Comment by Grombobulous
3 hours ago
This idea that we are going to work our way backwards into a competitive landscape is not going to work.
“Pick and choose which cards they accept without penalty” won’t do anything in a market where 3-4 card processors and 3-5 banks have a near-monopoly on transactions.
If I sell ice cream and decide I won’t accept Chase credit cards because the fees are too high I’ve just lost 1/4 of my customers or something crazy high like that.
Let’s quit trying to find weird workarounds to keep capitalist failures propped up and use regulatory teeth.
Cap transaction fees at something reasonable like 0.5% and the problem disappears overnight.
Yes, you’ll lose your rewards, and that’s a good thing. Rewards cards are a massive wealth transfer mechanism that shouldn’t be legal.
There are businesses that specifically don't allow credit cards and only allow Debit and Cash to reduce these fees already and they are still in business. WinCo Foods is the biggest example I know of, so insinuating that it's impossible to operate if you exclude payment method types/cards isn't really true.
Size matters. WinCo is big enough to do that, because it's a chain and a brand, and people make a choice to go there despite knowing ahead of time that's how it works. (That said, the first time I went into a WinCo I abandoned a cart-load of groceries because I had neither a debit card nor enough cash with me.) That doesn't work for a small business, like the ice cream shop in the example GP offered. They will be giving up a significant fraction of their custom.
Of course what parent comment said doesn't apply to 100% of businesses, bud I'd say it does apply to at least 80-90%. So I agree with them that it wouldn't work very effectively.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding customers from being able to get a credit card in the first place. I'm not against all regulation, but I think we should prefer market-based solutions that remove barriers to entry and that allow more companies to compete in the space.
Europe offers a useful counter-example. They (EU? Most countries? I don't know exactly, but it's immaterial) cap transaction fees, and there's absolutely no shortage of "ways to pay by card". In my experience there are, in fact, more - and, their middle-men have been earlier adopters of both security and convenience features (PIN codes, tap-to-pay, and rapid settlement among them) in which the US sometimes still lags.
What there aren't are rampant cash-back rewards for using a particular card. Or easy access to credit cards with usurorious rates. I think missing out on those is a societally good outcome.
If you cap price then quality will probably suffer, i.e. less fraud protection, warranty extension, accidental damage coverage, etc.
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The credit card companies make the vast majority of their revenue on interest charges. The transaction fees are at least in part returned to the cardholder via rewards programs. That said, I agree that competitive market solutions are better than regulation, where they work.