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Institutions that add little to no value in transactions: 1> IPO underwriter 2> Title/Escrow company in a home sale 3> Payment processors like Visa 4> Property

Institutions that add little to no value in transactions: 1> IPO underwriter 2> Title/Escrow company in a home sale 3> Payment processors like Visa 4> Property manager for a rental home 5> Realtors These middlemen need to be bypassed to keep more value in these high value transactions and reduce costs! I'm glad Spotify is doing this, hopefully other big names will follow

notyourwork 9y ago
Not to diverge topics away from Spotify's stock but why do you suggest payment processors like Visa provide no value?
- SEJeff 9y ago
  Their value really is that they exist and are more or less a monopoly, so you have to pay the fees to use them (as a merchant) or turn away the overwhelming majority of customers.
  - notyourwork 9y ago
    Prior to their existence what mechanism provided the same avenue for transaction? Especially as the world moved online I would argue they became more relevant for transactions. I don't disagree with the monopoly part but that doesn't discredit their value in my opinion.
    - deleted 9y ago
      [deleted]
  - recursive 9y ago
    Not only do they exist, but they provide some kind of infrastructure to transfer payments. How do you do this without a middleman? Even mailing a check relies on banks and a postal system.
  - berberous 9y ago
    I think they clearly have value, but the problem is that it's hard for the market to settle on the true value because of the games they play with credit card points. They've tricked consumers into thinking that credit cards incur no costs, but in fact give them cash back and points. If points were banned, and consumers instead paid the credit card fee as a line item on their receipt next to taxes, you might find more downward pricing pressure or consumers willing to pay cash.
    - deleted 9y ago
      [deleted]
    - Spivak 9y ago
      Well duh, of course people would prefer cash if their credit card started costing them money. Credit cards are basically free to the consumer. You could argue that the ever-present fees causes the prices of goods to go up to compensate but it's just really not the case. You can look at merchants that accept and don't accept credit cards and you won't see really any tangible difference between the prices of their services.
      - saghm 9y ago
        There are a decent number of places that have a minimum price for using a card, and I've even seen gas stations that charge extra per gallon if you pay with credit instead of cash. I definitely agree that in the overwhelming majority of cases there isn't a difference to the consumer, and even when there is it's fairly slight.
  - themadcreator 9y ago
    They provide antifraud protection via chargebacks, which account for a sizeable portion of their fees. Fees are about 3%, fraud is about 1-2%.
    - danieltillett 9y ago
      The risk of fraud is covered by the merchant. The fees should be much lower than 3%.
      - adrr 9y ago
        Only online transactions(CNP) where you ship the product to address other than card's billing address. If the merchant uses 3D secure for online transactions, issuer is fully liable for fraud. For card present transactions, issuer is fully liable for chip based transactions. Merchants only bear risk if its a stripe or a manually keyed in transaction. High cost of for credit card transactions is because merchant pays for the 60 day interest free loan on the money that the bank is giving the consumer to make the purchase. Debit network transactions are a lot lower, 0.5% for durbin amendment cards(90% of cards out there).
        danieltillett 9y ago
        I am in Australia where the rules are different, but does 3D secure protect you against the CC owner claiming the item is not as described or was not received?
      - treyfitty 9y ago
        It really depends on a lot of things (do you have a chip terminal? If not, are you a gas merchant and based in the US, and the total transaction is under $50? Are you enrolled in 3D Secure? Are you on the Full Fraud Recourse list?...etc.) How you answer those questions determine chargeback eligibility. Even if networks do issue a chargeback, you can provide a 2nd presentment with evidence supporting your claim that it wasn't your fault. Finally, if all else fails, you can go the Good Faith Credit route. Which leads me to say that the burden of fraud really falls on the network, not the merchant, since they have to abide by definitive chargeback policies set forth, and be willing to accept 2nd presentments for the sake of maintaining merchant relationships. Your conclusion still holds true- swipe fees should be less than 3%- probably closer to 1%... let's just say I work in the industry, and see how the proverbial sausage is made.
  - afarrell 9y ago
    Spotify is mostly doing recurring payments. Folks could pay them via direct debit in the same way they pay their utility bills.
    - notyourwork 9y ago
      They could but they also lose protections that payment processors give.
angerbot 9y ago
Visa provides protection from a lot of risk on both the buyer and seller's side. As a seller I know that if a Visa payment clears I'll be getting that money, even if the customer doesn't have it. I don't need to arrange financing or risk taking a check that may bounce long after the customer has disappeared. As a consumer, I get some measure of protection from fraud and have the option of doing a chargeback and letting Visa sort things out with the vendor if something is not as described.
- fra 9y ago
  Just to be clear: as a seller you are not indemnified by Visa if you accept a fraudulent payment. In that case, the money is taken out of the seller's account and returned to the buyer.
- mankash666 9y ago
  What you really need is online cash. Like real cash, but online friendly to facilitate e-commerce. No cash back. No fees... Just simple transactions, like walking upto the cash register and paying with cash.
  - deleted 9y ago
    [deleted]
  - JustAnotherPat 9y ago
    why would we need that? Most people opt for credit over cash even in person. Credit offers protection. B@tcoin does not.
  - raverbashing 9y ago
    > No fees... Suuuuure Filling cash registers, sending money to the bank and counting money is free, and there's no loss from theft or mistakes Oh they aren't? Then money is not free of fees
  - mikeash 9y ago
    I don't really want, and definitely don't need, that sort of thing. I'd much rather pay for online purchases using something that protects me in the event of fraud.
JoshTriplett 9y ago
