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Do the fees imposed for “credit” or “debit” differ for the consumer? The article seemed to imply that it did, otherwise, regulations being the same, why would i

Do the fees imposed for “credit” or “debit” differ for the consumer? The article seemed to imply that it did, otherwise, regulations being the same, why would it matter? It’s fun to know what the actual difference is though. I had always just assumed that if I select credit when using a debit card the transaction would just fail “silly customer we know, you told us to check the wrong vault”.

RC_ITR 4y ago
You can think of payments networks as secure messaging infrastructure where the operator says “you can trust us that this payment is legit” to varying degrees of certainty and with varying degrees of fraud protection. Debit networks (oversimplification) are basically ATM networks where your bank gets a note saying “user” supplied their card and pin to authorize a withdrawal of $X. This is why you can also pull out extra cash on these transactions. Banks ofc want to be reimbursed for the onerous task of giving you your own money, so they usually charge a consumer-facing fee for these transactions. Credit (really Visa/Mastercard) transactions tell the bank “user” gave us their card and a signature, our fraud algorithms tell us this is probably fine, and we’ll settle this payment in bulk with the rest of your users’ purchases in 1-3 days. Banks, again wanting their cut, are paid via merchant-facing fees (interchange and merchant discount rate). Stores keep the debit option up because some people like to draw extra cash and they get the benefit of not paying the fee even though their prices already incorporate the cost of credit card processing. That is also why all the “financial advice” sites say to run things as credit, but honestly I’m not sure how current the above is given recent regulations.
- jsmeaton 4y ago
  In Australia quite a lot of stores place an additional fee for using any kind of card (but they must be capped to actual fee, though some smaller vendors will add a minimum 50c fee).
- kuschku 4y ago
  > even though their prices already incorporate the cost of credit card processing. That's not yet the case everywhere. In Germany, girocard (a federated debit system, run by merchants and banks together, with basically no fees) is so common that prices do not include credit card fees. Now MasterCard is forcing banks to stop issuing girocards or MasterCard will stop working with those banks, in turn trying to destroy girocard. But this means prices for everything will jump another 1-2% to account for the new fees which are added by switching to the MasterCard network.
  - RC_ITR 4y ago
    Would you be surprised to learn that in the US, banks capture 85%+ of the fee you're talking about (in their roles as card issuers and merchant bankers). I'm serious, you can even do the math from Visa's disclosures - they make $30bn of revenue on $10tn of transactions (i.e. 0.3%). The reason Mastercard and Visa exist (I'm serious, both used to be wholly owned by the banks) is to have a fall guy so that banks can blame someone else when they want more of the transaction settlement pie. Do not assume German banks are somehow "the good guys" unless interchange and merchant discount rates don't go up, because there's nothing about Visa or Mastercard that forces them to take the interchange (in fact, one of the weirdest parts of the US is that wealthy customers just get that interchange given back to them).
    - kuschku 4y ago
      German banks have been running their own card system, independently of VISA or MasterCard, for 20 years now. With 0.125% total fees.
      - RC_ITR 4y ago
        I’m aware. You can even look in my comment history for many big discussions on why we should use a similar system in the US! Not every transaction needs the fraud protection that card networks charge for! But the lions share of fees you talk about would go to those same banks, so I’m just saying Mastercard maybe isn’t the villain you think they are (I feel like I’m just restating my earlier comment?)
kevincox 4y ago
In general yes. I'm a Canadian but I think this is very similar to the US. Debit cards often have per-transaction fees. However it is becoming quite common to have a very generous free allowance or even be completely free to the consumer. Credit cards almost never have a per-transaction fee but may have monthly fees. That also usually have some sort of rewards program that give 1-3% of purchases back to the card holder. So in general debit cards are low cost and becoming more universally free while credit cards pay you to use them.
- 0xffff2 4y ago
  This is definitely not my experience (or the experience of anyone I know) in the US. Debit cards don't ever involve a fee charged by your bank here. Businesses may charge a fixed fee for debit transactions, but that hasn't been common for probably a decade or more in my experience. Free credit cards a bountiful and my estimation is that the vast majority of people using a credit card with a (usually annual) fee are doing so because they have done at least some math to convince themselves that the benefits (usually cashback or airline miles) will outweigh the fee for their specific usage. In some localities, it is common for businesses to charge a fee for using plastic, but these days it's pretty much never tied to debit/credit anymore.

