I play the credit card "game" because I hate feeling like I'm leaving money on the table, but I really wish I didn't have to. Some degrees of fees make sense, to run the network, and handle fraud, but it's ridiculous that people have this sense that shopping should somehow fund your vacation.
Where I am it's increasingly common to see credit card fees when checking out. I get it, because merchants are being charged 3-5% of their total revenue. I wish there was a low fee credit card network that merchants didn't charge a fee for, so I could continue the simplicity of digital payments but opt out of this crazy Visa Infinite rewards accounting boondoggle.
There is, it's called debit cards, but Stripe et al. "simplified" pricing by charging a percentage regardless of card type instead of the traditional interchange-plus pricing. Merchant banks "used to" make money by tacking on fixed fees, i.e. a set-up fee, terminal fee, monthly fee, etc, but then Stripe came along and provided (1) a better dev experience, (2) better onboarding, and (3) simplified pricing.
For US readers - in my country in europe I'd say that 95% of people have only debit card, not credit card. it's very not common to have a credit card here. Card payments are extremely common, but everyone uses debit card.
Debit cards still go through the same credit card infrastructure. The practical difference at this point is whether the card company backend defer payment until collection date for the benefit of customers, or don't wait and just call APIs on the spot. There's a whole "internet" of credit card infra that lets you pay using those numbers on the card like they are phone numbers.
Stripe don't do handle their own payment, they just wrap someone else's API, and pay them in percentages and dollars per API calls(idk about the ones behind Stripe, but I think I saw somewhere that those middlemen often charge both? Egregious, but they're literally old boys money men and they have lots of leverages against you).
What are truly different to credit/debit card systems are things like PayPal, Apple/Google and such gift cards with scratch areas, and Chinese QR payment apps. Those are the ones that don't (always) go through the CC ecosystem.
Debit cards aren't that, in practice, because as you say they typically get the same 3% fee whenever I've asked. Toast and other point of sale networks just charge it based on the network and not the card type.
But even so, I still prefer the credit card instrument, used as a "charge card". For those that don't know, a "charge card" is common with businesses and is expected to be paid off every month. But it helps with managing your cashflow - e.g. you can keep your money in a savings account all month and make one transaction at the end - and it keeps your actual money from being at risk of fraud.
Most Europeans seem confused with how Americans use credit cards for everything, but about half of us use them as charge cards, paying them off every month.
That is a benefit, so I can see paying a small percentage for it, but I don't think that benefit alone justifies the 3-5% of a transaction that credit cards charge now.
Most stripe transactions do use cost-plus pricing. The flat pricing is popular with smaller businesses, but larger companies graduate from it pretty quickly.
You have to wait for the investigation to complete to receive compensation if you’re hit by fraud on a debit card. Credit cards don’t share that issue. If you’re poor or living paycheck-to-paycheck, debit cards are potentially a risk to your livelihood.
Also debit cards run by smaller credit unions charge credit-card like fees (and then are used by fintechs to earn fees while making it harder to pass those fees on to end users).
The real shittiness begins when having to deal with them as a business. If you’re classified as high risk, which could be whatever the fuck, you’re deplatformed or need to deal with Byzantine merchants.
It boggles my mind that the government has privatized currency to these people.
Crazy-person-but-actually-really practical-idea:
Nationalize one if these networks. Maybe Discover.
The US government should provide us digital currency. The simplest way is to force the current systems to do that. All that rent they collect in terms of transactions fees shouldn't be profit for a private business but fees of the government.
Each of those networks carry a lot, a lot of ancient stuff. Gov is better off building a brand new network from scratch and promote it as a standard for banks to join.
There are plenty of great examples from this century all over the world.
If we look at this in a non US-centric view, then many other areas have solved this, partially since decades.
For example, in Germany we used to have a bank card, "EC Karte", it is now called "Girocard".
So, if you are a shop and accept Girocard, you pay 0.2% of the transaction plus a fix 0.05 - 0.10 €.
And in Germany virtually everyone has a Girocard, it's part of getting a bank account. The cards are free to the customers.
So assume you're a small Café with 8000€ per months, 70% via Girocard and 30% via credit cards. Then you'd pay ~ 17€ per month for Girocard, but 95€ if you use "blended sum" - a contract with a payment provider to accept all cards. But you don't have bureaucracy. With you do an extra contract with a credit card only provider it's still 41€ for just the 30% of your monthly business.
That creates the effect that in Germany lots of shops don't accept credit cards. The market speaks.
I know that other countries also have payment methods, e.g. Netherland or China. It's just the US banking system that is decades behind what is possible.
I used to think "I should be nice to merchants" and pay everything in cash.
That was 15 years ago. Now, living costs have gone up, I'm getting taxed to death by not just governments but increasingly more by businesses themselves ("benefits fees", "installation fee", "convenience fee", guilt-tip screens, sneaky price increases, etc.) so now I feel no guilt in playing the system to get at least some of my money back. Now I just churn 1-2 credit cards a year to pay my taxes and get some of it back in the massive sign up bonuses, which more than cover the transaction costs, fees, and then get me another few thousand back.
If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
Deal? No? Okay, you continue paying your merchant fees and I'll continue reaping the credit card bonuses to the maximum possible.
> If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
Where are you not getting this? You mean taxes on top of the retail price? You would pay cash, if the merchants colluded with you in evading taxes?
> If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
This seems to still be pretty reliable for most things in brick-and-mortar stores, FWIW.
In my case, it's literally free money. I travel a lot for work. I pay for everything with my card, and I'm reimbursed by the company. I rack up points, and whenever I travel for pleasure or as an independent contractor, hotels are free. I'd get free airfare like my coworkers do if I didn't avoid flying and drive everywhere.
The system is broken. No one with the power to fix it has any incentive to do so. Might as well get what you can.
Another thing to consider is your credit card rewards cash back etc are really trading your privacy for a little rounding error worth of discount in comparison to using cash.
You may also save far more money going cash only. E.g. some local restaurants near me give you like 5% off paying in cash. Gas is generally cheaper cash price vs card price or debit fee. You have a big job with a contractor, tell them you might be interested in paying cash and they might offer you a substantial discount.
Many more restaurants and grocery stores don’t, and then it’s 2-5% of cashback vs. 0% cash discount. Doesn’t sound like a rounding error to me.
There are a lot of good reasons to dislike the market structure and game theory of card payments in the US, but please don’t accuse consumers of being short-sighted or irrational.
The only way to break the cycle of self-reinforcing incentives would be swift regulatory action. Absent that, playing the game is the rational move at the individual level for both merchants and consumers.
Contractors, but also cosmetic health work. Invisalign, veneers, plastic surgery, etc. Probably most big-ticket items or services that you're not buying from a megacorp.
Sometimes they'll give even more than 5% because they can keep it off their books completely, but in those cases, they want physical cash--not just a check to avoid credit card fees.
> Another thing to consider is your credit card rewards cash back etc are really trading your privacy for a little rounding error worth of discount in comparison to using cash.
How much privacy really? If I get mostly $20s from the ATM, and the merchant does daily deposits of most of the $20s they get, why wouldn't banks start scanning and tracking serial numbers (if they don't already), if my purchasing habits are actually valuable?
I will admit that sometimes I do have fun playing the game (certainly a lot more when I was younger), but not often anymore. I feel like I "have" to do it, because there's no such thing as a free lunch, and as such stores price in the fees and so I might as well get it back in the form of traveling, but it is very weird that we just expect credit cards to do that.
Agreed. The pool hall nearby has a game of pool for $2. But if you use a credit card the minimum purchase is $6 (three games) due to fees. It works, but I thought it was a gimmick to trap people into playing more pool until I saw your comment here and realized it was from fees.
What's really fun is when you're reselling something like Microsoft 365 and both the credit card companies and the state (through sales tax) make more than you do on each sale.
