need anti money laundering policies and sanctions screenings and to do KYB checks. These days that’s not that hard because there’s vendors for all that, but it’ll cost you low five figures and you need to go through an enterprise sales deals that take a month or two.
Even with all of that, you’ll probably still lose tens of thousands to Russian fraudsters who present as a perfectly legitimate American business.
Payments is a tough business
Yea and it’s everything else you listed that makes me think integrating with Venmo/Square Cash is the closest one could get.
> Merchants might say they care about the fees, but in practice they care about conversion and getting sales.
Also highlighted by all the merchants jumping to support the “buy now, pay later” providers.