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Its clear the credit card companies have real costs: fraud, credit risk & customer rewards. But does anyone know what those costs are relative to their 2% fee?

Its clear the credit card companies have real costs: fraud, credit risk & customer rewards. But does anyone know what those costs are relative to their 2% fee? Clearly with a bitcoin solution, consumers will demand fraud protection and rewards and perhaps fraud will be less of an issue. But will the bitcoin companies still have to charge roughly 2% or will there be a race to the bottom on those fees?

dogma1138 11y ago
Well currently banks and clearinghouses are looking into BitCoin like technologies to settle their own debt (consolidation). With the most basic type of banking systems each bank will have an account with another bank to facilitate the transaction which means they'll debit your account and credit the account of the bank to which the account that you want to transfer too and that bank will do the same thing in reverse. Since banks can't open corresponding accounts with each other bank in the world or even in the same country (if it's places like the US where everyone can set up a bank) they go through the central bank (or the fed in the case of the US) and more recently through clearing houses which can speed and and simplify certain transactions. This method requires them to have quite a bit of free funds and to ontake quite a bit of debt and banks don't like owning money to some one especially not to another bank. BitCoin seem to be able to solve it since they can do internal clearing and consolidation on top of the blockchain without having to accumulate debt. How much of it will translate to the end user's transactions probably not much at first, the blockchain might also have other issues that cannot be currently foreseen or understood that could incur hidden costs, but with how the current BitCoin blockchain works it will not be financially viable for small transactions as it will pollute the blockchain with very low value transactions and delay the big and important ones so you'll either have multiple chains or you'll have again some sort of system that will accumulate debt which will be settled later in one large transaction which means that you again take on similar risks to current credit card transactions which do not guarantee that the funds are available. As for the costs well you are looking at enormous setup costs, very high operational costs due to needing to manage risk, maintain a very liquid cash flow, insurance, regulation etc, VISA Inc made 12B dollars last year and 30-40% of their income these days come from "Data Processing" and not from fees, if that's too much, too little well you decide :P

dogma1138 11y ago

Well currently banks and clearinghouses are looking into BitCoin like technologies to settle their own debt (consolidation). With the most basic type of banking systems each bank will have an account with another bank to facilitate the transaction which means they'll debit your account and credit the account of the bank to which the account that you want to transfer too and that bank will do the same thing in reverse. Since banks can't open corresponding accounts with each other bank in the world or even in the same country (if it's places like the US where everyone can set up a bank) they go through the central bank (or the fed in the case of the US) and more recently through clearing houses which can speed and and simplify certain transactions. This method requires them to have quite a bit of free funds and to ontake quite a bit of debt and banks don't like owning money to some one especially not to another bank. BitCoin seem to be able to solve it since they can do internal clearing and consolidation on top of the blockchain without having to accumulate debt. How much of it will translate to the end user's transactions probably not much at first, the blockchain might also have other issues that cannot be currently foreseen or understood that could incur hidden costs, but with how the current BitCoin blockchain works it will not be financially viable for small transactions as it will pollute the blockchain with very low value transactions and delay the big and important ones so you'll either have multiple chains or you'll have again some sort of system that will accumulate debt which will be settled later in one large transaction which means that you again take on similar risks to current credit card transactions which do not guarantee that the funds are available. As for the costs well you are looking at enormous setup costs, very high operational costs due to needing to manage risk, maintain a very liquid cash flow, insurance, regulation etc, VISA Inc made 12B dollars last year and 30-40% of their income these days come from "Data Processing" and not from fees, if that's too much, too little well you decide :P