I don't get this. Use cash like me and a bunch of us if you don't want to play the game. Or a debit card. Otherwise it's just an extra game. Extra games are choice. Choice is good.
I would only use cash in situations where I'm able to obtain a discount compared to using a credit card.
Even then, you have to think twice. If you get scammed of cash, it's gone. If you get scammed in a credit card transaction, there is a fighting chance you can dispute the charge and have it reversed in their face.
You know that credit card feature of providing some insurance coverage on things like vehicle rentals? It may look like small print, but I actually used that. By some amazing fluke, I damaged the bumper of a rental car; the credit card coverage took care of it. I filled out minor paperwork and never heard about the issue.
Speaking of rentals, in many rental situations (even simple power tools at your Home Depot or whatever) you get charged a deposit on the card which comes back when you return the thing. It's just a number in database. With cash, you'd have to fork that up over the counter; very unappealing.
> but it's ridiculous that people have this sense that shopping should somehow fund your vacation.
Some people are dumb and think tax refunds are free money when in reality they’re an interest-free loan to the IRS.
Money is fungible and instantly redeeming rewards for a statement credit is almost always the optimal way to use credit card rewards.
A person who wants to fund a vacation with rewards can simply redeem the rewards for a statement credit while simultaneously transferring that amount of cash to a HYSA or similar.
> Money is fungible and instantly redeeming rewards for a statement credit is almost always the optimal way to use credit card rewards.
Uhh I have no credit cards where redeeming for credit is the optimal play. Every single one has 'offers' that give a further multiplier on the dollar amount of the points. Eg redeem $80 of points for a $100 home depot gift card.
>I wish there was a low fee credit card network that merchants didn't charge a fee for, so I could continue the simplicity of digital payments but opt out of this crazy Visa Infinite rewards accounting boondoggle.
This is called "Regulate the max fees" like Europe did, where they still have functioning credit card networks, including good fraud coverage, but you aren't expected to dance for the credit card company for peanuts of kickback.
I don't play the points game, I use a cashback card.
I use a cashback card, because most merchants will charge me the same regardless of payment method, and getting a 4% discount (+ time value of money) is the lowest cost to me. If I use some other payment method, the merchant may keep more of the transaction amount, and that's great for them, but it doesn't improve my customer experience. If interchange fees are strictly capped and cashback cards disappear, I wouldn't be upset; but while they're here, I'm incentivized to use them... following economic incentives while doing economic transactions seems like the right thing to do?
I find this interesting as a technology, as a business process, and above all as a system for managing trust on a global scale across different jurisdictions. In a sense, the credit card system accomplishes something that even the UN, international law, Interpol and military mights cannot do: it enables individuals to enter into trustworthy global agreements with minimal effort and risk, and at very low transaction costs.
Well I don't really know what they do, but what I know is that Visa transactions costs are 0,22 € out of a payment of 1 €, Mastercard's is 0,23 €, and the French CB network is 0,17 €.
All of them do the same : ensure I get the money from the customer. Of course it's a larger project to run this in the whole world, but shouldn't it scale to less along with the number of billions of customers instead of the other way round ?
This is an insane amount of money. They killed micro-transactions, they killed the business model of the Web in favor of ads, the only popular way to do microtransactions right now.
Seems like you're getting scammed. Sumup for example charges 1,75 % per transaction, no other costs, not even a monthly fee. With a monthly fee the transaction cost drops to just 0.89%.
> Visa transactions costs are 0,22 € out of a payment of 1 €, Mastercard's is 0,23 €, and the French CB network is 0,17 €.
Are you sure of these values? Because that's different from what I was told, which was that CB was cheaper for transactions of more than 10 €, because their fees were fixed, not rates like Visa and Mastercard.
From what I've just read (not counting the possible extra tax by the bank of the seller):
CB: 0.20% + 0.00117 € ⇒ 0.00317 € for 1 €, 0.20117 for 100 €
Visa: 0.20% + (0.01% to 0.014%) ⇒ up to 0.00214 € for 1 €, 0.214 € for 100 €
Mastercard: 0.20% + (0.15 to 0.17%)
The 0.20% is for the "interchange" described in the article. So it applies only when the seller and the buyer do not have the same bank. The maximal rate is fixed by the UE, and AFAIK everyone use the max value.
Yes perfectly sure, just checked. I'm not saying these are visa fees vs CB fees. Lots of actors in the chain. But that's what I'm paying for each card type.
I remember reading a comment here a while back about merchants being offered a discount on the processing fee if they also transmitted detailed data about the purchase (essentially the data that would be on the receipt). That data could then be resold on to advertisers. Does anyone remember this or have links to more data? (Not having much luck with search, maybe I'm hallucinating the whole thing.)
Importantly, there is only an incentive for L2/L3 data on business/corporate cards, which have an inflated interchange rate above personal cards anyway.
This is not a scheme to get enhanced targeting data for personal transactions.
I would love if it was transmitted to the bank for my own use so I can easily remember what I purchased or run budgeting software against it! Obviously wouldn't be excited about it being resold tho.
It's crazy it is resold but we don't even get it for our own use. Budgeting with credit card statements would instantly become so much more useful with less effort.
It does, at least in some cases. When I book flights directly from an airline, the bank knows the name of the passenger, the date of the flight, the origin and destination airports, as well as the cabin class. For one bank (Chase), the information is printed on the statements; for another they have a web lookup tool.
the main purpose of that data is for fraud detection, anything downstream (i.e. selling it to advertisers) is just the cherry on top. Merchants are always financially incentivized both implicitly and explicitly to do anything that would reduce fraud and increase the rate of successful authorizations.
They primarily don’t deal with cash because cash is a pain. It needs to be physically taken to a bank and protected from theft by both staff and random robbers with guns, it needs to be counted all the time, and you need to maintain the right denominations to make change.
I have reservations about businesses getting rid of cash, especially if they’re turning away people who don’t have alternative ways to pay, but I certainly understand why they do it.
It’s also always awkward when a coffee shop is like 95% credit, and you try to hand them cash and they look at you like you’re Rip Van Winkle.
Merchants aren't going cash only to sell your data, they're doing it because it's expensive to handle cash and makes their taxes a whole lot more troublesome too.
I don't think this is the reason, cash will always have no fees. In some senses it can have negative fees if you're not very diligent with your tax reporting *wink wink*.
Not accepting cash is probably more to do with not wanting to deal with it, not needing to trust employees with it, keeping poor people out, and preventing robbery.
Credit card companies and banks know basically squat about your purchase except in certain circumstances (buying gas or flights causes more data to follow, called L2 or L3 data), or if they work with a data enrichment provider. There is a lot of action in this space right now, but the banks are hardly equipped to handle more data even if it became available.
I mean, cash is also expensive in its own way. It has to be handled and insured, coins may need to be rolled before being taken to the bank, a register is a mechanical device to power and maintain, petty theft by employees is a concern.
It's not really that hard to see why a business charging $5-20 per transaction from people who all have phones and credit cards anyway might choose not to accept cash.
There used to be an account on Twitter that was heavily involved in this industry. Every now and then I'd glean some slightly useful information from their posts. My favourite one being "the name verification isn't a thing - you can enter anything". So I've been doing that ever since and it's _always_ passed.
At least in the US, and as of a few years ago (when last I tested), address verification can also be a bit flaky. Zipcode/postalcode is solid, but street address matches don't reliably account for the various ways people can colloquially write them. It's not awful, just not good. We should re-test it some time, but as of a few years ago, street address checks were not a major improvement in fraud prevention compared to just Zipcode and CVV checks.
That’s because there are more than 200 other parameters used for risk analysis during authentication. Worked in payments industry. Some banks don’t place high priority to name but some do.
