6 ms·

This is another phrasing of what jackdeansmith says, but this is not right: > Payments are transferring bits, and should be effectively free. Payments is taki

This is another phrasing of what jackdeansmith says, but this is not right: > Payments are transferring bits, and should be effectively free. Payments is taking on a short term risk that the (slow) transaction between a customer's bank and a vendor's bank will not settle, because of (a) fraud, (b) chargeback-like issues, (c) insolvency. This isn't exactly right, but overally its not quite 0 risk without crypto, which people don't trust (from a UX perspective). And all kinds of risk-taking charges for it: loans, mortgages, etc. If you want to shoulder the risk yourself and save the fees, pay with a debit card.

mc32 6y ago
Agree. I think that’s a very glaring omission in the original argument and one can interpret that as a simple misunderstanding or purposeful omission to misrepresent the totality of what comprises the cost to present a biased argument for more favorable terms.
- awakeasleep 6y ago
  It's basic human nature. Out of sight, out of mind- and I could build it in a weekend. But aside from that, the risk of payments is not intuitive. We regularly see threads on Hacker News where people pile on PayPal for 'seizing' the money of an entrepreneur with a business model that involves collecting payments up front and then delivering their good or service at a later date. Unless you've worked in the space, or read the fine print of the agreements, it's easy to get upset about that.
billclerico 6y ago
One thing that often gets overlooked with respect to payments is consumer preference (and this is actually the primary driver of cost). Why do credit cards cost 2-3% to process? Because of expensive rewards programs given to the consumers who use the card. Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. Except in edge cases, merchants have no choice but to accept credit cards despite the cost. While Visa, Mastercard & Amex frequently get the blame, the lions share of the processing fee flows to the issuing bank of the card, and the lions share of that fee goes to fund rewards programs. (There are other perks to credit cards that encourage consumer usage, including chargeback protections, free 30 days of float, near universal acceptance, etc) Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. Or if you, as the merchant, have such market power that you can mandate a less preferred but cheaper form of payment (like cash or debit card or ACH - this is why you often can't use your credit card to pay a parking ticket or your taxes)
- rurp 6y ago
  > Why are there expensive rewards programs? Because consumers like them! I'm not convinced of this. The credit card costs are already baked into prices and so as a consumer I can either play the cc rewards game and get back a decent chunk of those fees or I can use cash and a few % of each purchase I make goes towards subsidizing the folks who do play the rewards game. This is not a situation that can be resolved by consumer choice, because you'll never get millions of people to all voluntarily agree to give up hundreds of dollars a year in the vague hope of some change down the line.
- PickledJesus 6y ago
  Or unless there's regulation, as happened in the EU. Rewards programs got largely killed in the EU by the interchange fee limits in the last few years: https://en.wikipedia.org/wiki/Interchange_fee#European_Union https://en.wikipedia.org/wiki/Interchange_fee#European_Union Card fees can be below 1%
- thaeli 6y ago
  At many American gas stations, (I don't know how applicable this is in other countries) there is a lower "cash" price because the station doesn't have to pay credit card fees on the transaction. It's less convenient, because you have to park, go to the cashier, give them cash, go back to your car, fill up, go back to the cashier, get your change, and then go - versus put credit card in pump, fill up, go. It's ultimately a consumer choice and some choose each option. I'd love to have something similar for online payments. Give me a price, then charge transaction fees for credit and lower fees for debit or ACH, etc.
  - markdown 6y ago
    Do all American gas stations make you fill up your own gas?
    - ForHackernews 6y ago
      IIRC, Everywhere except Oregon and New Jersey, where it's illegal to fill your own gas tank and petrol stations still have an attendant.
hakfoo 6y ago
Couldn't much of this be scaled back if we removed some of the layers and intermediaries? If we had a single state-run bank (even if it were just as the fulfillment "back end" behind different consumer-facing servicing organizations), then a transfer would occur on a single ledger in a matter of milliseconds, rather than waiting for the East Podunk Bank, Trust, and Pork Cannery to pull a batched update file over a T-1 they put in in the first Bush administration. Fraud could be handled better than it is now. We have terrible security/convenience compromises (Chip + Signature, anyone?) and when we try to improve matters (3-D Secure) it is presented so badly and clumsily that it basically dies on arrival (it's coming back, but mostly because the EU is cramming it down people's throats) Chargebacks are a weird case. It feels like they come from two places-- either as the first response to a fraudulent transaction, or as an escalation for when there's no other way to get satisfaction. If you're fair with your refund policy, your chargeback rate should be close to nil.
- reader_mode 6y ago
  Your basic assumption is that you only have one government involved - and that's ignoring all the technical issues.
jurre 6y ago
_credit card_ payments are like that, but there is no technical reason for payments to work like that anymore.
skrebbel 6y ago
This is just credit card stockholm syndrome. Nearly all the risk you mention is because of the insane and greedy design of credit cards. In most of Europe, people pay with debit cards and the money goes straight off their bank accounts. If there's insufficient funds, there's no purchase. If the network fails, there's no purchase. If your bank goes bust 5ms before your purchase would clear, there's no purchase. I'm no banker and I'm sure there's some risk somewhere, but it's really not very much.
- daveoc64 6y ago
  Fraud is still possible with debit cards. Chargebacks are also still possible. Disputing them is expensive.
  - skrebbel 6y ago
    Fraud is substantially harder because you always need to authenticate payments (above a tiny amount) with a PIN, even when buying online. It's been 2-factor authenticated for 2 decades now.
- bluelu 6y ago
  That you only have to pay after 30 days, chargebacks, etc.. they are all in your favor. How do you buy online then? Prepayment? Good luck with that :-)
  - pjc50 6y ago
    ? Debit cards also work online. They're part of the same payment networks. "Visa Debit" etc.
- emodendroket 6y ago
  You can do that here but in the not-very-rare event of fraudulent use you have less protection and there's zero benefit beyond compensating for not being able to control your own spending. So I can't really see any reason why I'd use it.
netcan 6y ago
This is true. But what the comment is advocating for is systemic change/disruption. In that context, the whole complex (bank settlement, chargebacks, insolvency) are a single thing. There are always reasons for things being the way they are, but that doesn't mean that things can't change. As the OP says, payments move bits around. There is no fundamental reason why this should represent such a big slice. Besides technical challenges, and whether or not these can be overcome... I think the greater hurdle is entrenched structure and entrenched interests. Stripe is, at this point, a part of that. They have an overwhelming microeconomic interest in payments remaining a large "tax." Imagine an imports "agent." Her job is to get your goods into country X and navigate the labyrinth of rules, chaos, fees and taxes on your behalf. The whole game costs Y. She earns a % of Y. She may have more, and more nuanced complaints about the labyrinth than anyone but... If Y becomes less, she will earn less.

