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The Fed is behind the Capital One/Discover merger
- kasey_junk 3y ago“ known as an ‘interchange fee,’ from the merchant, roughly 1.5-3.5% of every transaction” This jumps out because it is such a wide margin. In reality the average interchange fee is 1.8%. Amex at their _highest_ rate, which is the highest of all the networks is 3.5. So “roughly” is doing a lot of heavy lifting in that sentence which gets further amplified later in the article when they use it to multiply by the total credit volume. I don’t know that it fully discredits the argument but it is certainly a weak rhetorical tactic. In the payments space margins are measured in basis points, 2% seems small to laymen. 200 bips seems crazy big to anyone in the industry.
- twothamendment 3y ago"All your bips are belong to us!"
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- AdamN 3y agoA large portion of those 200 bips goes back to the customer via points/cash refunds so it's not actually an amount that the interchange captures.
- jjav 3y ago> In reality the average interchange fee is 1.8%. Is this really so? (I don't know, asking.) Many credit cards give 2% cash back, so they'd be operating at a loss. I'm quite sure credit card companies will never operate at a loss, so that can't be.
- AnthonyMouse 3y agoIt's both. The 2% cash back cards have higher interchange fees, but most people don't actually have 2% cash back cards.
- ceejayoz 3y agoThat 2% attracts plenty of balance-carrying people paying 29%.
- jjav 3y ago> That 2% attracts plenty of balance-carrying people paying 29%. Do you have data on that to share? It feels like that should not be the case, because the higher cash-back cards usually require a higher credit score. And people with a higher credit score are unlikely to fall into the trap of carrying a balance.
- ceejayoz 3y agoThe 2% cards aren’t that hard to get, and with something like half of Americans carrying balances some of them are gonna be 2% cardholders who ran up more than they realized on a 0% APR intro rate. You only need a few of those to make up the difference.
- stefan_ 3y agoThese are all insanely high. Elsewhere: > The Regulation on Interchange Fees for Card-based payment transactions entered into force in June 2015. > Therefore, the Regulation caps interchange fees for consumer debit cards to 0.2 % and consumer credit cards to 0.3 % of the value of the transaction.
- tiffanyh 3y ago> "The network operator takes a swipe fee, known as an ‘interchange fee,’ from the merchant" For open-loop networks (Visa/Mastercard), this statement is not accurate.
- pwarner 3y agoDo people do enough debit card transactions to make this loophole worthwhile? I avoid using my debit card as much as possible since the impact of theft is much worse for me as a consumer. I experience fraudulent credit card charges every few years, but it's not real money gone from my account. I'd be much more annoyed if it was.
- fnordpiglet 3y agoWith cash back and points incentives, withholding the non trivial value of the insurance of which you speak, the only rational reason to not use a credit card is bad credit. Now, for the merchant….
- ksherlock 3y agoI've encountered a couple businesses that charge an extra service fee for credit card payments but not debit card payments.
- bombcar 3y agoThis is becoming more common now that the government broke the credit cartel - especially for larger ticket items like auto repairs.
- lotsofpulp 3y agoThat happened in 2010. https://en.wikipedia.org/wiki/Durbin_amendment https://en.wikipedia.org/wiki/Durbin_amendment
- MakeThemMoney 3y agoAs they should. They credit card cartel should have never been allowed to make users of other, cheaper payment methods subsidize their benefits.
- fumeux_fume 3y agoI'll finish your sentence for you. The merchant just raises prices so you can pretend like your points are saving you money.
- no_wizard 3y agoWhy on earth isn’t the Federal Reserve providing an easy money moving service that also acts as a ledger? I know about FedNow but they could also back bone transaction networks as the definitive payment pipe and cut out the middleware companies entirely To be honest Visa type services should be provided via the central bank (again, Visa itself isn’t a credit card issuer) so businesses don’t have to soak the payment percentages
- tw04 3y agoFor the same reason we have tax preparation software and private health insurance (but somehow government flood insurance on vacation property). Valid historical reasons that no longer apply, and lots of lobbying.
