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> Two years ago, the European Union capped the fees retailers pay at 0.2 percent for debit cards and 0.3 percent for credit cards. How is it possible that reta

> Two years ago, the European Union capped the fees retailers pay at 0.2 percent for debit cards and 0.3 percent for credit cards. How is it possible that retailers in the U.S. and Canada pay 2-3% for credit card usage, or ten times greater than legally permitted in Europe? I have to assume that 0.3% is profitable, otherwise the credit card companies would simply stop operating in Europe. Could this be a misprint in the original article or are Americans and Canadians being horribly ripped off?

deleted 10y ago
[deleted]
cmdrfred 10y ago
How is it possible that we pay twice as much for healthcare? Same reason.
- mysterypie 10y ago
  But we don't pay 10 times as much for healthcare. The credit card fee differential is inexplicable.
  - ska 10y ago
    Right, only 4 times. Which is still hard to explain.
    - chipperyman573 10y ago
      It's really not. Some country has to provide financial incentives for companies to develop new drugs - a multi million dollar task - and the USA is the country that subsidiaries the rest of the world
      - Chestofdraw 10y ago
        I've seen this said a bunch of times but never anything to actually back it up. The fact that big pharma companies tend to have fantastic margins and spend similar amounts on R&D as they do on marketing makes me think that it's probably bollocks. The idea that big pharma companies are happily scalping Americans just so they can provide drugs to countries that can't actually afford them is just... absurd.
        bjterry 10y ago
        Here is a recent blog post that has some references to economics research papers around this general topic, but likely not directly addressing your exact claim. Nonetheless, you may find it interesting: http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-brand-name-drugs/ http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-br...
        cmdrfred 10y ago
        Grandparent is correct. For GSK: R&D was 15% of their budget, while 'selling, general and administration' was 39%.[1] [1]http://www.bizjournals.com/triangle/news/2016/07/19/where-gsk-ranks-in-r-d-spending-against-sales-and.html http://www.bizjournals.com/triangle/news/2016/07/19/where-gs...
      - ska 10y ago
        That's a nice (and popular) story but it really isn't as simple as that. Not only does the accounting get a bit creative, but also the research is more expensive to do in the US for partially for precisely the same reasons that the health care is (a lot of the cost of R&D goes directly into the health care system). Chicken, meet egg. Even without this, drug development cost doesn't get anywhere close to accounting for the whole cost difference.
  - spullara 10y ago
    The law covers what amount can be tacked on to the consumers bill that depends on how they are paying. Not how much the provider can charge the merchant. In the US very few places charge different amounts depending on payment type.
  - mfisher87 10y ago
    We pay more than 10 times as much as many countries for healthcare if you're counting only individual expenses. If you're counting both individual and public expense, we still spend almost 10x more than Turkey.
  - dangrossman 10y ago
    The differential isn't actually 10 times. The part Visa/MC keeps in the US is more like 0.05% to 0.65%, not 2-3%. In the US, debit card interchange fees are capped at 0.05% + $0.22, since 2010. That was in the Durbin amendment to the Dodd-Frank Wall Street Reform Act. Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits: those that pay the largest percentage back to the cardholder. That's up to 2% back in cash, reward points or miles... plus 90 day accidental damage protection on all purchases, 1 year extension on all product warranties, travel insurance, concierge service, etc. Interchange fees for the credit cards without rewards programs start at 0.65%.
    - mysterypie 10y ago
      > Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits Repeating what I asked in another comment, it's important to know what percentage of cards have those benefits. If most credit cards in the U.S. and Canada have cash back, miles, or rewards, then it follows that merchants pay 2-3% on most transactions. In my experience in the U.S. and Canada, almost everyone seems to use a cash-back or reward-type credit card.
  - SilasX 10y ago
    Actually, we arguably do. Go try to price a US health insurance policy with the same level of coverage and cost insulation [1] you could get in Europe: get ER or primary care, at any time, with the promptness they would get for appointments, while never paying anything other than the premiums. I'd be surprised if you could even find such a policy. [1] And, of course, the same "we won't pay for this" cutoffs impose by e.g. UK's NICE board.
de_dave 10y ago
Not a misprint: https://www.adyen.com/blog/eu-interchange-fees-cap https://www.adyen.com/blog/eu-interchange-fees-cap (good summary of the regulation and what it covers)
quantumhobbit 10y ago
Much of the 2-3% US companies charge is spent in the form of rewards in the US. The fact that US companies offer 1-1.5% back to customers as rewards implies they can support lower fees to merchants if they get rid of rewards. Do EU cards have cash back programs?
- lostboys67 10y ago
  They used to but they are being phased out - the EU piously thinks that the merchants will pass on lower costs to the consumer - which is to borrow a line from Sir Humphrey "A brave choice commissioner"
  - rz2k 10y ago
    How is that a "pious" belief? Let's say that retailers' financial services costs drop by 1% of revenue, and they choose to raise their prices by 5%, because they're really greedy or mean. Their competitor across the street is also really mean, but only raises their prices by 4%. As a thought experiment, play that scenario through a few more turns. The effect of lowering their costs for financial transactions is to lower retailers' minimum price for selling their products. They're "allowed" to charge as much as they like, though there are legal restrictions that make it illegal to collude with their competitors. And, even if they do collude there are motivations to defect from those illegal agreements that tend to undermine them. A higher level view will appreciate that the higher sticker prices from higher transaction costs largely ended up being refunded to consumers through credit card reward programs, but probably distorted the prices for buyers paying with cash.
    - lostboys67 10y ago
