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Visa and Mastercard don't keep much of interchange at all and never have. The vast majority is paid to issuing banks to pay for loan origination, fraud and, mo
by arcticbull 3y ago
Visa and Mastercard don't keep much of interchange at all and never have.
The vast majority is paid to issuing banks to pay for loan origination, fraud and, most significantly, to return in the form of cash back or points.
These networks charge 0.2% for debit and 0.3% for credit in Europe as per regulation, you just don't get rewards there.
Kinda sounds like they're just going to squeeze issuing banks. Cash back and points cards in Canada (already pretty weak offerings compared to the US) are going to get further watered down. I've no real opinion on this, tbh.
Some napkin math that may not be right: Visa processed 11.6T in payment volume last year. Net revenue was $29B. Opex was $9.3B. Net income was $16B. That means their net revenue is about 0.25% and their net income is like 0.137% of transaction volume. This passes the smell test given their EU-mandated numbers. [1]
[1] https://annualreport.visa.com/financials/default.aspx https://annualreport.visa.com/financials/default.aspx
- e63f67dd-065b 3y agoThese numbers are not public, but the grapevine is that visa/mastercard keeps about a third of all interchange. Credit card rewards are a regressive tax on the poor -- literally, only those like us here on HN with good credit can get 2% cashback on everything, the rest who pay with debit/cash effectively subsidise our 2% discount. I enjoy my 2% cashback, but really would rather see a world where, like the EU, interchange got slashed to 30bps and it all went away. Take a look around the rest of the world -- Alipay in China is 55bps, TNG is Malaysia is 50, Pix in Brazil (I can't find concrete numbers, but seems to be around 22bps), etc. 2-300 bps is outrageous, we should demand better. I don't know what's the solution here. I'm weary of government intervention in capping prices, but I'm not sure what's the alternative here -- force each card to be available over multiple networks and for them to bid the interchange per transaction? Durbin amendment style caps? I don't know. But I do know that the status quo cannot stand. Edit: see the classic Boston Fed paper https://www.bostonfed.org/publications/public-policy-discussion-paper/2010/who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.aspx https://www.bostonfed.org/publications/public-policy-discuss... for a more through explanation of my point
- arcticbull 3y agoI think the EU model - and as you say the Durbin model - is completely reasonable. I will say the Durbin exemption for banks with under $10B in assets is pretty silly.
- Scoundreller 3y agoAre there some abusers of the exemption out there? I kinda like smaller orgs getting a small leg up against bigger ones. Discourages excessive consolidation. It’s like an anti-oligopoly provision.
- arcticbull 3y agoBefore Durbin there used to be a lot of banks that offered points-earning debit cards. After Durbin, for many years SunTrust had a debit card that earned Delta miles. I think that's since moved to Truist. [1] I guess it depends on what you mean by 'abuse.' Is Truist abusing non-Durbin status by giving out points for PIN debit transactions? Or are all the other non-Durbin banks who give back nothing abusing the exemption by keeping the interchange? [1] https://www.truist.com/checking/debit-cards https://www.truist.com/checking/debit-cards
- hiatus 3y agoBeing non-Durbin enables Truist to compete with bigger banks by being able to offer things like cash back on debit. That seems less like abuse and more things working as intended.
- Scoundreller 3y agoFrom what I can tell, the exempt interchange fees were unregulated. So don’t know if they went out of control or not. But even Durbin wasn’t perfect: before many cards would charge more of a percentage model, but after Durbin, raised them per swipe fee to the max. Which can be unfortunate for small purchases.
- AmericanChopper 3y ago
- KRAKRISMOTT 3y agoA bunch of fintechs are going to die :(
- lajupechere 3y agoA bunch of fintechs are going to die :)
- arcticbull 3y agoFintechs seem to do just fine in Europe, so I would suggest this is a pretty myopic take. Have you seen Adyen (Dutch, $ADYEY)? PayPal? Like it or not those companies provide value to their merchants so they're able to charge for their services. That isn't going to change with lower interchange.
- KRAKRISMOTT 3y agoThey are low level infra companies that exist because of regulatory capture. I am referring to companies like X1 and to some extent Ramp. The high level fintechs driving consumer innovation like electronic wallets, interesting rebate card models, better banking UXes all require interchange fees. This is also why most consumer fintechs start in the US and UK first before expanding elsewhere.
- arcticbull 3y agoI guess I would flip that around and say that the fintechs are providing services that are worth paying the mark-up for - not the other way around.
- Symbiote 3y agoThe UK was part of the EU until recently, and still maintains the card transaction fee cap regulation.
- rjmunro 3y agoNo it doesn't. It was one of the first "Brexit freedoms" the government took advantage of. That's why Amazon had a spat with Visa: https://ca.news.yahoo.com/visa-mastercard-agree-lower-average-193615680.html https://ca.news.yahoo.com/visa-mastercard-agree-lower-averag... The article is wrong here.
- KevinBenSmith 3y agoWhy should there even be something like cash back or points programs? These programs are taking money from the merchant and giving it to the end-consumer, while the middle-men keep a cut. I believe a world without these programs (or as you said “watered-down” versions) is more fair for the merchant and others shoppers not using such cards. Especially if the merchant is not allowed to charge the end-consumer with this added fee.
- vineyardmike 3y agoThe programs don’t take money from the merchants - they raise their prices to cover the fees. The reality is that they exist largely because the people earning the points aren’t paying the bills. Most CC Rewards programs target the professional class of travelers - people who travel for work where the employer pays the bill. It’s essentially taking from consulting companies’ clients to give to the employees.
- robjan 3y agoThey would exist without the interchange fees. The money is coming from revolvers, not the merchants or interchange
- throwaway426079 3y agoI'm in the UK and I have had (still have) rewards on MC, Visa and Amex. This was the case when we were still in the EU as well.
- nailer 3y agoAs a counter point, I’ve been here for fifteen years and never have.
- throwaway426079 3y agoI and others have shown that such cards exist, correcting the person who I replied to, who claimed they did not.
- rjmunro 3y agoAmex doesn't count - they run their own system end to end and charge retailers stupidly high fees. That's why most retailers don't take them. As for rewards on MC and Visa, which card are you on? In my experience, either the rewards are very small, or they are for specific retailers only, where the Bank has done a deal directly with the merchant. Occasionally they are a loss leader for the bank, working on the principle that you are The article is wrong about the UK capping interchange fees. Removing the EU cap was one of the first EU rules that the government decided to abolish after Brexit. At one point it meant you weren't going to be able to use a Visa card with Amazon, you'd have to switch to Mastercard.
- erincandescent 3y agoThe UK didn't scrap the Interchange Fees Regulation; but as a matter of law there became two separate IFRs, one covering the EEA-cards-in-EEA and one covering UK-cards-in-UK (To put it bluntly, a big amendment was automatically applied to most UK laws on exit day replacing EU & EEA with UK; and of course in the EU the definition of both of those words changed)
- uf00lme 3y agoAmex is a different model, their customers are card holders and not businesses. In their view of the world businesses must pay to access their customers. It will be interesting to see Google or Apple's long term play in this market, I would love it if they started providing banking services. Just so it interrupts the currently market where the middle men provide little to no real value to the general public.
- meghan_rain 3y ago> Net revenue was $29B. Opex was $9.3B. Net income was $16B. This, people, is what a duopoly looks like.
- darthrupert 3y agoCredit card reward systems are one of the dumbest ideas that humanity has invented. It's amazing/terrifying that it's legal.
- boruto 3y agoHow much is it for the EC card? Probably zero?