RC_ITR 4y ago

You can think of payments networks as secure messaging infrastructure where the operator says “you can trust us that this payment is legit” to varying degrees of certainty and with varying degrees of fraud protection. Debit networks (oversimplification) are basically ATM networks where your bank gets a note saying “user” supplied their card and pin to authorize a withdrawal of $X. This is why you can also pull out extra cash on these transactions. Banks ofc want to be reimbursed for the onerous task of giving you your own money, so they usually charge a consumer-facing fee for these transactions. Credit (really Visa/Mastercard) transactions tell the bank “user” gave us their card and a signature, our fraud algorithms tell us this is probably fine, and we’ll settle this payment in bulk with the rest of your users’ purchases in 1-3 days. Banks, again wanting their cut, are paid via merchant-facing fees (interchange and merchant discount rate). Stores keep the debit option up because some people like to draw extra cash and they get the benefit of not paying the fee even though their prices already incorporate the cost of credit card processing. That is also why all the “financial advice” sites say to run things as credit, but honestly I’m not sure how current the above is given recent regulations.

jsmeaton 4y ago
In Australia quite a lot of stores place an additional fee for using any kind of card (but they must be capped to actual fee, though some smaller vendors will add a minimum 50c fee).
kuschku 4y ago
> even though their prices already incorporate the cost of credit card processing. That's not yet the case everywhere. In Germany, girocard (a federated debit system, run by merchants and banks together, with basically no fees) is so common that prices do not include credit card fees. Now MasterCard is forcing banks to stop issuing girocards or MasterCard will stop working with those banks, in turn trying to destroy girocard. But this means prices for everything will jump another 1-2% to account for the new fees which are added by switching to the MasterCard network.
- RC_ITR 4y ago
  Would you be surprised to learn that in the US, banks capture 85%+ of the fee you're talking about (in their roles as card issuers and merchant bankers). I'm serious, you can even do the math from Visa's disclosures - they make $30bn of revenue on $10tn of transactions (i.e. 0.3%). The reason Mastercard and Visa exist (I'm serious, both used to be wholly owned by the banks) is to have a fall guy so that banks can blame someone else when they want more of the transaction settlement pie. Do not assume German banks are somehow "the good guys" unless interchange and merchant discount rates don't go up, because there's nothing about Visa or Mastercard that forces them to take the interchange (in fact, one of the weirdest parts of the US is that wealthy customers just get that interchange given back to them).
  - kuschku 4y ago
    German banks have been running their own card system, independently of VISA or MasterCard, for 20 years now. With 0.125% total fees.
    - RC_ITR 4y ago
      I’m aware. You can even look in my comment history for many big discussions on why we should use a similar system in the US! Not every transaction needs the fraud protection that card networks charge for! But the lions share of fees you talk about would go to those same banks, so I’m just saying Mastercard maybe isn’t the villain you think they are (I feel like I’m just restating my earlier comment?)

kevincox 4y ago

In general yes. I'm a Canadian but I think this is very similar to the US. Debit cards often have per-transaction fees. However it is becoming quite common to have a very generous free allowance or even be completely free to the consumer. Credit cards almost never have a per-transaction fee but may have monthly fees. That also usually have some sort of rewards program that give 1-3% of purchases back to the card holder. So in general debit cards are low cost and becoming more universally free while credit cards pay you to use them.

0xffff2 4y ago
This is definitely not my experience (or the experience of anyone I know) in the US. Debit cards don't ever involve a fee charged by your bank here. Businesses may charge a fixed fee for debit transactions, but that hasn't been common for probably a decade or more in my experience. Free credit cards a bountiful and my estimation is that the vast majority of people using a credit card with a (usually annual) fee are doing so because they have done at least some math to convince themselves that the benefits (usually cashback or airline miles) will outweigh the fee for their specific usage. In some localities, it is common for businesses to charge a fee for using plastic, but these days it's pretty much never tied to debit/credit anymore.