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Everyone seems to forgot that a cheaper, regulated option exists, and it's Durbin debit cards. But nobody wants to use them because they don't offer the same be

Everyone seems to forgot that a cheaper, regulated option exists, and it's Durbin debit cards. But nobody wants to use them because they don't offer the same benefits vanilla credit cards. People choose the more expensive option because it better meets the needs of customers. The middle man doesn't really take all that much - most of interchange goes to the cost of loan origination, insurance and most importantly cash back and rewards programs. There's no annual fee 2% cash back cards. It's a little disingenuous to say the 1.5-3.5% interchange fee "mostly goes to middle men" when most of it goes right back into your pocket in one way or another.

AnthonyMouse 3y ago
> There's no annual fee 2% cash back cards. It's a little disingenuous to say the 1.5-3.5% interchange fee "mostly goes to middle men" when most of it goes right back into your pocket in one way or another. There are two problems with this. The first is that not everybody is eligible for the no annual fee 2% cash back cards, and the people who aren't are the people in financial straits, so this is effectively a tax on the poor. The second is that it's an anti-competition measure. Sure, maybe you get 2% out of the 3% the merchant is charged, but then you refuse to use a competing payments system because you want your 2%. And then we're stuck with the incumbents forever because anything new and different can't build a network effect when customers would have to pay a de facto 2% tax on everything they buy in order to use it. Which is exactly what happens to your debit cards -- and then people are subject to the whims of Visa and their opaque capricious KYC implementation.
- arcticbull 3y ago
  > Which is exactly what happens to your debit cards -- and then people are subject to the whims of Visa and their opaque capricious KYC implementation. Not really. The merchant decides what kind of card to accept and how to route. It's just that customers will choose not to visit your establishment if you only accept debit, even if you have lower prices. Because they like the perks of a credit card. The reality is the merchants pay a blended average of about 1.8% and they do so because people spend more on credit cards. It's relatively cheap, super fast, very easy and secure. KYC is hardly capricious. Visa, issuers and acquirers have no interest in cutting off customers because, and this is true, cut off customers don't make them money. There is room for something like 'payment network neutrality' where legislation requires networks to process all legal transactions. Things can be better. > And then we're stuck with the incumbents forever because anything new and different can't build a network effect when customers would have to pay a de facto 2% tax on everything they buy in order to use it. I don't buy this either. The last few years saw the development of a whole new network in BNPLs. And guess what, it's not cheaper, at all. They charge 4% or more and they don't kick any of it back to customers. The value in credit networks is in the loan origination, the insurance and to an extent the rewards. The credit networks do just fine in Europe where interchange is capped at 0.2% for debit and 0.3% for credit, and I haven't really seen a wellspring of competition. What I do see is a dearth of loyalty programs, which is a tradeoff you can choose to make.
  - AnthonyMouse 3y ago
    > The merchant decides what kind of card to accept and how to route. It's just that customers will choose not to visit your establishment if you only accept debit, even if you have lower prices. Because they like the perks of a credit card. Some customers. But then this leads to the problem: If you accept credit cards in order to satisfy those customers, other customers will use them in order to get the cash back. > KYC is hardly capricious. It is. They often cut off lawful businesses because they have disfavorable PR associations or political views, and sometimes apparently random people for undisclosed reasons. If it was easy to switch to any number of competitors without customers having to know any difference or sign up for different cards etc. that would be irrelevant, but it isn't. > The last few years saw the development of a whole new network in BNPLs. And guess what, it's not cheaper, at all. They charge 4% or more and they don't kick any of it back to customers. This is a loan. Naturally the customer is then paying interest. A credit card is nominally a form of credit too, but the fees are still charged to the merchant even when the buyer immediately pays off the card in full. > What I do see is a dearth of loyalty programs, which is a tradeoff you can choose to make. And this is the tradeoff we should make, because getting charged 2% more and then getting 2% back is useless, but has negative consequences like inducing complexity and customer ire to provide cash discounts or credit card surcharges, and causing customers to prefer the incumbent system in favor of competitors even more than they do otherwise. Notice that the cost of "insurance" from the credit cards has to be passed on too. You like that you can issue a chargeback, but so can a scammer in order to rip off the merchant, and then merchants have to cover the cost of getting ripped off. Any disincentives to not implicitly buying that insurance when you trust the merchant and don't need it will tend to raise prices.
    - arcticbull 3y ago
      > Some customers. But then this leads to the problem: If you accept credit cards in order to satisfy those customers, other customers will use them in order to get the cash back. Which is fine, you can offer discounts based on payment method, like at a gas station. I still pay credit. > It is. They often cut off lawful businesses because they have disfavorable PR associations or political views, and sometimes apparently random people for undisclosed reasons. That's not AML/KYC/CTF. That's freedom of association. KYC is a legal compliance matter. That's why I suggested a 'payment network neutrality' bill that required these systemically important networks process all lawful payments - or the introduction of a state-run network. > This is a loan. Naturally the customer is then paying interest. A credit card is nominally a form of credit too, but the fees are still charged to the merchant even when the buyer immediately pays off the card in full. A credit card is an interest-free loan for 1 billing cycle followed by the regular APR. Part of the interchange pays for the first billing cycle where you are not charged your APR. They don't return any of that 4% BNPL fee if you pay it off early either do they? > You like that you can issue a chargeback, but so can a scammer in order to rip off the merchant, and then merchants have to cover the cost of getting ripped off. Still works out better for the merchant than not taking card. That's just the reality. If it weren't then they wouldn't accept cards.