      You do know what pious means in this context - the shops will just pocket the savings for them selves
  - germanier 10y ago
    The regulation had a noticeable effect in Germany: As soon as it was in effect every chain started to accept MasterCard and Visa cards. That includes the most frugal stores that have razor thin margins. The food market is extremely competitive and if a store can afford to undercut their competition they will the first second they can.
pjc50 10y ago
It's a duopoly. Of course you're being ripped off. Hence the lawsuit.
- dkksfj 10y ago
  How is it a duopoly?
  - ceejayoz 10y ago
    Visa and Mastercard account for 85.2% of global payment volume, according to https://www.nerdwallet.com/blog/credit-card-data/credit-card-transaction-volume-statistics/ https://www.nerdwallet.com/blog/credit-card-data/credit-card....
    - BenElgar 10y ago
      I'm actually surprised it's so low.
      - superuser2 10y ago
        Can't pay for housing on a credit card (usually). Most rent and mortgage payments are checks in the mail or ACH web portals. I'm surprised rent as a percentage of transaction volume is so low. We don't all live in the Bay Area, I suppose.
MichaelBurge 10y ago
One reason might be the US' extremely strong consumer protection law. It's also the place it was originally rolled out, so it could be a historical artifact. That's one reason some stores(like Winco) only accept debit cards: The processing fees are much cheaper. And it might be because they don't have to enforce chargebacks, by law. Certainly it's possible to accept payments with low costs: Bank transfers are pretty cheap.
- mercurial 10y ago
  I seriously doubt that consumer protection laws in the US are better than consumer protection laws in the EU.
  - robk 10y ago
    It's a hell of a lot easier to do a chargeback in the US vs the UK.
    - johansch 10y ago
      Sure. But I've always heard that's because of CC company policies rather than laws?
    - superuser2 10y ago
      It's easy to say "this charge is fraudulent, I didn't make it" and your credit card company will make it go away and mail you a new card. Neither Citi nor Capital One entertain "I made this charge but I don't want to pay it because I'm angry at the merchant for bad service" (or whatever) easily. At minimum you have to prove that you tried to remedy the problem with the merchant and they're refusing.
  - dgacmu 10y ago
    They are, when it comes to bank fraud. Particularly the UK. See, for example, a lot of Ross Anderson's work, such as: https://www.benthamsgaze.org/2016/06/02/international-comparison-of-bank-fraud-reimbursement-customer-perceptions-and-contractual-terms/ https://www.benthamsgaze.org/2016/06/02/international-compar...
wslh 10y ago
In Argentina it is worst. If you have a plan to buy something in 12 month, the retailer receives a 30% discount up front. This is connected to high inflation BUT the retailers don't give you a 30% of discount if you pay with cash.
dangrossman 10y ago
American merchants are paying 0.05%+$0.22 for debit and check cards, and the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.
- objclxt 10y ago
  > the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise. Those differences in credit card fees between rewards and non-rewards often aren't being passed on to the merchant, though, especially small businesses who have little room to negotiate.
  - dangrossman 10y ago
    I'm a small business merchant, and they're passed on to me. I pay interchange plus 0.04%. If interchange on a specific transaction is 0.05% then I pay 0.09%. If it's 2.9% then I pay 2.94%. Merchant service providers have been pushing this "interchange-plus" pricing model to win over businesses from other providers with the old "tiered rates" pricing for many years now. Even "tiered rates" did pass on some of the price differences, just not as directly. PayPal/Stripe's model of a single flat fee for all card types is pretty much exclusively an internet (card-not-present) thing, except for the rare coffee shop with one of those Square smartphone dongles. None of the B&M stores you shop in are likely paying flat rates. Different cards cost them different amounts of money.
    - watchdogtimer 10y ago
      Who's your merchant services provider?
    - bung 10y ago
      I wonder if he meant "passed on _by_ the merchant", as in, it's not like any business will give non-rewards-card-payers a discount.
mrweasel 10y ago
3% is absolutely insane, we sell items where our margins are about 4 or 5%
Veratyr 10y ago
The US has larger rewards programs (one of my cards gives me 2% cashback) and the US has a far higher fraud rate due to their archaic processing systems. Europe has been using EMV with PIN for about a decade so has lower fraud and doesn't have the same rewards programs, meaning costs are lower.
vesinisa 10y ago
Europeans also use credit cards way differently. Pretty much all cards now have EMV crypto chip which makes traditional credit card fraud impractical. The merchants pay for the EMV terminals themselves, and the risk of offline, non-EMV transactions is born by the merchant alone. This greatly diminishes the risk of the payment processor. AFAIK EMV terminals are not required in the US, and the payment processor bears all the risk. This could explain why they must charge higher fees, too.
- adventured 10y ago
  Your information is dated. Pretty much all new US cards now have chips in them. Nearly the entire market has shifted over to that in the last year. The only cards remaining without chips are those that are running out their expiration date. Merchants are now liable for fraudulent charges if they haven't switched to EMV terminals. The payment processor hasn't born that risk for nearly a year.
  - vesinisa 10y ago
    That's good to hear. My information is based off a friend who worked in credit card defaults, but it's some couple of years ago when he elaborated on the differences between US/EU on this regard.
  - ChemicalWarfare 10y ago
    No pin required however. Just to clarify.
    - johansch 10y ago
      Meanwhile pretty much all retail/ATM withdrawals in the EU require both chip (something you have) and PIN (something you know).
      - superuser2 10y ago
        >ATM Chip ATMs are extremely rare in the US. Which sucks, because the chip in your debit card is only as good as the difficulty of finding a non-chip ATM.
joering2 10y ago
Actually its much more than that; with "discounts" (all the premium points dollar matches etc) its more like 5-6%. How can it be done and continue for years in the USA, you ask? here: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States https://en.wikipedia.org/wiki/Lobbying_in_the_United_States