> Property manager for a rental home They're useful if you don't want to deal with individual tenants, ever, and just want to treat any issues that arise as an expense. Otherwise, you have to be prepared to treat a rental as a part-time job. (That said, they can also be terrible.) > Title/Escrow company in a home sale Escrow seems like a critically valuable service. It shouldn't be as intertwined as it is with a pile of other services, but I wouldn't want to do without it.
- sharkweek 9y ago
  I don't think I've ever seen a longer list of arbitrary fees than when I signed all the paperwork when buying a house. It felt like death by a thousand cuts with dozens of little $50-500 line items that seemed so arbitrary. When I would ask about them, I basically got told, "do you want the home or not..."
  - JoshTriplett 9y ago
    Agreed completely. I don't think escrow is one of them, but many of them are completely ridiculous.
  - lallysingh 9y ago
    .. maybe do some research before a major transaction? Transactions are complicated. Selling a home is probably worth researching. http://lmgtfy.com/?q=fees+involved+in+selling+a+house http://lmgtfy.com/?q=fees+involved+in+selling+a+house
  - dmoy 9y ago
    title checking can also be very important, because you don't want to fork over hundreds of thousands of dollars and then have the sale be invalidated because of title issues years down the road. Depending on what state you're in, this can be a non-trivial process to figure out.
    - robrenaud 9y ago
      Why isn't this computerized and super easy?
jasode 9y ago
>1> IPO underwriter The underwriter provides value by being _one_ convenient transaction to sell my company's shares. Instead of haggling with 1000 individual investors on "price", I haggle with just the bankers at Goldman Sachs or Merril Lynch. The investment bank then wires me the money and I get to concentrate my efforts elsewhere (like the product) instead of fundraising. (Damnit Jim I'm a tech CEO and not a hedge fund portfolio salesman!) The investment bank is now on the hook for selling the shares to those 1000 investors. Also, the investment bank has the prestige and the rolodex of potential buyers. For me (say a young 20-something) to replicate that would require many golf games and champagne dinners that take my time away from improving the product. Saving me time is worth something, right? (Maybe not a 3% underwriting fee but it's definitely worth something.) Cutting out the underwriter also means I leave "money on the table" because many investors would rather buy initial shares from a reputable intermediary like Goldman Sachs rather than a startup like me. If you as a company, prefer to _do_ the same investor relationship work that underwriters do, by all means, skip the underwriter fees.
- csomar 9y ago
  That seems rather like someone is going to eat "the loss" than "providing value for both guys". The stock market is the mechanism that provides value for the buyer and seller. If you are selling before any price discovery is on, you are either getting screwed; or your investors are. If the investment bank could figure out the right price for the shares, why have the stock exchange in the first place.
  - jasode 9y ago
    >The stock market is the mechanism that provides value If this was true in every circumstance, please consider why "market makers"[1] exist within the NYSE and London stock exchanges. If the stock market itself provides the value, buyers and sellers should find "market makers" redundant with zero value-added -- but that doesn't happen. Therefore, I propose that one doesn't compare investment bank IPO underwriters to a naked stock exchange. Instead, compare the underwriter to a "market maker". The underwriter can be seen as the first market maker for the initial offering. That's worth something to many owners of companies looking to get liquidity. [1] https://en.wikipedia.org/wiki/Market_maker#In_stock_exchange https://en.wikipedia.org/wiki/Market_maker#In_stock_exchange
csomar 9y ago
I'm really on the same page with you expect for 4. The property manager does give important value which is close to "managing human resources". He might get, disproportionally, higher pay than what he should but that might have to do with your target population. (ie: if you are renting a cheap house, you'll need for of "managing human resources" than for an expensive one. Even though you are getting less for the deal).
- cortesoft 9y ago
  I am not sure why you think renting a cheap house would have more need for 'managing human resources' than an expensive one.
cletus 9y ago
s/Institutions that add little to no value/Institutions that I don't understand/
haikuginger 9y ago
> Institutions that add little to no value in transactions I think the key qualifier you're missing from this broad assertion is "transactions which, by and large, go according to plan." Each of these institutions offers little value in cases where the parties involved are both fully informed and fully above-board, but each of these institutions offers critical protections in cases where one of the parties fails to uphold their end of an agreement properly.
jakelarkin 9y ago
All of these provide a form of risk insurance and professional administration to prevent large transactions from going very badly on the edge.
hellbanner 9y ago
Less middlemen is also why so many people are getting scammed out of $ in ICOs. There was a thread on HN a while back where HNers proposed regulation for BTC trade.. comment by comment rebuilding the (legitimate) reasons for regulation. I'm not saying the SEC is a force of good, just saying that good and bad can come with less regulation.
mahyarm 9y ago
The actual payment networks like visa and mastercard charge very small amounts in most cases, something around %0.15 + $0.02. Most of the credit card fee is going to the issuing banks.
deelowe 9y ago
Try owning 10 or more rentals and then say a property manager is useless.
needusername 9y ago
> Payment processors like Visa 4 Visa is not a payment processor, Visa is a payment scheme. Payment schemes offer a variety of value - settle and clear globally in almost any currency, almost any country, if you accept Visa and somebody with a Visa walks in your store we'll be able to pay - protection of the merchant against insolvency of the card holder (yeah the issuer comes up with the money but Visa makes him pay) - protection of the card holder against fraud - protection of the card holder against misconduct by the merchant (ie. but not limited to the merchant not shipping the goods). this is really easy to do for the card holder without having to the merchant, which may the on the other side of the world, to court. - a rule book for international conflict resolution - rules for software development and operation processes among participating companies, see Mt. Gox - rules for terminal security - a lot more If however you mean that Visa is a worse version of MasterCard that doesn't have its shit together, then I agree.