mc32 6y ago

Agree. I think that’s a very glaring omission in the original argument and one can interpret that as a simple misunderstanding or purposeful omission to misrepresent the totality of what comprises the cost to present a biased argument for more favorable terms.

awakeasleep 6y ago
It's basic human nature. Out of sight, out of mind- and I could build it in a weekend. But aside from that, the risk of payments is not intuitive. We regularly see threads on Hacker News where people pile on PayPal for 'seizing' the money of an entrepreneur with a business model that involves collecting payments up front and then delivering their good or service at a later date. Unless you've worked in the space, or read the fine print of the agreements, it's easy to get upset about that.

billclerico 6y ago

One thing that often gets overlooked with respect to payments is consumer preference (and this is actually the primary driver of cost). Why do credit cards cost 2-3% to process? Because of expensive rewards programs given to the consumers who use the card. Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. Except in edge cases, merchants have no choice but to accept credit cards despite the cost. While Visa, Mastercard & Amex frequently get the blame, the lions share of the processing fee flows to the issuing bank of the card, and the lions share of that fee goes to fund rewards programs. (There are other perks to credit cards that encourage consumer usage, including chargeback protections, free 30 days of float, near universal acceptance, etc) Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. Or if you, as the merchant, have such market power that you can mandate a less preferred but cheaper form of payment (like cash or debit card or ACH - this is why you often can't use your credit card to pay a parking ticket or your taxes)