Accurate summary. Had been working on issuing side for almost 5 years. Some of the issuing providers offer really good APIs, some of them are really bad. But overall the card networks are easier to implement than parsing banking data directly
The best way to pay for poor services already rendered and move on with life is to simply pay via card. Didn't like that haircut? Terrible food at the restaurant? Hold onto your cash and slip them the card.
Some businesses pass you the credit card fees if they offer other payment methods. You'll even hear about a discount around VAT/2 if you pay with cash sometimes.
I think that hiding the CC fees into the price that you pay with all payment methods should be illegal.
Jokes on you. Merchants prefer credit cards because there is less loss than cash. 2.5% is nothing compared to 5-10% loss at the register. Plus easier and more accurate accounting.
Between individuals it is free. For commercial transactions, there is a fee between 0.22% and 0.33% per transaction, which is actually ~2x the fee of the Visa network (0.13%)! Visa is extremely efficient at moving money anywhere in the world.
Credit and debit card transactions have higher fees because unlike Pix, there is chargeback risk, and the the merchant and acquiring banks party to the transaction are compensated for the risk they assume in those transactions. Pix on the other hand is digital cash. When you spend it, it's gone. Unlike with chargebacks and disputes, there is no reliable mechanism to recover funds for goods not delivered.
VisaNet & friends make the modern consumer world go round. The fees they extract are a drop in the bucket compared to the economic activity that they enable with their networks. Many businesses simply couldn't exist without something approximating this.
You are literally linking to a page published by Visa's Investors Relations Department.
The problem is that like all cartels, they hold progress back. Things could be even more efficient than the current state of affairs. For example we could have open standards with thousands of local players, much faster settlement times etc...
There are also aspects such as the fact that due to this concentration of power, the whole world is subject to US sanctions, such that a EU citizen sanctioned by the US is effectively cut off from civilization.
I like how providing an incredibly efficient payment network is framed as holding progress back.
I'd frame it as making the standards for competition very high.
I don't see people getting super ideological about their inability to create monocrystaline turbine blades or 2nm semiconductors in their garages. Why payment networks? Because computers? The overall network is way more complicated than a specific technological system or clever open standards document.
These networks would be usurped if someone could actually come up with a better system. The economy insists upon it constantly.
It should be said that being on a US sanctions list doesn't appear to carry the same weight it once did. A Japanese citizen was added to one this month and her bank was able to effectively ignore it, not sure about options where credit cards are concerned, but there are local alternatives which don't rely on US payment networks.
Yes. As a merchant it's pretty cool that the money just shows up and I don't have to chase down as much bad debt. The processing costs easily pay for themselves.
It seems Visa revenue is $40B/year. You shouldn't compare that to the amount of economic activity they enable - you should compare it to how much it could cost to run a system like theirs.
> VisaNet & friends make the modern consumer world go round.
I mean, as opposed to what? You could apply this to any infrastructure cartel like with AT&T in the 90s or Comcast or 100s of historical examples. The alternative to a bridge troll is not ”no bridge”.
I've seen cards with 1% chargeback in the EU though. How does that work?
And it wasn't just a temporary marketing promotion. I've used such a card for many years.
(It was issues by a big bank that had almost no presence in my country... so maybe they were eating the cost just to build up a bigger presence and potentially enter the country?)
Yes that intuition is correct, though the reality is much more complicated. The actual share to the bank is roughly proportional to the risk of the transaction/ tied to the type of credit card
Credit cards are the OG of rent seeking for the 21'st century. They recognized upfront that no one would pay their ridiculous middleman fees so they backdoor-ed the fee with the merchants and had them pass it on in price. Its on of the most insidious extraction engines ever made, Jesus would definitely flip their tables lol.
Now they do all kinds of accounting tricks to pretend that they have thin profit margins because they split up every part of the business into hundreds of 1-3% chunks of the profit. To sidestep regulation that already barely exists.
Networks like visa and Mastercard don’t seem evil. If you’ve ever had to dispute a charge and got your money back easily or relied on the fact that even if their computers are down they’ll still take the risk and allow you to take money out of your account you’d find the fees they charge pretty minimal. Now the issuer bank… that’s where most of the fee and why most banks now have reward cards because the issuing bank can ask for whatever additional fees on top of what visa/mastercard does.
In my opinion, the only solution is everyone (individuals as well as corporations) gets a direct account with the federal reserve as long as you can associate a taxpayer identification with the account. Using it is voluntary but it is free of cost, paid for by taxes, and moving money to and from accounts is free of cost. Depositors would get the same overnight interest rate that banks do, and this interest is added every day. I think if we could make this happen, the chokehold of Mastercard and Visa can be greatly diminished. The disintermediation of commercial banks, the loss of credit card perks, and the added cost of customer service should be an acceptable cost of removing the parasites visa and master card from our economy.
most importantly, this opens up a lot of money that the federal reserve can hold directly, something that will become more and more important as bond yields go sky high.
This is an important question- most of the costs of a credit card providers come from dealing with fraud and chargebacks. That's partially because, under US law, credit card companies have to eat fraudulent charges if they can't get the person or company that did the fraud to do so. (Funnily enough, this is one of two places where protections for average people in the US are significantly better than protections for average people in Europe).
But credit card companies can keep their costs low by making a business decision not to renew the accounts of frequent chargeback-ers or chargeback-ees (even if they never officially found those individuals at fault). If the government had to make a payment system for everyone and take on all responsibility for all fraud, that would create an incentive with massive second-order effects.
You resolve it the same way you handle in-store cash purchases of products that turn out to be faulty.
There is no reason why fraud and contract violation must be handled by unelected and unaccountable payment processor, when the government has already set up a consumer protection system for disputes related to cash payments. The payment processor is best left as a dumb pipe that does what parties and (in case of disputes) courts tell it to do.
Customers can pay the credit card fee to get their chargeback insurance, if they choose, while others who can pay with cheaper instant payment rails can opt out. This is trivial with merchants able to surcharge credit card payments, as many merchants are starting to do (US mobile phone companies, US internet providers, Meta ad purchases, restaurants, etc).
So the article shows how visa and mastercard are, by far, not the ones taking the largest fee, and the solution is to get rid of them?
Where are you going to do the transactions in your scheme? Because credit card transactions are not the same as sending money from one bank account to another. There are settlements, disputes, chargebacks, etc.
How is the central bank going to offer the same variety of products described in the article? I.e..
> Interchange fees vary dramatically based on the kind of card, category of spend, and even the metadata attached to a transaction. The network’s goal is to set fees that incentivize desired behaviors on their network, including using more secure payment methods (lowering interchange fees for merchants), or for companies to do more business spending (higher interchange fees on commercial credit cards).
Your scheme sounds like all these crypto guys who think they can replace credit cards with bitcoin transactions, as if they were the same thing
> So the article shows how visa and mastercard are, by far, not the ones taking the largest fee
But they set the interchange rates and disallow (or at least have until recently, in the US) merchants to discriminate against cards based on rate or type via their “honor all cards” rules.
They are absolutely propping up and benefiting from the high fees.
A few years ago congress had a nice solution via a market mechanisms, have sufficiently large banks be required to have their cards support at least 2 card networks, via which the merchant may at at swipe time decide which network to run against. Unfortunately like any good idea, it died in congress.
Travel and tourism is about 9% of the world economy, and by some measures considered the largest economic sector in the world. Visa and Mastercard will continue to be dominant.
Aside from the technical aspect I strongly encourage everyone to also read about VISA’s founder Dee Hock, still a very underrated figure in leadership and finance.
Has the characteristics to implement the digital Euro. Plus guarantees anonymity of buyers. And should be extremely cheap to operate. But is not under bank’s control.
> The answer to that is to "donate" to about 270 congress critters.
Not too far off. You gotta ask why such a lucrative business has a near monopoly, and the answer is not that potential competitors don't notice their profit margin.