notyourwork 9y ago

Not to diverge topics away from Spotify's stock but why do you suggest payment processors like Visa provide no value?

SEJeff 9y ago
Their value really is that they exist and are more or less a monopoly, so you have to pay the fees to use them (as a merchant) or turn away the overwhelming majority of customers.
- notyourwork 9y ago
  Prior to their existence what mechanism provided the same avenue for transaction? Especially as the world moved online I would argue they became more relevant for transactions. I don't disagree with the monopoly part but that doesn't discredit their value in my opinion.
  - deleted 9y ago
    [deleted]
- recursive 9y ago
  Not only do they exist, but they provide some kind of infrastructure to transfer payments. How do you do this without a middleman? Even mailing a check relies on banks and a postal system.
- berberous 9y ago
  I think they clearly have value, but the problem is that it's hard for the market to settle on the true value because of the games they play with credit card points. They've tricked consumers into thinking that credit cards incur no costs, but in fact give them cash back and points. If points were banned, and consumers instead paid the credit card fee as a line item on their receipt next to taxes, you might find more downward pricing pressure or consumers willing to pay cash.
  - deleted 9y ago
    [deleted]
  - Spivak 9y ago
    Well duh, of course people would prefer cash if their credit card started costing them money. Credit cards are basically free to the consumer. You could argue that the ever-present fees causes the prices of goods to go up to compensate but it's just really not the case. You can look at merchants that accept and don't accept credit cards and you won't see really any tangible difference between the prices of their services.
    - saghm 9y ago
      There are a decent number of places that have a minimum price for using a card, and I've even seen gas stations that charge extra per gallon if you pay with credit instead of cash. I definitely agree that in the overwhelming majority of cases there isn't a difference to the consumer, and even when there is it's fairly slight.
- themadcreator 9y ago
  They provide antifraud protection via chargebacks, which account for a sizeable portion of their fees. Fees are about 3%, fraud is about 1-2%.
  - danieltillett 9y ago
    The risk of fraud is covered by the merchant. The fees should be much lower than 3%.
    - adrr 9y ago
      Only online transactions(CNP) where you ship the product to address other than card's billing address. If the merchant uses 3D secure for online transactions, issuer is fully liable for fraud. For card present transactions, issuer is fully liable for chip based transactions. Merchants only bear risk if its a stripe or a manually keyed in transaction. High cost of for credit card transactions is because merchant pays for the 60 day interest free loan on the money that the bank is giving the consumer to make the purchase. Debit network transactions are a lot lower, 0.5% for durbin amendment cards(90% of cards out there).
      - danieltillett 9y ago
        I am in Australia where the rules are different, but does 3D secure protect you against the CC owner claiming the item is not as described or was not received?
    - treyfitty 9y ago
      It really depends on a lot of things (do you have a chip terminal? If not, are you a gas merchant and based in the US, and the total transaction is under $50? Are you enrolled in 3D Secure? Are you on the Full Fraud Recourse list?...etc.) How you answer those questions determine chargeback eligibility. Even if networks do issue a chargeback, you can provide a 2nd presentment with evidence supporting your claim that it wasn't your fault. Finally, if all else fails, you can go the Good Faith Credit route. Which leads me to say that the burden of fraud really falls on the network, not the merchant, since they have to abide by definitive chargeback policies set forth, and be willing to accept 2nd presentments for the sake of maintaining merchant relationships. Your conclusion still holds true- swipe fees should be less than 3%- probably closer to 1%... let's just say I work in the industry, and see how the proverbial sausage is made.
- afarrell 9y ago
  Spotify is mostly doing recurring payments. Folks could pay them via direct debit in the same way they pay their utility bills.
  - notyourwork 9y ago
    They could but they also lose protections that payment processors give.

