Comment by collabs
18 hours ago
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.
So, wait. Are you saying each transaction has to be individually approved by the account holder?
Because that would break the subscription-based billing model for a lot of businesses.
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You have to consider the interest of the involved parties rather than the efficiency of a system.
Making a purchase is (still) voluntary for the customer.
For everyday purchases at physical stores, cards are convenient. You just swipe and maybe put your PIN. But other digital payment methods or cash can be just as convenient. You're never going to chargeback a coffee, a sandwich, or your groceries.
But for distance purchases such as online shopping, hotel bookings, flight reservations and such, trust is the most important factor, not convenience. Cards have fraud protection. Other payment systems do not. These "unelected and unaccountable" people can actually help you if you've been the victim of wire fraud. Much faster and much less of a hassle than going through the courts. And if they don't help you, you haven't in any way, shape or form abstained from your right to justice through a court of law.
If customers can have that security and ease of mind, then they are much more likely to make a distance purchase. Which means that the vendor can sell their product. If the customer can't have that ease of mind, then the vendor will not make a sale.
So vendors who want to make sales will gladly accept cards. Anybody foolish enough to try to sell without making it easy for the customer to pay in their preferred way will go out of business.
Another point worth mentioning is that cards work instantly across pretty much all currencies in the world. You can go from anywhere to anywhere and pay with your card and currency exchange is done automatically. And in the past 10 years, cards have given very good exchange rates.
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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
Visa and Mastercard are the ones setting the rules. They are the ones who decided that the fee can't be added on to the purchase price. If your credit card added 1% to every transaction from your perspective, but the competing bank's card only added 0.3%, you would have competition pressure.
> 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)
FedNow is a payments rail, which is a long shot away from being a full retail payments scheme. The latter needs a disputes story, customer knowledge, merchant acceptance…
Take SEPA Instant, for example. It’s great for many things, but effectively nobody pays using it in stores or even online.
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> Walmart is currently trialing it to save $3B-$7B a year in interchange fees. No crypto, just XML messages through a mainframe at the Federal Reserve with a 20 second SLA.
Please tell your user that this SLA is much too high for many purposes. A cafe or such would lose a ton of money if every transaction took 20 seconds longer to conduct.
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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.