deleted 10y ago

[deleted]

cmdrfred 10y ago

How is it possible that we pay twice as much for healthcare? Same reason.

mysterypie 10y ago
But we don't pay 10 times as much for healthcare. The credit card fee differential is inexplicable.
- ska 10y ago
  Right, only 4 times. Which is still hard to explain.
  - chipperyman573 10y ago
    It's really not. Some country has to provide financial incentives for companies to develop new drugs - a multi million dollar task - and the USA is the country that subsidiaries the rest of the world
    - Chestofdraw 10y ago
      I've seen this said a bunch of times but never anything to actually back it up. The fact that big pharma companies tend to have fantastic margins and spend similar amounts on R&D as they do on marketing makes me think that it's probably bollocks. The idea that big pharma companies are happily scalping Americans just so they can provide drugs to countries that can't actually afford them is just... absurd.
      - bjterry 10y ago
        Here is a recent blog post that has some references to economics research papers around this general topic, but likely not directly addressing your exact claim. Nonetheless, you may find it interesting: http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-brand-name-drugs/ http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-br...
        cmdrfred 10y ago
        Grandparent is correct. For GSK: R&D was 15% of their budget, while 'selling, general and administration' was 39%.[1] [1]http://www.bizjournals.com/triangle/news/2016/07/19/where-gsk-ranks-in-r-d-spending-against-sales-and.html http://www.bizjournals.com/triangle/news/2016/07/19/where-gs...
    - ska 10y ago
      That's a nice (and popular) story but it really isn't as simple as that. Not only does the accounting get a bit creative, but also the research is more expensive to do in the US for partially for precisely the same reasons that the health care is (a lot of the cost of R&D goes directly into the health care system). Chicken, meet egg. Even without this, drug development cost doesn't get anywhere close to accounting for the whole cost difference.
- spullara 10y ago
  The law covers what amount can be tacked on to the consumers bill that depends on how they are paying. Not how much the provider can charge the merchant. In the US very few places charge different amounts depending on payment type.
- mfisher87 10y ago
  We pay more than 10 times as much as many countries for healthcare if you're counting only individual expenses. If you're counting both individual and public expense, we still spend almost 10x more than Turkey.
- dangrossman 10y ago
  The differential isn't actually 10 times. The part Visa/MC keeps in the US is more like 0.05% to 0.65%, not 2-3%. In the US, debit card interchange fees are capped at 0.05% + $0.22, since 2010. That was in the Durbin amendment to the Dodd-Frank Wall Street Reform Act. Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits: those that pay the largest percentage back to the cardholder. That's up to 2% back in cash, reward points or miles... plus 90 day accidental damage protection on all purchases, 1 year extension on all product warranties, travel insurance, concierge service, etc. Interchange fees for the credit cards without rewards programs start at 0.65%.
  - mysterypie 10y ago
    > Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits Repeating what I asked in another comment, it's important to know what percentage of cards have those benefits. If most credit cards in the U.S. and Canada have cash back, miles, or rewards, then it follows that merchants pay 2-3% on most transactions. In my experience in the U.S. and Canada, almost everyone seems to use a cash-back or reward-type credit card.
- SilasX 10y ago
  Actually, we arguably do. Go try to price a US health insurance policy with the same level of coverage and cost insulation [1] you could get in Europe: get ER or primary care, at any time, with the promptness they would get for appointments, while never paying anything other than the premiums. I'd be surprised if you could even find such a policy. [1] And, of course, the same "we won't pay for this" cutoffs impose by e.g. UK's NICE board.

