4 ms·

A charge for payment processing should be closer to what Visa or Mastercard charges, something more in line with the cost for providing the service. They charg

by not2b 5y ago

A charge for payment processing should be closer to what Visa or Mastercard charges, something more in line with the cost for providing the service. They charge on the order of 1.5% to 3.5%, depending. 30% is extortionate.

stefan_ 5y ago
The majority of those percentages is the various gimmick bonus programs that convince people they are beating the system and getting back more than they pay. In Europe, the cap for credit cards is at 0.3% and that's still making a ton of money.
- not2b 5y ago
  Regardless of whether the right rate is 0.3% or 3%, it is certainly not 30%.
supreme_berry 5y ago
explaingarlic 5y ago
1.5% to 3.5% is extortionate for handling a transaction, in my uninformed opinion.
- judge2020 5y ago
  If it were, many companies would come in at 0.01% and bank on all the customers that immediately switch payment systems. Or maybe there is a bunch of overhead and investment involved in doing such (personnel, equipment, fraud systems, etc), so no competitor charges a price that would mean break-even or losing money. If a company really doesn't want to use a payment processor, they're free to go back to tab-based/credit-based accounting and hope that everyone pays in cash or everyone pays with ACH. On that note, I hope FedNOW works well enough to become an alternate PoS payment method[0]. 0: https://www.federalreserve.gov/newsevents/pressreleases/other20190805a.htm https://www.federalreserve.gov/newsevents/pressreleases/othe...
- adam_arthur 5y ago
  Percentage based in general is a hard to justify model, given that size of purchase presumably has no impact on cost to handle the transaction
  - awad 5y ago
    I'm not making a statement on what the right or wrong rate is, but in the case of credit cards there's also a level of risk involved with fraud, which does scale with the size of purchase. Debit cards have less risk and thus have a lower, if not totally fixed-rate, fee.
  - lotsofpulp 5y ago
    For chargeback-able transactions and transactions that are reversible due to fraud, it seems intuitive that the expected value of loss would be a function of the size of the transaction.
    - adam_arthur 5y ago
      The merchants pay for losses due to fraud, chargebacks, not the card network
  - hibikir 5y ago
    It absolutely has impact in the cost of the transaction. Even if we forget the fact that US credit card customers are bribed with percentage based cash back, card processors are both providing a form of insurance, and giving both merchants and customers cashflow easing loans. If I pay my credit card in full every time, I am, in practice, paying days later than when the merchant received my payment: I think the issuing bank is dealing with that part, and is not charging the customer for it. Many a transaction processor also ends up paying merchants faster than their bank gives them the money too: Their agreements with the merchants are often a little too friendly, and they have to secure loans for a day or two: There are entire teams out there dedicated to avoiding cash flow problems on the first of the month, when so many subscriptions come in, and a lot of money changes hands. We also have the insurance component: Say some famous musician and a few influencers decide to launch a new music festival, get a lot of money paid to their festival-making company, and then, due to mismanagement, fail to have a working music festival. Most of the people that paid with credit cards will ask for refunds, and will get them, even if the festival company goes bankrupt. Some of those people managing transactions hold the bag, and end up losing millions in refunds. There's also a wide gamut of fraudulent operations that will try to extract money from the system, either by posing as merchants, or as customers. Some of that fraud is also eaten by the companies that handle the transaction. So while fees could go down in a world with little fraud (and they do, as companies that are large enough, and have sufficient controls, end up negotiating serious discounts), it makes sense for fees to have a flat base and a percentage base, even if the entire system between you and your customer was just attempting to break even. The right percent though, barring the most fraudulent of environments, has nothing to do with a 30% cut.
jamil7 5y ago
As someone who sells software in the App Store I tend to agree with you although I'll add that for the majority of us it's 15% not 30% and they do handle a fair bit more than just the payment processing.

by not2b 5y ago

stefan_ 5y ago

The majority of those percentages is the various gimmick bonus programs that convince people they are beating the system and getting back more than they pay. In Europe, the cap for credit cards is at 0.3% and that's still making a ton of money.

not2b 5y ago
Regardless of whether the right rate is 0.3% or 3%, it is certainly not 30%.

supreme_berry 5y ago

explaingarlic 5y ago

1.5% to 3.5% is extortionate for handling a transaction, in my uninformed opinion.

judge2020 5y ago
If it were, many companies would come in at 0.01% and bank on all the customers that immediately switch payment systems. Or maybe there is a bunch of overhead and investment involved in doing such (personnel, equipment, fraud systems, etc), so no competitor charges a price that would mean break-even or losing money. If a company really doesn't want to use a payment processor, they're free to go back to tab-based/credit-based accounting and hope that everyone pays in cash or everyone pays with ACH. On that note, I hope FedNOW works well enough to become an alternate PoS payment method[0]. 0: https://www.federalreserve.gov/newsevents/pressreleases/other20190805a.htm https://www.federalreserve.gov/newsevents/pressreleases/othe...
adam_arthur 5y ago
Percentage based in general is a hard to justify model, given that size of purchase presumably has no impact on cost to handle the transaction
- awad 5y ago
  I'm not making a statement on what the right or wrong rate is, but in the case of credit cards there's also a level of risk involved with fraud, which does scale with the size of purchase. Debit cards have less risk and thus have a lower, if not totally fixed-rate, fee.
- lotsofpulp 5y ago
  For chargeback-able transactions and transactions that are reversible due to fraud, it seems intuitive that the expected value of loss would be a function of the size of the transaction.
  - adam_arthur 5y ago
    The merchants pay for losses due to fraud, chargebacks, not the card network
- hibikir 5y ago
  It absolutely has impact in the cost of the transaction. Even if we forget the fact that US credit card customers are bribed with percentage based cash back, card processors are both providing a form of insurance, and giving both merchants and customers cashflow easing loans. If I pay my credit card in full every time, I am, in practice, paying days later than when the merchant received my payment: I think the issuing bank is dealing with that part, and is not charging the customer for it. Many a transaction processor also ends up paying merchants faster than their bank gives them the money too: Their agreements with the merchants are often a little too friendly, and they have to secure loans for a day or two: There are entire teams out there dedicated to avoiding cash flow problems on the first of the month, when so many subscriptions come in, and a lot of money changes hands. We also have the insurance component: Say some famous musician and a few influencers decide to launch a new music festival, get a lot of money paid to their festival-making company, and then, due to mismanagement, fail to have a working music festival. Most of the people that paid with credit cards will ask for refunds, and will get them, even if the festival company goes bankrupt. Some of those people managing transactions hold the bag, and end up losing millions in refunds. There's also a wide gamut of fraudulent operations that will try to extract money from the system, either by posing as merchants, or as customers. Some of that fraud is also eaten by the companies that handle the transaction. So while fees could go down in a world with little fraud (and they do, as companies that are large enough, and have sufficient controls, end up negotiating serious discounts), it makes sense for fees to have a flat base and a percentage base, even if the entire system between you and your customer was just attempting to break even. The right percent though, barring the most fraudulent of environments, has nothing to do with a 30% cut.

jamil7 5y ago

As someone who sells software in the App Store I tend to agree with you although I'll add that for the majority of us it's 15% not 30% and they do handle a fair bit more than just the payment processing.