angerbot 9y ago

Visa provides protection from a lot of risk on both the buyer and seller's side. As a seller I know that if a Visa payment clears I'll be getting that money, even if the customer doesn't have it. I don't need to arrange financing or risk taking a check that may bounce long after the customer has disappeared. As a consumer, I get some measure of protection from fraud and have the option of doing a chargeback and letting Visa sort things out with the vendor if something is not as described.

fra 9y ago
Just to be clear: as a seller you are not indemnified by Visa if you accept a fraudulent payment. In that case, the money is taken out of the seller's account and returned to the buyer.
mankash666 9y ago
What you really need is online cash. Like real cash, but online friendly to facilitate e-commerce. No cash back. No fees... Just simple transactions, like walking upto the cash register and paying with cash.
- deleted 9y ago
  [deleted]
- JustAnotherPat 9y ago
  why would we need that? Most people opt for credit over cash even in person. Credit offers protection. B@tcoin does not.
- raverbashing 9y ago
  > No fees... Suuuuure Filling cash registers, sending money to the bank and counting money is free, and there's no loss from theft or mistakes Oh they aren't? Then money is not free of fees
- mikeash 9y ago
  I don't really want, and definitely don't need, that sort of thing. I'd much rather pay for online purchases using something that protects me in the event of fraud.

JoshTriplett 9y ago

> Property manager for a rental home They're useful if you don't want to deal with individual tenants, ever, and just want to treat any issues that arise as an expense. Otherwise, you have to be prepared to treat a rental as a part-time job. (That said, they can also be terrible.) > Title/Escrow company in a home sale Escrow seems like a critically valuable service. It shouldn't be as intertwined as it is with a pile of other services, but I wouldn't want to do without it.

sharkweek 9y ago
I don't think I've ever seen a longer list of arbitrary fees than when I signed all the paperwork when buying a house. It felt like death by a thousand cuts with dozens of little $50-500 line items that seemed so arbitrary. When I would ask about them, I basically got told, "do you want the home or not..."
- JoshTriplett 9y ago
  Agreed completely. I don't think escrow is one of them, but many of them are completely ridiculous.
- lallysingh 9y ago
  .. maybe do some research before a major transaction? Transactions are complicated. Selling a home is probably worth researching. http://lmgtfy.com/?q=fees+involved+in+selling+a+house http://lmgtfy.com/?q=fees+involved+in+selling+a+house
- dmoy 9y ago
  title checking can also be very important, because you don't want to fork over hundreds of thousands of dollars and then have the sale be invalidated because of title issues years down the road. Depending on what state you're in, this can be a non-trivial process to figure out.
  - robrenaud 9y ago
    Why isn't this computerized and super easy?

