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> 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 rea

> 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
    > Which is fine, you can offer discounts based on payment method, like at a gas station. And then you need more more complicated signs, which often confuse people who then get dissatisfied. You also may not be allowed to charge as much as it actually costs -- they allow you to recover the processing cost as a fee but not the cost of chargeback fraud. > 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. No, they're related, and that's why your proposal doesn't work, or is just equivalent to doing away with KYC. The government isn't allowed to penalize people based on vague suspicions and no proof, but private companies are. And that's what KYC is coaxed into service to do -- the bank wouldn't otherwise care if you're a drug dealer, but now the government can lean on them to drop anyone the bank has any vague suspicion might be, even if neither of them have any real proof. But that system has false positives, because its burden of proof is trash, which turns into a serious problem when the thing dropping you has a dominant market position instead of you just being able to go to the bank across the street whose algorithm isn't quite as broken. If you passed a law requiring them to do business with you unless it would be illegal, you're taking away the slack that was put there on purpose and they could only drop you if they could prove you're committing a crime -- and maybe that's good -- but good luck getting it passed, because the government likes the status quo. > 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? The issue is that they're tied together. You can't say "I want to avoid the interchange fee by having you debit my checking account the same day" even if you don't even want the billing cycle's worth of float -- and for a percent or two a lot of people would take that deal if it was available, because that's an awful high interest rate to pay over 30 days. > 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. That's only true if some viable alternative is available. They're stuck accepting cards because some customers wouldn't buy without them -- often because they're actually buying on credit -- but then once they do, other customers use them in order to get rewards or because the merchant isn't allowed to pass on the cost of chargeback fraud to only the people paying with credit cards. And even when the merchant is pressured into accepting credit cards through structural factors, you still have to pay the cost of chargeback fraud through higher prices when they do -- you just can't avoid those higher prices by not using a credit card, which is even worse.

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
  > Which is fine, you can offer discounts based on payment method, like at a gas station. And then you need more more complicated signs, which often confuse people who then get dissatisfied. You also may not be allowed to charge as much as it actually costs -- they allow you to recover the processing cost as a fee but not the cost of chargeback fraud. > 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. No, they're related, and that's why your proposal doesn't work, or is just equivalent to doing away with KYC. The government isn't allowed to penalize people based on vague suspicions and no proof, but private companies are. And that's what KYC is coaxed into service to do -- the bank wouldn't otherwise care if you're a drug dealer, but now the government can lean on them to drop anyone the bank has any vague suspicion might be, even if neither of them have any real proof. But that system has false positives, because its burden of proof is trash, which turns into a serious problem when the thing dropping you has a dominant market position instead of you just being able to go to the bank across the street whose algorithm isn't quite as broken. If you passed a law requiring them to do business with you unless it would be illegal, you're taking away the slack that was put there on purpose and they could only drop you if they could prove you're committing a crime -- and maybe that's good -- but good luck getting it passed, because the government likes the status quo. > 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? The issue is that they're tied together. You can't say "I want to avoid the interchange fee by having you debit my checking account the same day" even if you don't even want the billing cycle's worth of float -- and for a percent or two a lot of people would take that deal if it was available, because that's an awful high interest rate to pay over 30 days. > 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. That's only true if some viable alternative is available. They're stuck accepting cards because some customers wouldn't buy without them -- often because they're actually buying on credit -- but then once they do, other customers use them in order to get rewards or because the merchant isn't allowed to pass on the cost of chargeback fraud to only the people paying with credit cards. And even when the merchant is pressured into accepting credit cards through structural factors, you still have to pay the cost of chargeback fraud through higher prices when they do -- you just can't avoid those higher prices by not using a credit card, which is even worse.