> Visa and Mastercard alone control 70% of the market based on purchase volume. And lack of competition reduces the incentive for firms to improve the efficienc

> Visa and Mastercard alone control 70% of the market based on purchase volume. And lack of competition reduces the incentive for firms to improve the efficiency of their technological systems or price their services fairly. Some detail about the pricing might help here. Most of the fee is actually going to customers, believe it or not, and sometimes processors. It is an interesting study in complex two-sided market dynamics. This is critical to understand when thinking about how to improve the system, and it's something many startups figure out the hard way. Most of the processing fee goes back to the issuing banks, not Visa/MC. On a typical transaction: 1. Visa takes "only" 0.11% + 2 cents. 2. Depending on the card maybe 1.5-2% + 10 cents goes to the bank that issued the card (e.g. Chase, Citi, Bank of America). These are fixed and published rates called interchange.[1] 3. The remainder of the fee is processor markup (e.g. Stripe, First Data). They are responsible for merchant fraud so their markup can vary a lot depending on merchant risk profile and bargaining power. E.g. Starbucks pays virtually nothing in processor markup, while Stripe's markup on thinly vetted ecommerce sites is huge. So while 0.11% of all card transactions is a lot of money for Visa/MC at scale, most of the "high" 2-3% card fee is actually going back to banks. Competition between Visa & MC keeps their cut to where it is. Even though they control "70% of the market", there is two-party competition there. So what's the deal.. what are fees so high? Don't banks compete with one another? Well, yes, they do, but it's not by picking lower interchange rates. There's one more piece to the picture: card benefits like reward programs that refund 1-2% to the customer, thinning the bank's take considerably. Banks compete on how much reward to pay out to the customer. Merchants dislike higher fees, obviously, but given the importance of card acceptance to completing a sale, they are more tolerant of fees than customers are tolerant of poor card benefits. The bottom line is banks need to compete for customers more than card networks need to compete for merchants. The only way merchants have been able to reduce card fees is through regulation. Visa/MC have built systems that effectively leverage the power of customer choice. If you want to build something different you need to look at the customer benefit side of things, not just offering merchants a lower-cost method. [1] https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees-2016-april.pdf https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...