- _factor 3y agoIt’s almost like we need to sit down and rethink this system.
- undersuit 3y agoDouble down?
- ponderings 3y agoI often think a full rewrite is needed. I woke up this morning with an odd thought. User interfaces are hard, they are not many but we have people who are really good at designing those, we also know how to user test them. Election programs are non binding, you can say one thing then do the exact opposite after winning. (Referenda are also complicated.) It doesn't seem to make sense in the modern age to be able to change your vote every x years. It's a great formula for [say] the 17th century. What if we designed a really neat configuration page for the government and allow people to change whatever settings exposed to them. You check a candidate you like and with each option their choice is the default. If you don't agree with something you simply change it. Then, one by one we take the topics away from the politicians so that they can focus on the rest of the work. For choosing the party you get 3 up and 3 down votes that you may spend however you like. A separate election is held to chose the team to populate and work on the interface so that gradually more and more topics get exposed. Their job would also be to research and estimate how familiar the population is with a topic along with a budget to educate the voter. It would be enlightening for the candidates as well. Eventually we can shut down the legacy system and have one or more nudgeable robot overlords. Don't worry, I'm sure the dream will fade in a few hours.
- wenyuanyu 3y agoI was a little bit surprised that there are no EU-based/originated payment networks. How comes? At least, in Japan, there is JCB, and in China there is UnionPay / Alipay?
- jltsiren 3y agoThere used to be Eurocard, but it merged with MasterCard a couple of decades ago. Most countries had domestic debit card networks. Some still have, while others replaced theirs with Visa / MasterCard debit cards.
- wenyuanyu 3y agoHow much is the credit card fee and debit card fee in Europe? In China, it is capped to 0.6% and could be as low as 0.3% or less I believe.
- pgeorgi 3y agoCapped at 0.3% for credit card transactions, 0.2% for debit card transactions See https://www.consilium.europa.eu/en/press/press-releases/2015/04/20/capping-fees-card-based-payments/ https://www.consilium.europa.eu/en/press/press-releases/2015...
- qwytw 3y agoThat's somewhat deceiving because these regulations don't include bank fees (about 1% in total is pretty standard)
- mattigames 3y agoThe banks already work just fine there, the little edge some startup may have is not worth the hassel
- TazeTSchnitzel 3y agoEurope used to have two significant card networks of its own: Maestro (owned by Mastercard) and Visa Europe (previously owned by various European banks). But Maestro is dead now and, a few years ago, Visa Europe merged into Visa. There were a bunch of national networks but they're slowly dying I think. The UK's Switch debit card network got rebranded as Maestro and then killed, for example. The UK still has something called Link however (used for ATM withdrawals and I think nothing else).
- shmerl 3y agoWhey did they make such a hole? Sounds like corruption.
- Havoc 3y agoAmerican style corruption aka lobbying
- Panzer04 3y agoThe thing that confuses me about fee-based payment businesses is in theory, a Surcharge for a particular payment method should cover the gap. Is there a reason surcharges aren't sufficient to drive down interchange and take fees? Do customers just not care about paying a 2% fee? Do merchants judge that it's not worth pissing off a subset of their customer base if they use a high-fee card and just eat the expense? It seems clear to me that the problem comes down to customers not actually paying the cost of using a particular card or network.
- pxx 3y agoCash logistics cost much more than 2%. The only reason you see substantial cash discounts is when people are trying to avoid taxation.
- c-linkage 3y agoBut merchants are already paying for cash logistics. Now because of credit card fees a person paying cash has to pay 2-5% more per transaction even when not using a credit card?
- tw04 3y ago>It seems clear to me that the problem comes down to customers not actually paying the cost of using a particular card or network. You absolutely pay it; you just don't see it. Go to small town America and deal with a small business and you'll frequently find businesses that will tell you that you can get a 3% discount paying cash. Go to Walmart or Target or Costco or insert national retailer and the discount or "cash back" will be via their branded card.