Some light self-promotion but also longer term thoughts:
A large part of the promise of crypto and stablecoins was to displace Visa and Mastercard rent-seeking. This didn't seem to happen. Most modern neobanks, our own included (https://peanut.me), actually seem to EMBRACE Visa and Mastercard. Almost all offer an actual Fiat card within their app, instead of boldly saying "No, pay with crypto, the future of money!"
This is somewhat disappointing in the short term, but longterm i believe it offers a clear transitory path to full decentralized money adoption. Already today we're seeing a growth in direct peer to peer payments in peanut, and merchants slowly starting to adopt it as well. I imagine the same is happening across the industry. In a competitive economy, the better currency (read: crypto, stablecoins) wins and eventually absorbs adoption.
The real answer is an alternative that relies on a centralised provider - or set of them - who use traditional databases and the like, but do things in a modern efficient way and don’t charge the same fees as the current card providers do.
The problem is that bitcoin (and similar) are so computationally intense to run, that the transaction cost is much higher than Visa's.
Furthermore, a currency needs a government (or similar kind of body) to manage its stability, by printing (and buying) money. Otherwise, we'll see wide fluctuations in value like what happens with Bitcoin.
Don’t forget arbitrage, which is the withholding of transferred funds for 7 days while the capital remains in visa’s accounts for “investing” / speculation.
It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi
>It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi
Or treasuries.
Its actually a minor part of rheir business.
And frankly who cares given that its a sustainable system. I pay on credit and then someone else pays. I dont give a shit of they are betting on how many times Al Roker says Trump on New Years Eve.
They tax our entire economy at X rate, while maintaining their infrastructure only requires Y cost ... and X is significantly higher than Y.
From the actual article:
> The payment processor keeps 0.35% ($0.35), then pays 2% ($2.00) to the cardholder’s issuing bank and 0.15% ($0.15) to Visa. The 2% is the interchange fee, commonly known as interchange. The 0.15% is the network assessment fee. 8
In other words, they get 0.35% of every transaction ... and it does not require anything close to that to maintain their network.
> and it does not require anything close to that to maintain their network.
If it's so easy to disrupt visa/mastercard payment network, they wouldn't be able to charge this much. Payment is a highly competitive business. We witnessed so many payment companies went under or were bought out, but these two stay for years and are still profitable.
The truth is their moat is considered very durable and hard to build. A global n banks to n banks payment network is not as simple as how people thought.
That 0.35% feels more reasonable in 1976 or even maybe 2001 than it does today because technology changed so much. But maybe I'm wrong about that
If you're an American that 2% is a much bigger problem for your society. That's a direct funnel from the poor to the wealthy, it's not as a obvious a problem as "Trump gave the ultra-rich a tax cut" but it might structurally be more significant.
Credit card companies are mostly parasitic middle men but I have a credit card that I use for most payments and pay off the balance every month and effectively get 2% cashback with no interest costs.
The actual rates charged to merchants are variable, and typically higher for rewards/cashback cards. Basically, other people are subsidizing cards with higher benefits/cash back (of course as people shift, the merchant raises prices to compensate for the higher average fee, or just charge an additional Z% higher than your cash back)
Goods (and services) are priced at what the customer is willing to pay. In this case, the alternative is cash or cheques, both have much higher loss rates. That’s why vendors are eager to take visa over cash.
No, the alternatives are any number of other solutions that are not given a look-in to the very lucrative duopoly. The network effects are prohibitive for upstarts.
Europeans really need to stop handing their money over to Trump-Visa and Trump-Card here. Canadians learned that lesson already. Why do european politicians not learn anything? Leyen even signed a surrender treaty where european taxpayers lose money that goes into the USA. I say stop it with the proxy-control from Washington.
As someone from an EU country: the only place where I use visa/MasterCard is at Amazon. Everything else I use my country's payment system, which is now joining with Italy's own and probably more in the coming years.
this article doesn’t do a good job of simplifying. the vast majority of Visa’s revenue comes from one thing called the ISO 8601 / ISO 20022 message, which is the name for a Visa’s authorization. the core service is transmitting this message between an issuer (cardholder bank) and an acquirer (merchant bank). all other revenue streams are basically a microservice on top of this core message transmission service.
I play the credit card "game" because I hate feeling like I'm leaving money on the table, but I really wish I didn't have to. Some degrees of fees make sense, to run the network, and handle fraud, but it's ridiculous that people have this sense that shopping should somehow fund your vacation.
Where I am it's increasingly common to see credit card fees when checking out. I get it, because merchants are being charged 3-5% of their total revenue. I wish there was a low fee credit card network that merchants didn't charge a fee for, so I could continue the simplicity of digital payments but opt out of this crazy Visa Infinite rewards accounting boondoggle.
There is, it's called debit cards, but Stripe et al. "simplified" pricing by charging a percentage regardless of card type instead of the traditional interchange-plus pricing. Merchant banks "used to" make money by tacking on fixed fees, i.e. a set-up fee, terminal fee, monthly fee, etc, but then Stripe came along and provided (1) a better dev experience, (2) better onboarding, and (3) simplified pricing.
For US readers - in my country in europe I'd say that 95% of people have only debit card, not credit card. it's very not common to have a credit card here. Card payments are extremely common, but everyone uses debit card.
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Debit cards still go through the same credit card infrastructure. The practical difference at this point is whether the card company backend defer payment until collection date for the benefit of customers, or don't wait and just call APIs on the spot. There's a whole "internet" of credit card infra that lets you pay using those numbers on the card like they are phone numbers.
Stripe don't do handle their own payment, they just wrap someone else's API, and pay them in percentages and dollars per API calls(idk about the ones behind Stripe, but I think I saw somewhere that those middlemen often charge both? Egregious, but they're literally old boys money men and they have lots of leverages against you).
What are truly different to credit/debit card systems are things like PayPal, Apple/Google and such gift cards with scratch areas, and Chinese QR payment apps. Those are the ones that don't (always) go through the CC ecosystem.
Debit cards aren't that, in practice, because as you say they typically get the same 3% fee whenever I've asked. Toast and other point of sale networks just charge it based on the network and not the card type.
But even so, I still prefer the credit card instrument, used as a "charge card". For those that don't know, a "charge card" is common with businesses and is expected to be paid off every month. But it helps with managing your cashflow - e.g. you can keep your money in a savings account all month and make one transaction at the end - and it keeps your actual money from being at risk of fraud.
Most Europeans seem confused with how Americans use credit cards for everything, but about half of us use them as charge cards, paying them off every month.
That is a benefit, so I can see paying a small percentage for it, but I don't think that benefit alone justifies the 3-5% of a transaction that credit cards charge now.
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Most stripe transactions do use cost-plus pricing. The flat pricing is popular with smaller businesses, but larger companies graduate from it pretty quickly.
You have to wait for the investigation to complete to receive compensation if you’re hit by fraud on a debit card. Credit cards don’t share that issue. If you’re poor or living paycheck-to-paycheck, debit cards are potentially a risk to your livelihood.
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Also debit cards run by smaller credit unions charge credit-card like fees (and then are used by fintechs to earn fees while making it harder to pass those fees on to end users).
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Fun fact: Visa owns some of Stripe.
The real shittiness begins when having to deal with them as a business. If you’re classified as high risk, which could be whatever the fuck, you’re deplatformed or need to deal with Byzantine merchants.
It boggles my mind that the government has privatized currency to these people.
Crazy-person-but-actually-really practical-idea:
Nationalize one if these networks. Maybe Discover.
The US government should provide us digital currency. The simplest way is to force the current systems to do that. All that rent they collect in terms of transactions fees shouldn't be profit for a private business but fees of the government.
No Chance in hell, the US government is even going after Brazil because they've done the right thing. See https://en.wikipedia.org/wiki/Pix_(payment_system)#United_St...
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>It boggles my mind that the government has privatized currency to these people.