AnthonyMouse 3y ago

> There's no annual fee 2% cash back cards. It's a little disingenuous to say the 1.5-3.5% interchange fee "mostly goes to middle men" when most of it goes right back into your pocket in one way or another. There are two problems with this. The first is that not everybody is eligible for the no annual fee 2% cash back cards, and the people who aren't are the people in financial straits, so this is effectively a tax on the poor. The second is that it's an anti-competition measure. Sure, maybe you get 2% out of the 3% the merchant is charged, but then you refuse to use a competing payments system because you want your 2%. And then we're stuck with the incumbents forever because anything new and different can't build a network effect when customers would have to pay a de facto 2% tax on everything they buy in order to use it. Which is exactly what happens to your debit cards -- and then people are subject to the whims of Visa and their opaque capricious KYC implementation.

arcticbull 3y ago
> Which is exactly what happens to your debit cards -- and then people are subject to the whims of Visa and their opaque capricious KYC implementation. Not really. The merchant decides what kind of card to accept and how to route. It's just that customers will choose not to visit your establishment if you only accept debit, even if you have lower prices. Because they like the perks of a credit card. The reality is the merchants pay a blended average of about 1.8% and they do so because people spend more on credit cards. It's relatively cheap, super fast, very easy and secure. KYC is hardly capricious. Visa, issuers and acquirers have no interest in cutting off customers because, and this is true, cut off customers don't make them money. There is room for something like 'payment network neutrality' where legislation requires networks to process all legal transactions. Things can be better. > And then we're stuck with the incumbents forever because anything new and different can't build a network effect when customers would have to pay a de facto 2% tax on everything they buy in order to use it. I don't buy this either. The last few years saw the development of a whole new network in BNPLs. And guess what, it's not cheaper, at all. They charge 4% or more and they don't kick any of it back to customers. The value in credit networks is in the loan origination, the insurance and to an extent the rewards. The credit networks do just fine in Europe where interchange is capped at 0.2% for debit and 0.3% for credit, and I haven't really seen a wellspring of competition. What I do see is a dearth of loyalty programs, which is a tradeoff you can choose to make.
- AnthonyMouse 3y ago
  > The merchant decides what kind of card to accept and how to route. It's just that customers will choose not to visit your establishment if you only accept debit, even if you have lower prices. Because they like the perks of a credit card. Some customers. But then this leads to the problem: If you accept credit cards in order to satisfy those customers, other customers will use them in order to get the cash back. > KYC is hardly capricious. It is. They often cut off lawful businesses because they have disfavorable PR associations or political views, and sometimes apparently random people for undisclosed reasons. If it was easy to switch to any number of competitors without customers having to know any difference or sign up for different cards etc. that would be irrelevant, but it isn't. > The last few years saw the development of a whole new network in BNPLs. And guess what, it's not cheaper, at all. They charge 4% or more and they don't kick any of it back to customers. This is a loan. Naturally the customer is then paying interest. A credit card is nominally a form of credit too, but the fees are still charged to the merchant even when the buyer immediately pays off the card in full. > What I do see is a dearth of loyalty programs, which is a tradeoff you can choose to make. And this is the tradeoff we should make, because getting charged 2% more and then getting 2% back is useless, but has negative consequences like inducing complexity and customer ire to provide cash discounts or credit card surcharges, and causing customers to prefer the incumbent system in favor of competitors even more than they do otherwise. Notice that the cost of "insurance" from the credit cards has to be passed on too. You like that you can issue a chargeback, but so can a scammer in order to rip off the merchant, and then merchants have to cover the cost of getting ripped off. Any disincentives to not implicitly buying that insurance when you trust the merchant and don't need it will tend to raise prices.
  - arcticbull 3y ago
    > Some customers. But then this leads to the problem: If you accept credit cards in order to satisfy those customers, other customers will use them in order to get the cash back. Which is fine, you can offer discounts based on payment method, like at a gas station. I still pay credit. > It is. They often cut off lawful businesses because they have disfavorable PR associations or political views, and sometimes apparently random people for undisclosed reasons. That's not AML/KYC/CTF. That's freedom of association. KYC is a legal compliance matter. That's why I suggested a 'payment network neutrality' bill that required these systemically important networks process all lawful payments - or the introduction of a state-run network. > This is a loan. Naturally the customer is then paying interest. A credit card is nominally a form of credit too, but the fees are still charged to the merchant even when the buyer immediately pays off the card in full. A credit card is an interest-free loan for 1 billing cycle followed by the regular APR. Part of the interchange pays for the first billing cycle where you are not charged your APR. They don't return any of that 4% BNPL fee if you pay it off early either do they? > You like that you can issue a chargeback, but so can a scammer in order to rip off the merchant, and then merchants have to cover the cost of getting ripped off. Still works out better for the merchant than not taking card. That's just the reality. If it weren't then they wouldn't accept cards.