rurp 6y ago
> Why are there expensive rewards programs? Because consumers like them! I'm not convinced of this. The credit card costs are already baked into prices and so as a consumer I can either play the cc rewards game and get back a decent chunk of those fees or I can use cash and a few % of each purchase I make goes towards subsidizing the folks who do play the rewards game. This is not a situation that can be resolved by consumer choice, because you'll never get millions of people to all voluntarily agree to give up hundreds of dollars a year in the vague hope of some change down the line.
PickledJesus 6y ago
Or unless there's regulation, as happened in the EU. Rewards programs got largely killed in the EU by the interchange fee limits in the last few years: https://en.wikipedia.org/wiki/Interchange_fee#European_Union https://en.wikipedia.org/wiki/Interchange_fee#European_Union Card fees can be below 1%
thaeli 6y ago
At many American gas stations, (I don't know how applicable this is in other countries) there is a lower "cash" price because the station doesn't have to pay credit card fees on the transaction. It's less convenient, because you have to park, go to the cashier, give them cash, go back to your car, fill up, go back to the cashier, get your change, and then go - versus put credit card in pump, fill up, go. It's ultimately a consumer choice and some choose each option. I'd love to have something similar for online payments. Give me a price, then charge transaction fees for credit and lower fees for debit or ACH, etc.
- markdown 6y ago
  Do all American gas stations make you fill up your own gas?
  - ForHackernews 6y ago
    IIRC, Everywhere except Oregon and New Jersey, where it's illegal to fill your own gas tank and petrol stations still have an attendant.

hakfoo 6y ago

Couldn't much of this be scaled back if we removed some of the layers and intermediaries? If we had a single state-run bank (even if it were just as the fulfillment "back end" behind different consumer-facing servicing organizations), then a transfer would occur on a single ledger in a matter of milliseconds, rather than waiting for the East Podunk Bank, Trust, and Pork Cannery to pull a batched update file over a T-1 they put in in the first Bush administration. Fraud could be handled better than it is now. We have terrible security/convenience compromises (Chip + Signature, anyone?) and when we try to improve matters (3-D Secure) it is presented so badly and clumsily that it basically dies on arrival (it's coming back, but mostly because the EU is cramming it down people's throats) Chargebacks are a weird case. It feels like they come from two places-- either as the first response to a fraudulent transaction, or as an escalation for when there's no other way to get satisfaction. If you're fair with your refund policy, your chargeback rate should be close to nil.

reader_mode 6y ago
Your basic assumption is that you only have one government involved - and that's ignoring all the technical issues.

jurre 6y ago

_credit card_ payments are like that, but there is no technical reason for payments to work like that anymore.

skrebbel 6y ago

This is just credit card stockholm syndrome. Nearly all the risk you mention is because of the insane and greedy design of credit cards. In most of Europe, people pay with debit cards and the money goes straight off their bank accounts. If there's insufficient funds, there's no purchase. If the network fails, there's no purchase. If your bank goes bust 5ms before your purchase would clear, there's no purchase. I'm no banker and I'm sure there's some risk somewhere, but it's really not very much.

daveoc64 6y ago
Fraud is still possible with debit cards. Chargebacks are also still possible. Disputing them is expensive.
- skrebbel 6y ago
  Fraud is substantially harder because you always need to authenticate payments (above a tiny amount) with a PIN, even when buying online. It's been 2-factor authenticated for 2 decades now.
bluelu 6y ago
That you only have to pay after 30 days, chargebacks, etc.. they are all in your favor. How do you buy online then? Prepayment? Good luck with that :-)
- pjc50 6y ago
  ? Debit cards also work online. They're part of the same payment networks. "Visa Debit" etc.
emodendroket 6y ago
You can do that here but in the not-very-rare event of fraudulent use you have less protection and there's zero benefit beyond compensating for not being able to control your own spending. So I can't really see any reason why I'd use it.

netcan 6y ago

This is true. But what the comment is advocating for is systemic change/disruption. In that context, the whole complex (bank settlement, chargebacks, insolvency) are a single thing. There are always reasons for things being the way they are, but that doesn't mean that things can't change. As the OP says, payments move bits around. There is no fundamental reason why this should represent such a big slice. Besides technical challenges, and whether or not these can be overcome... I think the greater hurdle is entrenched structure and entrenched interests. Stripe is, at this point, a part of that. They have an overwhelming microeconomic interest in payments remaining a large "tax." Imagine an imports "agent." Her job is to get your goods into country X and navigate the labyrinth of rules, chaos, fees and taxes on your behalf. The whole game costs Y. She earns a % of Y. She may have more, and more nuanced complaints about the labyrinth than anyone but... If Y becomes less, she will earn less.