That's the banks (lenders), not the payment networks.
>Crazy-person-but-actually-really practical-idea: Nationalize one if these networks. Maybe Discover.
The central planners want to. It's called FedNow.
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Each of those networks carry a lot, a lot of ancient stuff. Gov is better off building a brand new network from scratch and promote it as a standard for banks to join.
There are plenty of great examples from this century all over the world.
Even Iran has a better payment infra than the US.
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Yes, let's bring the experience of waiting at the DMV or dealing with the IRS to payment systems. Great idea
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Discover was JUST purchased by Capital One, so I think they'd hate for it to be nationalized
It's not about US consumers but international trade. The US likes taxing the world's B2C activity.
If we look at this in a non US-centric view, then many other areas have solved this, partially since decades.
For example, in Germany we used to have a bank card, "EC Karte", it is now called "Girocard".
So, if you are a shop and accept Girocard, you pay 0.2% of the transaction plus a fix 0.05 - 0.10 €.
And in Germany virtually everyone has a Girocard, it's part of getting a bank account. The cards are free to the customers.
So assume you're a small Café with 8000€ per months, 70% via Girocard and 30% via credit cards. Then you'd pay ~ 17€ per month for Girocard, but 95€ if you use "blended sum" - a contract with a payment provider to accept all cards. But you don't have bureaucracy. With you do an extra contract with a credit card only provider it's still 41€ for just the 30% of your monthly business.
That creates the effect that in Germany lots of shops don't accept credit cards. The market speaks.
I know that other countries also have payment methods, e.g. Netherland or China. It's just the US banking system that is decades behind what is possible.
That's what systems like Pix fixes. It's managed by the state, it's low cost and it's universal... which is why the US is against it so hard.
I used to think "I should be nice to merchants" and pay everything in cash.
That was 15 years ago. Now, living costs have gone up, I'm getting taxed to death by not just governments but increasingly more by businesses themselves ("benefits fees", "installation fee", "convenience fee", guilt-tip screens, sneaky price increases, etc.) so now I feel no guilt in playing the system to get at least some of my money back. Now I just churn 1-2 credit cards a year to pay my taxes and get some of it back in the massive sign up bonuses, which more than cover the transaction costs, fees, and then get me another few thousand back.
If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
Deal? No? Okay, you continue paying your merchant fees and I'll continue reaping the credit card bonuses to the maximum possible.
> I used to think "I should be nice to merchants" and pay everything in cash.
That is only "nicer" as it allows to evade taxes. (Which some may consider nice)
But cost for cash is comparable to card payment if looked at seriously
* You need working time to count it
* You need working time to bring to bank (or request pickup, which costs)
* The bank will charge the deposit
* The bank will charge for the change you need
* In the shop the cash has to be protected (safe? Protection against robbery)
* This requires procedures for shift change etc (thus training time and prolonging working time)
* There is a risk of fraud (counterfeit, swap tricks etc.)
* Employees might have sticky fingers
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> If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
Where are you not getting this? You mean taxes on top of the retail price? You would pay cash, if the merchants colluded with you in evading taxes?
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> If merchants across the world make a deal with me to charge exactly the listed/advertised number exactly, no more, no less, then I'll pay in cash again.
This seems to still be pretty reliable for most things in brick-and-mortar stores, FWIW.
In my case, it's literally free money. I travel a lot for work. I pay for everything with my card, and I'm reimbursed by the company. I rack up points, and whenever I travel for pleasure or as an independent contractor, hotels are free. I'd get free airfare like my coworkers do if I didn't avoid flying and drive everywhere.
The system is broken. No one with the power to fix it has any incentive to do so. Might as well get what you can.
Another thing to consider is your credit card rewards cash back etc are really trading your privacy for a little rounding error worth of discount in comparison to using cash.
You may also save far more money going cash only. E.g. some local restaurants near me give you like 5% off paying in cash. Gas is generally cheaper cash price vs card price or debit fee. You have a big job with a contractor, tell them you might be interested in paying cash and they might offer you a substantial discount.
Many more restaurants and grocery stores don’t, and then it’s 2-5% of cashback vs. 0% cash discount. Doesn’t sound like a rounding error to me.
There are a lot of good reasons to dislike the market structure and game theory of card payments in the US, but please don’t accuse consumers of being short-sighted or irrational.
The only way to break the cycle of self-reinforcing incentives would be swift regulatory action. Absent that, playing the game is the rational move at the individual level for both merchants and consumers.
Contractors, but also cosmetic health work. Invisalign, veneers, plastic surgery, etc. Probably most big-ticket items or services that you're not buying from a megacorp.
Sometimes they'll give even more than 5% because they can keep it off their books completely, but in those cases, they want physical cash--not just a check to avoid credit card fees.
> Another thing to consider is your credit card rewards cash back etc are really trading your privacy for a little rounding error worth of discount in comparison to using cash.
How much privacy really? If I get mostly $20s from the ATM, and the merchant does daily deposits of most of the $20s they get, why wouldn't banks start scanning and tracking serial numbers (if they don't already), if my purchasing habits are actually valuable?
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Agreed.
I will admit that sometimes I do have fun playing the game (certainly a lot more when I was younger), but not often anymore. I feel like I "have" to do it, because there's no such thing as a free lunch, and as such stores price in the fees and so I might as well get it back in the form of traveling, but it is very weird that we just expect credit cards to do that.
Agreed. The pool hall nearby has a game of pool for $2. But if you use a credit card the minimum purchase is $6 (three games) due to fees. It works, but I thought it was a gimmick to trap people into playing more pool until I saw your comment here and realized it was from fees.
What's really fun is when you're reselling something like Microsoft 365 and both the credit card companies and the state (through sales tax) make more than you do on each sale.
I don't get this. Use cash like me and a bunch of us if you don't want to play the game. Or a debit card. Otherwise it's just an extra game. Extra games are choice. Choice is good.
I would only use cash in situations where I'm able to obtain a discount compared to using a credit card.
Even then, you have to think twice. If you get scammed of cash, it's gone. If you get scammed in a credit card transaction, there is a fighting chance you can dispute the charge and have it reversed in their face.
You know that credit card feature of providing some insurance coverage on things like vehicle rentals? It may look like small print, but I actually used that. By some amazing fluke, I damaged the bumper of a rental car; the credit card coverage took care of it. I filled out minor paperwork and never heard about the issue.
Speaking of rentals, in many rental situations (even simple power tools at your Home Depot or whatever) you get charged a deposit on the card which comes back when you return the thing. It's just a number in database. With cash, you'd have to fork that up over the counter; very unappealing.
> but it's ridiculous that people have this sense that shopping should somehow fund your vacation.
Some people are dumb and think tax refunds are free money when in reality they’re an interest-free loan to the IRS.
Money is fungible and instantly redeeming rewards for a statement credit is almost always the optimal way to use credit card rewards.
A person who wants to fund a vacation with rewards can simply redeem the rewards for a statement credit while simultaneously transferring that amount of cash to a HYSA or similar.
> Money is fungible and instantly redeeming rewards for a statement credit is almost always the optimal way to use credit card rewards.
Uhh I have no credit cards where redeeming for credit is the optimal play. Every single one has 'offers' that give a further multiplier on the dollar amount of the points. Eg redeem $80 of points for a $100 home depot gift card.
>I wish there was a low fee credit card network that merchants didn't charge a fee for, so I could continue the simplicity of digital payments but opt out of this crazy Visa Infinite rewards accounting boondoggle.
This is called "Regulate the max fees" like Europe did, where they still have functioning credit card networks, including good fraud coverage, but you aren't expected to dance for the credit card company for peanuts of kickback.
Why do you play the points game?
I felt like if I didnt spend $1 on something that was the equivalent of me spending $50 to get those same credit card points
I don't play the points game, I use a cashback card.