- JonathonW 3y agoIn the US, merchants spent years actually being forbidden (by the networks' merchant agreements, and even by law in some states) from adding a surcharge onto credit card transactions. That's mostly gone now (although I think there are still a couple states that forbid them, Visa and MC at least allow a credit card surcharge or cash discount in their merchant agreements), but it's so normalized at this point that customers are unlikely to care that CC and cash transactions are the same price. So, if you're a merchant, you set your pricing to include your merchant fees and just take the extra profit on cash transactions.
- jszymborski 3y ago> Though American Express’s status as a three party network isn’t strictly accurate, U.S. Bank does issue credit cards that operate on AMEX I'm pretty sure ScotiaBank does as well. They even offer their points programme (Scene) with it. https://www.scotiabank.com/ca/en/personal/credit-cards/american-express.html https://www.scotiabank.com/ca/en/personal/credit-cards/ameri...
- dang 3y agoRecent and related: Capital One to buy Discover Financial in $35B stock deal - https://news.ycombinator.com/item?id=39437387 https://news.ycombinator.com/item?id=39437387 - Feb 2024 (122 comments) Capital One Is Buying Discover Financial - https://news.ycombinator.com/item?id=39433109 https://news.ycombinator.com/item?id=39433109 - Feb 2024 (35 comments)
- tiffanyh 3y ago> But the Fed stuck in a loophole for Discover. And that is leading Capital One to buy it. This isn’t a “loophole”. It’s the difference between open-loop payment networks and closed-loop. Visa/Mastercard are open-loop. Whereas Amex & Discover are closed loop. On closed-loop, both the issuer and acquirer is the same bank (Discover). It’s way easier for a merchant to not accept closed-loop than it is open-loop, because they can just elect to not get an acquiring account at that bank (Discover). This is why Amex and Discover have always been more expensive for a merchant to accept than Visa/Mastercard. This article is way longer that it should be and it sensationalizes a fairly well known and simple difference.
- jrockway 3y agoIs Amex completely closed loop? When I worked at Bank of America circa 2010 we issued an Amex card. No idea if that is still a thing or not.
- kyawzazaw 3y agoThe article addresses this. US Bank issues an Amex card right now. https://www.americanexpress.com/en-us/network/us-bank/flexperks/credit-cards/select-plus.html https://www.americanexpress.com/en-us/network/us-bank/flexpe...
- bena 3y agoIt could still be closed loop. JPMorgan has ChaseNet, a closed loop system and it issues Visa and Mastercard cards. It was mostly rules from Visa and Mastercard that prevented American Express from being offered by more banks.
- ramesh31 3y agoDiscover has alqYs bewn stuck in a weird place in the US market. They've lived and died on their customer service reputation, yet ultimately they are just another credit card company. But with a card the really doesn't have any advantages over yhe others, and a non-zero chance of not being accepted somwehwere (more common than AmEx). They havn't had any other offerings at all which I've found compelling. And their banking services are too sparse to switch to as a main provider.
- ramesh31 3y agoDiscover has always been stuck in a weird place in the US market. They've lived and died on their customer service reputation, yet ultimately they are just another credit card company. But with a card that really doesn't have any advantages over the others, while having a non-zero chance of not being accepted somewhere (more common than Amex). They haven't had any other offerings at all which I've found compelling. And their banking services are too sparse to switch to as a main provider. Hard to say it will be missed.
- Kon-Peki 3y agoDiscover has always had the strange cash back thing. No need to find an ATM, just go into any grocery store, buy a soda or cigarettes, and have the cashier give you up to $100 cash or whatever the limit was. I wonder if anyone uses that service much anymore, but I can remember it being quite popular as an alternative to the dodgy and high-fee ATMs in the back of shitty bars back in the day.
- paxys 3y agoLots of speculation but no real data. No, Capital One didn't buy Discover for $35B so they could raise their debit card transaction fee by a few bps. People don't use debit cards enough for it to be worthwhile. The real reason is the boring one – there is a lot of value in the Discover brand and network and Capital One wants that.
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- ajaimk 3y agoI feel this title is misleading. Fed = Federal Reserve. This is Congress’s doing.