de_dave 10y ago

Not a misprint: https://www.adyen.com/blog/eu-interchange-fees-cap https://www.adyen.com/blog/eu-interchange-fees-cap (good summary of the regulation and what it covers)

quantumhobbit 10y ago

Much of the 2-3% US companies charge is spent in the form of rewards in the US. The fact that US companies offer 1-1.5% back to customers as rewards implies they can support lower fees to merchants if they get rid of rewards. Do EU cards have cash back programs?

lostboys67 10y ago
They used to but they are being phased out - the EU piously thinks that the merchants will pass on lower costs to the consumer - which is to borrow a line from Sir Humphrey "A brave choice commissioner"
- rz2k 10y ago
  How is that a "pious" belief? Let's say that retailers' financial services costs drop by 1% of revenue, and they choose to raise their prices by 5%, because they're really greedy or mean. Their competitor across the street is also really mean, but only raises their prices by 4%. As a thought experiment, play that scenario through a few more turns. The effect of lowering their costs for financial transactions is to lower retailers' minimum price for selling their products. They're "allowed" to charge as much as they like, though there are legal restrictions that make it illegal to collude with their competitors. And, even if they do collude there are motivations to defect from those illegal agreements that tend to undermine them. A higher level view will appreciate that the higher sticker prices from higher transaction costs largely ended up being refunded to consumers through credit card reward programs, but probably distorted the prices for buyers paying with cash.
  - lostboys67 10y ago
    You do know what pious means in this context - the shops will just pocket the savings for them selves
- germanier 10y ago
  The regulation had a noticeable effect in Germany: As soon as it was in effect every chain started to accept MasterCard and Visa cards. That includes the most frugal stores that have razor thin margins. The food market is extremely competitive and if a store can afford to undercut their competition they will the first second they can.

pjc50 10y ago

It's a duopoly. Of course you're being ripped off. Hence the lawsuit.

dkksfj 10y ago
How is it a duopoly?
- ceejayoz 10y ago
  Visa and Mastercard account for 85.2% of global payment volume, according to https://www.nerdwallet.com/blog/credit-card-data/credit-card-transaction-volume-statistics/ https://www.nerdwallet.com/blog/credit-card-data/credit-card....
  - BenElgar 10y ago
    I'm actually surprised it's so low.
    - superuser2 10y ago
      Can't pay for housing on a credit card (usually). Most rent and mortgage payments are checks in the mail or ACH web portals. I'm surprised rent as a percentage of transaction volume is so low. We don't all live in the Bay Area, I suppose.