I use a cashback card, because most merchants will charge me the same regardless of payment method, and getting a 4% discount (+ time value of money) is the lowest cost to me. If I use some other payment method, the merchant may keep more of the transaction amount, and that's great for them, but it doesn't improve my customer experience. If interchange fees are strictly capped and cashback cards disappear, I wouldn't be upset; but while they're here, I'm incentivized to use them... following economic incentives while doing economic transactions seems like the right thing to do?
I find this interesting as a technology, as a business process, and above all as a system for managing trust on a global scale across different jurisdictions. In a sense, the credit card system accomplishes something that even the UN, international law, Interpol and military mights cannot do: it enables individuals to enter into trustworthy global agreements with minimal effort and risk, and at very low transaction costs.
Well I don't really know what they do, but what I know is that Visa transactions costs are 0,22 € out of a payment of 1 €, Mastercard's is 0,23 €, and the French CB network is 0,17 €.
All of them do the same : ensure I get the money from the customer. Of course it's a larger project to run this in the whole world, but shouldn't it scale to less along with the number of billions of customers instead of the other way round ?
This is an insane amount of money. They killed micro-transactions, they killed the business model of the Web in favor of ads, the only popular way to do microtransactions right now.
Seems like you're getting scammed. Sumup for example charges 1,75 % per transaction, no other costs, not even a monthly fee. With a monthly fee the transaction cost drops to just 0.89%.
They charge you 23%?
I thought in the EU the maximum interchange fee for consumer credit cards is capped at 0.3% of the transaction value.
Plus fixed fees.
I don't want to put responsability on anyone, I don't know who takes what in the chain, but I see the fees in practice.
I took the cheapest PSP I could find in Europe... Stripe is way more expensive, taking 25 cents of fixed fee !
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I think they may be confusing what payment terminal providers charge with what VISA/Mastercard does.
> Visa transactions costs are 0,22 € out of a payment of 1 €, Mastercard's is 0,23 €, and the French CB network is 0,17 €.
Are you sure of these values? Because that's different from what I was told, which was that CB was cheaper for transactions of more than 10 €, because their fees were fixed, not rates like Visa and Mastercard.
From what I've just read (not counting the possible extra tax by the bank of the seller):
CB: 0.20% + 0.00117 € ⇒ 0.00317 € for 1 €, 0.20117 for 100 €
Visa: 0.20% + (0.01% to 0.014%) ⇒ up to 0.00214 € for 1 €, 0.214 € for 100 €
Mastercard: 0.20% + (0.15 to 0.17%)
The 0.20% is for the "interchange" described in the article. So it applies only when the seller and the buyer do not have the same bank. The maximal rate is fixed by the UE, and AFAIK everyone use the max value.
> Are you sure of these values?
Yes perfectly sure, just checked. I'm not saying these are visa fees vs CB fees. Lots of actors in the chain. But that's what I'm paying for each card type.
I remember reading a comment here a while back about merchants being offered a discount on the processing fee if they also transmitted detailed data about the purchase (essentially the data that would be on the receipt). That data could then be resold on to advertisers. Does anyone remember this or have links to more data? (Not having much luck with search, maybe I'm hallucinating the whole thing.)
Level 2/3 data: https://docs.adyen.com/payment-methods/cards/enhanced-scheme...
It's only available in the US, many countries have lower interchange fees and prohibit sending this data.
Importantly, there is only an incentive for L2/L3 data on business/corporate cards, which have an inflated interchange rate above personal cards anyway.
This is not a scheme to get enhanced targeting data for personal transactions.
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Also available in Canada now!
I would love if it was transmitted to the bank for my own use so I can easily remember what I purchased or run budgeting software against it! Obviously wouldn't be excited about it being resold tho.
It's crazy it is resold but we don't even get it for our own use. Budgeting with credit card statements would instantly become so much more useful with less effort.
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It does, at least in some cases. When I book flights directly from an airline, the bank knows the name of the passenger, the date of the flight, the origin and destination airports, as well as the cabin class. For one bank (Chase), the information is printed on the statements; for another they have a web lookup tool.
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the main purpose of that data is for fraud detection, anything downstream (i.e. selling it to advertisers) is just the cherry on top. Merchants are always financially incentivized both implicitly and explicitly to do anything that would reduce fraud and increase the rate of successful authorizations.
This would explain why so many damn coffee shops dont deal with cash now - the double as a coffee shop and data reseller
Well, they still pay a fee, it’s just reduced.
They primarily don’t deal with cash because cash is a pain. It needs to be physically taken to a bank and protected from theft by both staff and random robbers with guns, it needs to be counted all the time, and you need to maintain the right denominations to make change.
I have reservations about businesses getting rid of cash, especially if they’re turning away people who don’t have alternative ways to pay, but I certainly understand why they do it.
It’s also always awkward when a coffee shop is like 95% credit, and you try to hand them cash and they look at you like you’re Rip Van Winkle.
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Merchants aren't going cash only to sell your data, they're doing it because it's expensive to handle cash and makes their taxes a whole lot more troublesome too.
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Huh, I thought accepting legal tender was a federal rule, I guess not. Looks like a salad variety of regulations that vary by state and city.
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I don't think this is the reason, cash will always have no fees. In some senses it can have negative fees if you're not very diligent with your tax reporting *wink wink*.
Not accepting cash is probably more to do with not wanting to deal with it, not needing to trust employees with it, keeping poor people out, and preventing robbery.
Credit card companies and banks know basically squat about your purchase except in certain circumstances (buying gas or flights causes more data to follow, called L2 or L3 data), or if they work with a data enrichment provider. There is a lot of action in this space right now, but the banks are hardly equipped to handle more data even if it became available.
I mean, cash is also expensive in its own way. It has to be handled and insured, coins may need to be rolled before being taken to the bank, a register is a mechanical device to power and maintain, petty theft by employees is a concern.
It's not really that hard to see why a business charging $5-20 per transaction from people who all have phones and credit cards anyway might choose not to accept cash.
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Coffee shops don’t qualify for l2/l3
Level 3 data.
There used to be an account on Twitter that was heavily involved in this industry. Every now and then I'd glean some slightly useful information from their posts. My favourite one being "the name verification isn't a thing - you can enter anything". So I've been doing that ever since and it's _always_ passed.
At least in the US, and as of a few years ago (when last I tested), address verification can also be a bit flaky. Zipcode/postalcode is solid, but street address matches don't reliably account for the various ways people can colloquially write them. It's not awful, just not good. We should re-test it some time, but as of a few years ago, street address checks were not a major improvement in fraud prevention compared to just Zipcode and CVV checks.
That’s because there are more than 200 other parameters used for risk analysis during authentication. Worked in payments industry. Some banks don’t place high priority to name but some do.
Accurate summary. Had been working on issuing side for almost 5 years. Some of the issuing providers offer really good APIs, some of them are really bad. But overall the card networks are easier to implement than parsing banking data directly
If anyone is interested in this topic from a historical standpoint, the Acquired episode on Visa is phenomenal: https://www.acquired.fm/episodes/visa
>The merchant pays 2.5%
The best way to pay for poor services already rendered and move on with life is to simply pay via card. Didn't like that haircut? Terrible food at the restaurant? Hold onto your cash and slip them the card.
Some businesses pass you the credit card fees if they offer other payment methods. You'll even hear about a discount around VAT/2 if you pay with cash sometimes.
I think that hiding the CC fees into the price that you pay with all payment methods should be illegal.
Jokes on you. Merchants prefer credit cards because there is less loss than cash. 2.5% is nothing compared to 5-10% loss at the register. Plus easier and more accurate accounting.
If you're expecting 10% loss at the register and have terrible service, that's a 1-2 punch for bankruptcy.
>5-10% loss at the register
Where did you get this number from?
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90% of cash I give to restaurants goes in the pocket, not the register.