jasode 9y ago

>1> IPO underwriter The underwriter provides value by being _one_ convenient transaction to sell my company's shares. Instead of haggling with 1000 individual investors on "price", I haggle with just the bankers at Goldman Sachs or Merril Lynch. The investment bank then wires me the money and I get to concentrate my efforts elsewhere (like the product) instead of fundraising. (Damnit Jim I'm a tech CEO and not a hedge fund portfolio salesman!) The investment bank is now on the hook for selling the shares to those 1000 investors. Also, the investment bank has the prestige and the rolodex of potential buyers. For me (say a young 20-something) to replicate that would require many golf games and champagne dinners that take my time away from improving the product. Saving me time is worth something, right? (Maybe not a 3% underwriting fee but it's definitely worth something.) Cutting out the underwriter also means I leave "money on the table" because many investors would rather buy initial shares from a reputable intermediary like Goldman Sachs rather than a startup like me. If you as a company, prefer to _do_ the same investor relationship work that underwriters do, by all means, skip the underwriter fees.

csomar 9y ago
That seems rather like someone is going to eat "the loss" than "providing value for both guys". The stock market is the mechanism that provides value for the buyer and seller. If you are selling before any price discovery is on, you are either getting screwed; or your investors are. If the investment bank could figure out the right price for the shares, why have the stock exchange in the first place.
- jasode 9y ago
  >The stock market is the mechanism that provides value If this was true in every circumstance, please consider why "market makers"[1] exist within the NYSE and London stock exchanges. If the stock market itself provides the value, buyers and sellers should find "market makers" redundant with zero value-added -- but that doesn't happen. Therefore, I propose that one doesn't compare investment bank IPO underwriters to a naked stock exchange. Instead, compare the underwriter to a "market maker". The underwriter can be seen as the first market maker for the initial offering. That's worth something to many owners of companies looking to get liquidity. [1] https://en.wikipedia.org/wiki/Market_maker#In_stock_exchange https://en.wikipedia.org/wiki/Market_maker#In_stock_exchange

csomar 9y ago

I'm really on the same page with you expect for 4. The property manager does give important value which is close to "managing human resources". He might get, disproportionally, higher pay than what he should but that might have to do with your target population. (ie: if you are renting a cheap house, you'll need for of "managing human resources" than for an expensive one. Even though you are getting less for the deal).

cortesoft 9y ago
I am not sure why you think renting a cheap house would have more need for 'managing human resources' than an expensive one.

cletus 9y ago

s/Institutions that add little to no value/Institutions that I don't understand/

haikuginger 9y ago

> Institutions that add little to no value in transactions I think the key qualifier you're missing from this broad assertion is "transactions which, by and large, go according to plan." Each of these institutions offers little value in cases where the parties involved are both fully informed and fully above-board, but each of these institutions offers critical protections in cases where one of the parties fails to uphold their end of an agreement properly.

jakelarkin 9y ago

All of these provide a form of risk insurance and professional administration to prevent large transactions from going very badly on the edge.

hellbanner 9y ago

Less middlemen is also why so many people are getting scammed out of $ in ICOs. There was a thread on HN a while back where HNers proposed regulation for BTC trade.. comment by comment rebuilding the (legitimate) reasons for regulation. I'm not saying the SEC is a force of good, just saying that good and bad can come with less regulation.

mahyarm 9y ago

The actual payment networks like visa and mastercard charge very small amounts in most cases, something around %0.15 + $0.02. Most of the credit card fee is going to the issuing banks.

deelowe 9y ago

Try owning 10 or more rentals and then say a property manager is useless.

needusername 9y ago

> Payment processors like Visa 4 Visa is not a payment processor, Visa is a payment scheme. Payment schemes offer a variety of value - settle and clear globally in almost any currency, almost any country, if you accept Visa and somebody with a Visa walks in your store we'll be able to pay - protection of the merchant against insolvency of the card holder (yeah the issuer comes up with the money but Visa makes him pay) - protection of the card holder against fraud - protection of the card holder against misconduct by the merchant (ie. but not limited to the merchant not shipping the goods). this is really easy to do for the card holder without having to the merchant, which may the on the other side of the world, to court. - a rule book for international conflict resolution - rules for software development and operation processes among participating companies, see Mt. Gox - rules for terminal security - a lot more If however you mean that Visa is a worse version of MasterCard that doesn't have its shit together, then I agree.