MichaelBurge 10y ago

One reason might be the US' extremely strong consumer protection law. It's also the place it was originally rolled out, so it could be a historical artifact. That's one reason some stores(like Winco) only accept debit cards: The processing fees are much cheaper. And it might be because they don't have to enforce chargebacks, by law. Certainly it's possible to accept payments with low costs: Bank transfers are pretty cheap.

mercurial 10y ago
I seriously doubt that consumer protection laws in the US are better than consumer protection laws in the EU.
- robk 10y ago
  It's a hell of a lot easier to do a chargeback in the US vs the UK.
  - johansch 10y ago
    Sure. But I've always heard that's because of CC company policies rather than laws?
  - superuser2 10y ago
    It's easy to say "this charge is fraudulent, I didn't make it" and your credit card company will make it go away and mail you a new card. Neither Citi nor Capital One entertain "I made this charge but I don't want to pay it because I'm angry at the merchant for bad service" (or whatever) easily. At minimum you have to prove that you tried to remedy the problem with the merchant and they're refusing.
- dgacmu 10y ago
  They are, when it comes to bank fraud. Particularly the UK. See, for example, a lot of Ross Anderson's work, such as: https://www.benthamsgaze.org/2016/06/02/international-comparison-of-bank-fraud-reimbursement-customer-perceptions-and-contractual-terms/ https://www.benthamsgaze.org/2016/06/02/international-compar...

wslh 10y ago

In Argentina it is worst. If you have a plan to buy something in 12 month, the retailer receives a 30% discount up front. This is connected to high inflation BUT the retailers don't give you a 30% of discount if you pay with cash.

dangrossman 10y ago

American merchants are paying 0.05%+$0.22 for debit and check cards, and the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.

objclxt 10y ago
> the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise. Those differences in credit card fees between rewards and non-rewards often aren't being passed on to the merchant, though, especially small businesses who have little room to negotiate.
- dangrossman 10y ago
  I'm a small business merchant, and they're passed on to me. I pay interchange plus 0.04%. If interchange on a specific transaction is 0.05% then I pay 0.09%. If it's 2.9% then I pay 2.94%. Merchant service providers have been pushing this "interchange-plus" pricing model to win over businesses from other providers with the old "tiered rates" pricing for many years now. Even "tiered rates" did pass on some of the price differences, just not as directly. PayPal/Stripe's model of a single flat fee for all card types is pretty much exclusively an internet (card-not-present) thing, except for the rare coffee shop with one of those Square smartphone dongles. None of the B&M stores you shop in are likely paying flat rates. Different cards cost them different amounts of money.
  - watchdogtimer 10y ago
    Who's your merchant services provider?
  - bung 10y ago
    I wonder if he meant "passed on _by_ the merchant", as in, it's not like any business will give non-rewards-card-payers a discount.

mrweasel 10y ago

3% is absolutely insane, we sell items where our margins are about 4 or 5%

Veratyr 10y ago

The US has larger rewards programs (one of my cards gives me 2% cashback) and the US has a far higher fraud rate due to their archaic processing systems. Europe has been using EMV with PIN for about a decade so has lower fraud and doesn't have the same rewards programs, meaning costs are lower.

vesinisa 10y ago

Europeans also use credit cards way differently. Pretty much all cards now have EMV crypto chip which makes traditional credit card fraud impractical. The merchants pay for the EMV terminals themselves, and the risk of offline, non-EMV transactions is born by the merchant alone. This greatly diminishes the risk of the payment processor. AFAIK EMV terminals are not required in the US, and the payment processor bears all the risk. This could explain why they must charge higher fees, too.

adventured 10y ago
Your information is dated. Pretty much all new US cards now have chips in them. Nearly the entire market has shifted over to that in the last year. The only cards remaining without chips are those that are running out their expiration date. Merchants are now liable for fraudulent charges if they haven't switched to EMV terminals. The payment processor hasn't born that risk for nearly a year.
- vesinisa 10y ago
  That's good to hear. My information is based off a friend who worked in credit card defaults, but it's some couple of years ago when he elaborated on the differences between US/EU on this regard.
- ChemicalWarfare 10y ago
  No pin required however. Just to clarify.
  - johansch 10y ago
    Meanwhile pretty much all retail/ATM withdrawals in the EU require both chip (something you have) and PIN (something you know).
    - superuser2 10y ago
      >ATM Chip ATMs are extremely rare in the US. Which sucks, because the chip in your debit card is only as good as the difficulty of finding a non-chip ATM.

joering2 10y ago

Actually its much more than that; with "discounts" (all the premium points dollar matches etc) its more like 5-6%. How can it be done and continue for years in the USA, you ask? here: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States https://en.wikipedia.org/wiki/Lobbying_in_the_United_States