Bad service = card always.
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ACH is still the best
https://gocardless.com/
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If your employees are stealing you should probably nip that in the bud...
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I like the vibe and overall writing style of this blog! Keep up the short little segments. Charcoal Grill and Doing Things Ten Times are my favorites:
* https://tautology.town/2026/02/14/learning-charcoal-grilling...
* https://tautology.town/2026/04/03/ten-times.html
In brazil we have pix with 0 fees.
Between individuals it is free. For commercial transactions, there is a fee between 0.22% and 0.33% per transaction, which is actually ~2x the fee of the Visa network (0.13%)! Visa is extremely efficient at moving money anywhere in the world.
Credit and debit card transactions have higher fees because unlike Pix, there is chargeback risk, and the the merchant and acquiring banks party to the transaction are compensated for the risk they assume in those transactions. Pix on the other hand is digital cash. When you spend it, it's gone. Unlike with chargebacks and disputes, there is no reliable mechanism to recover funds for goods not delivered.
I could imagine that Pix is still better for merchants if that is the final fee.
With Visa and Mastercard there are usually many additional actors that also take their share and drive the final fee up.
VisaNet & friends make the modern consumer world go round. The fees they extract are a drop in the bucket compared to the economic activity that they enable with their networks. Many businesses simply couldn't exist without something approximating this.
https://investor.visa.com/news/news-details/2016/Visa-Commis...
You are literally linking to a page published by Visa's Investors Relations Department.
The problem is that like all cartels, they hold progress back. Things could be even more efficient than the current state of affairs. For example we could have open standards with thousands of local players, much faster settlement times etc...
There are also aspects such as the fact that due to this concentration of power, the whole world is subject to US sanctions, such that a EU citizen sanctioned by the US is effectively cut off from civilization.
I like how providing an incredibly efficient payment network is framed as holding progress back.
I'd frame it as making the standards for competition very high.
I don't see people getting super ideological about their inability to create monocrystaline turbine blades or 2nm semiconductors in their garages. Why payment networks? Because computers? The overall network is way more complicated than a specific technological system or clever open standards document.
These networks would be usurped if someone could actually come up with a better system. The economy insists upon it constantly.
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It should be said that being on a US sanctions list doesn't appear to carry the same weight it once did. A Japanese citizen was added to one this month and her bank was able to effectively ignore it, not sure about options where credit cards are concerned, but there are local alternatives which don't rely on US payment networks.
Yes. As a merchant it's pretty cool that the money just shows up and I don't have to chase down as much bad debt. The processing costs easily pay for themselves.
unfortunately those processing costs actually dont need to exist.(or atleast should be 10x smaller)
It seems Visa revenue is $40B/year. You shouldn't compare that to the amount of economic activity they enable - you should compare it to how much it could cost to run a system like theirs.
The problem is not that the tech is bad, it’s that the industry is a cartel with no viable way to disrupt the established players.
> VisaNet & friends make the modern consumer world go round.
I mean, as opposed to what? You could apply this to any infrastructure cartel like with AT&T in the 90s or Comcast or 100s of historical examples. The alternative to a bridge troll is not ”no bridge”.
The alternative to a bridge troll is "no bridge" if the bridge troll is the only party who has the capability to construct it in the first place.
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Well, in Germany the "girocard", the local card network, is the most popular form of payment. So I guess, citation needed?
> The issuing bank keeps 2%
Is this why the best cash back credit cards give 2%?
In the US. Not in Europe because interchange fees for consumer cards are capped at 0.3%
I've seen cards with 1% chargeback in the EU though. How does that work?
And it wasn't just a temporary marketing promotion. I've used such a card for many years.
(It was issues by a big bank that had almost no presence in my country... so maybe they were eating the cost just to build up a bigger presence and potentially enter the country?)
Yes that intuition is correct, though the reality is much more complicated. The actual share to the bank is roughly proportional to the risk of the transaction/ tied to the type of credit card
https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...
US Bank for a brief period opened up a 4% card, but then closed it so quick that obviously the numbers didn't work out there.
2% seems to be a local maximum of cashback cards. There's a lot of 2% cards, and only a handful above that.
Makes sense?
2% is just an example figure, the actual rate varies
Credit cards are the OG of rent seeking for the 21'st century. They recognized upfront that no one would pay their ridiculous middleman fees so they backdoor-ed the fee with the merchants and had them pass it on in price. Its on of the most insidious extraction engines ever made, Jesus would definitely flip their tables lol.
Now they do all kinds of accounting tricks to pretend that they have thin profit margins because they split up every part of the business into hundreds of 1-3% chunks of the profit. To sidestep regulation that already barely exists.
Networks like visa and Mastercard don’t seem evil. If you’ve ever had to dispute a charge and got your money back easily or relied on the fact that even if their computers are down they’ll still take the risk and allow you to take money out of your account you’d find the fees they charge pretty minimal. Now the issuer bank… that’s where most of the fee and why most banks now have reward cards because the issuing bank can ask for whatever additional fees on top of what visa/mastercard does.
If AI becomes a true commodity do you think OpenRouter/Stripe will evolve into this type of network that visa/mastercard represent today?
In my opinion, the only solution is everyone (individuals as well as corporations) gets a direct account with the federal reserve as long as you can associate a taxpayer identification with the account. Using it is voluntary but it is free of cost, paid for by taxes, and moving money to and from accounts is free of cost. Depositors would get the same overnight interest rate that banks do, and this interest is added every day. I think if we could make this happen, the chokehold of Mastercard and Visa can be greatly diminished. The disintermediation of commercial banks, the loss of credit card perks, and the added cost of customer service should be an acceptable cost of removing the parasites visa and master card from our economy.
most importantly, this opens up a lot of money that the federal reserve can hold directly, something that will become more and more important as bond yields go sky high.
How are chargebacks resolved in this situation?
This is an important question- most of the costs of a credit card providers come from dealing with fraud and chargebacks. That's partially because, under US law, credit card companies have to eat fraudulent charges if they can't get the person or company that did the fraud to do so. (Funnily enough, this is one of two places where protections for average people in the US are significantly better than protections for average people in Europe).
But credit card companies can keep their costs low by making a business decision not to renew the accounts of frequent chargeback-ers or chargeback-ees (even if they never officially found those individuals at fault). If the government had to make a payment system for everyone and take on all responsibility for all fraud, that would create an incentive with massive second-order effects.
> credit card providers
The article did an awesome job explaining what are the parties involved and you choose to use a generic term instead.
> dealing with fraud and chargebacks
A lot of that is offloaded to the merchant, which instead has to pay them on top of what they already pay to the issuer bank.
You resolve it the same way you handle in-store cash purchases of products that turn out to be faulty.
There is no reason why fraud and contract violation must be handled by unelected and unaccountable payment processor, when the government has already set up a consumer protection system for disputes related to cash payments. The payment processor is best left as a dumb pipe that does what parties and (in case of disputes) courts tell it to do.
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Customers can pay the credit card fee to get their chargeback insurance, if they choose, while others who can pay with cheaper instant payment rails can opt out. This is trivial with merchants able to surcharge credit card payments, as many merchants are starting to do (US mobile phone companies, US internet providers, Meta ad purchases, restaurants, etc).
So the article shows how visa and mastercard are, by far, not the ones taking the largest fee, and the solution is to get rid of them?
Where are you going to do the transactions in your scheme? Because credit card transactions are not the same as sending money from one bank account to another. There are settlements, disputes, chargebacks, etc.
How is the central bank going to offer the same variety of products described in the article? I.e..
> Interchange fees vary dramatically based on the kind of card, category of spend, and even the metadata attached to a transaction. The network’s goal is to set fees that incentivize desired behaviors on their network, including using more secure payment methods (lowering interchange fees for merchants), or for companies to do more business spending (higher interchange fees on commercial credit cards).
Your scheme sounds like all these crypto guys who think they can replace credit cards with bitcoin transactions, as if they were the same thing
> So the article shows how visa and mastercard are, by far, not the ones taking the largest fee
But they set the interchange rates and disallow (or at least have until recently, in the US) merchants to discriminate against cards based on rate or type via their “honor all cards” rules.
They are absolutely propping up and benefiting from the high fees.
Central bank instant payment system. The US has FedNow, and has had it for almost 3 years. It costs a few pennies to move up to $10M per XML message.
Brazil's Pix costs ~$10M/year to run: https://www.pymnts.com/wp-content/uploads/2026/09/PYMNTS-Int... [pdf] (September 2026 revision)
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A few years ago congress had a nice solution via a market mechanisms, have sufficiently large banks be required to have their cards support at least 2 card networks, via which the merchant may at at swipe time decide which network to run against. Unfortunately like any good idea, it died in congress.
Travel and tourism is about 9% of the world economy, and by some measures considered the largest economic sector in the world. Visa and Mastercard will continue to be dominant.
And that's ok. We need an option, it doesn't need to be the only option.
How much do interchange fees increase prices in the US?
Aside from the technical aspect I strongly encourage everyone to also read about VISA’s founder Dee Hock, still a very underrated figure in leadership and finance.
Related : GNU Taler.
You can apply to a fund to implement this system.
https://nlnet.nl/taler/
Has the characteristics to implement the digital Euro. Plus guarantees anonymity of buyers. And should be extremely cheap to operate. But is not under bank’s control.
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The answer to that is to "donate" to about 270 congress critters. Buying 5 motorhomes for supreme court members could work too.
> The answer to that is to "donate" to about 270 congress critters.
Not too far off. You gotta ask why such a lucrative business has a near monopoly, and the answer is not that potential competitors don't notice their profit margin.
Some light self-promotion but also longer term thoughts:
A large part of the promise of crypto and stablecoins was to displace Visa and Mastercard rent-seeking. This didn't seem to happen. Most modern neobanks, our own included (https://peanut.me), actually seem to EMBRACE Visa and Mastercard. Almost all offer an actual Fiat card within their app, instead of boldly saying "No, pay with crypto, the future of money!"
This is somewhat disappointing in the short term, but longterm i believe it offers a clear transitory path to full decentralized money adoption. Already today we're seeing a growth in direct peer to peer payments in peanut, and merchants slowly starting to adopt it as well. I imagine the same is happening across the industry. In a competitive economy, the better currency (read: crypto, stablecoins) wins and eventually absorbs adoption.
my 2 cents
Crypto is in no way better money.
It’s slow and expensive and doesn’t scale.
The real answer is an alternative that relies on a centralised provider - or set of them - who use traditional databases and the like, but do things in a modern efficient way and don’t charge the same fees as the current card providers do.
> It’s slow and expensive and doesn’t scale.
This is 2020 speak. In 2026, crypto scales and its extremely cheap. it costs less than a hundredth of a cent to do a transfer today.
The problem is that bitcoin (and similar) are so computationally intense to run, that the transaction cost is much higher than Visa's.
Furthermore, a currency needs a government (or similar kind of body) to manage its stability, by printing (and buying) money. Otherwise, we'll see wide fluctuations in value like what happens with Bitcoin.
Bitcoin is not suited for payments. Bitcoiners use lightning.
But to be clear, all payment innovations in crypto happen on EVMs and L2s. And in 2026, stuff is extremely scaleable and computationally cheap.
True on the main chain of Bitcoin. Bitcoin payments on the lightning network are not computationally intense.
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Don’t forget arbitrage, which is the withholding of transferred funds for 7 days while the capital remains in visa’s accounts for “investing” / speculation.
It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi
You better don't look into how banks make money on your savings.
You better don't look into how banks created your savings by creating loans that were used to invest into companies and thus pay salaries.
>It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi
Or treasuries.
Its actually a minor part of rheir business.
And frankly who cares given that its a sustainable system. I pay on credit and then someone else pays. I dont give a shit of they are betting on how many times Al Roker says Trump on New Years Eve.
The merchants , who need that cash flow
They tax our entire economy at X rate, while maintaining their infrastructure only requires Y cost ... and X is significantly higher than Y.
From the actual article:
> The payment processor keeps 0.35% ($0.35), then pays 2% ($2.00) to the cardholder’s issuing bank and 0.15% ($0.15) to Visa. The 2% is the interchange fee, commonly known as interchange. The 0.15% is the network assessment fee. 8
In other words, they get 0.35% of every transaction ... and it does not require anything close to that to maintain their network.
middlemanning is the most american of business ventures
I thought that title belonged to bombing campaigns and coups by shady guerilla groups.
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> and it does not require anything close to that to maintain their network.
If it's so easy to disrupt visa/mastercard payment network, they wouldn't be able to charge this much. Payment is a highly competitive business. We witnessed so many payment companies went under or were bought out, but these two stay for years and are still profitable.
The truth is their moat is considered very durable and hard to build. A global n banks to n banks payment network is not as simple as how people thought.
> If it's so easy to disrupt visa/mastercard payment network, they wouldn't be able to charge this much
If they have the US government behind them its much easier
https://thepaypers.com/payments/expert-views/pix-hits-a-wall...
Same as it ever was: https://news.ycombinator.com/item?id=9224
If someone owned all the highways, building an alternative would be difficult as well.
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That 0.35% feels more reasonable in 1976 or even maybe 2001 than it does today because technology changed so much. But maybe I'm wrong about that
If you're an American that 2% is a much bigger problem for your society. That's a direct funnel from the poor to the wealthy, it's not as a obvious a problem as "Trump gave the ultra-rich a tax cut" but it might structurally be more significant.
Credit card companies are mostly parasitic middle men but I have a credit card that I use for most payments and pay off the balance every month and effectively get 2% cashback with no interest costs.
The actual rates charged to merchants are variable, and typically higher for rewards/cashback cards. Basically, other people are subsidizing cards with higher benefits/cash back (of course as people shift, the merchant raises prices to compensate for the higher average fee, or just charge an additional Z% higher than your cash back)
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Goods (and services) are priced at what the customer is willing to pay. In this case, the alternative is cash or cheques, both have much higher loss rates. That’s why vendors are eager to take visa over cash.
No, the alternatives are any number of other solutions that are not given a look-in to the very lucrative duopoly. The network effects are prohibitive for upstarts.
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in short they're TRUST networks.
which is also why crypto bros get confused.
Now try security of bitcoin
Europeans really need to stop handing their money over to Trump-Visa and Trump-Card here. Canadians learned that lesson already. Why do european politicians not learn anything? Leyen even signed a surrender treaty where european taxpayers lose money that goes into the USA. I say stop it with the proxy-control from Washington.
Europeans have alternative payment networks already. For example, CH has Twint.
They are actively being unified into a cross-border payment network.
Of all the things to complain, this is the one where they are actually doing something…
As someone from an EU country: the only place where I use visa/MasterCard is at Amazon. Everything else I use my country's payment system, which is now joining with Italy's own and probably more in the coming years.
Digital euro clears key hurdle as EU seeks to break free from U.S. credit cards - https://en.wikipedia.org/wiki/Single_Euro_Payments_Area
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TL,DR: They steal from businesses that take card payments with giant commissions.
You're welcome!
this article doesn’t do a good job of simplifying. the vast majority of Visa’s revenue comes from one thing called the ISO 8601 / ISO 20022 message, which is the name for a Visa’s authorization. the core service is transmitting this message between an issuer (cardholder bank) and an acquirer (merchant bank). all other revenue streams are basically a microservice on top of this core message transmission service.
ISO 8601 is just a timestamp format. Surely Visa must be using timestamps internally, but that couldn't possibly be their service.
ISO 20022 looks more like it.