5 ms·

Can anyone explain why the hell they need so much per transaction?

by chisleu 12y ago

jbigelow76 12y ago
Gotta make the nut for the next quarterly earnings report.
zo1 12y ago
Because it's very difficult to under-cut them as a competitor.
PeterisP 12y ago
"Because they can" is the best explanation. These fees do fund all the CC infrastructure (terminals, technology, cards, servers, chargebacks, fraud compensations) and the benefits that card issuers give to cardholders, but there's still a lot of space for profit. There's a strong lock-in as most merchants really, really want to accept cards instead of leaving the system, and little competition (the interchange is unified for all banks), so it's almost like a cartel where the prices go down only when/if forced by regulation.
- seanmcdirmid 12y ago
  These are for debit, not credit transactions, so I don't think charge backs or fraud apply.
  - PeterisP 12y ago
    Yes, credit cards "cost more" on fraud issues and that's why they get different, higher interchange fees. But in general it depends on the place - US has a strong legal difference between fraud on debit and credit cards, but there still is some fraud protection even for debit cards and in (for example) EU the consumer rights for debit cards also includes chargebacks for unauthorised transactions and compensation of losses with stolen/fraudulent credentials above a certain level (100 EUR if I recall correctly); and banks still require a lot of monitoring infrastructure and security people to reduce debit card fraud simply because customer satisfaction requires that the fraudsters don't run rampart.
    - deleted 12y ago
      [deleted]
    - seanmcdirmid 12y ago
      Banks in the US don't really care about credit card fraud "that much" since the onus is on the merchant. Since debit cards require a PIN, the only fraud that even comes up is cloning and PIN scraping via fake ATMs (chips might help here, but they have these problems even in Europe, so I'm not certain).
      - otuutti 12y ago
        Know more about EU set up but the reality is that there is a lot of infrastructure costs and some fraud as well (~4.04bsp @$101 average). So costs for ~$2000 in fees can be up to ~$400. Signature cards are not secure whereas EMV cards hit a 0.42bsp fraud rate ($148 average). Of course still room for profit but the above numbers show why merchants are interested in EU fees and security.
  - chisleu 12y ago
    It definitely does. It didn't use to be the case, but many banks now offer the same protection from credit theft as a credit card. My local bank only requires that I alert them as soon as I notice it, but their map-reduce jobs have always caught the crooks before I would have ever known.
- dalke 12y ago
  I particularly liked the paragraph: > As for the retailers who point to lower swipe fees in Europe, Aufseeser counters that they are so low that “credit card companies are finding it tough to make any money at all” there. Why should it be easy to make money? Ahh, right, because with the regulations they want, they can.
DanielBMarkham 12y ago
You don't have to assume nefarious motives and evil bank lords (But have fun with that if you like. I'm sure some are bad, some are good, but let's be charitable and assume other folks are intelligent and well-meaning, at least for the duration of this comment). The reason is very simple: banks are established entities by the government. Banks have very complex, old, and unwieldy ways of doing business. There's a huge chunk of infrastructure feeding and maintaining the existing system: COBOL programs, call centers, technicians, offshore IT, and so forth. All of this was funded assuming that the current status quo would continue. Worse, nobody can really afford to replace all of that crap in-place. Some banks are lucky to get basic UI changes done to their website under any kind of cost control. Usually, when some new way of doing business comes along, the new guys start from scratch. All their stuff is new and cheap. Customers get more cool stuff for way less money. But that's not how it is with banks. New guys are not allowed. They own the game. So they're stuck, and we're stuck. Voters can get angrier and angrier and get more laws passed to "stick it to the bankers", but at the end of the day, unless you want to destroy your banking system? Customers have to eat any costs of change. Meanwhile all these neat startups around banking are paying out the ass and taking on huge risks just trying to tinker around the edges. This is what a non-competitive market looks like. If you think about it, what PayPal accomplished was nothing short of a miracle. Kudos to those guys.

Can anyone explain why the hell they need so much per transaction?

by chisleu 12y ago

Can anyone explain why the hell they need so much per transaction?

jbigelow76 12y ago

Gotta make the nut for the next quarterly earnings report.

zo1 12y ago

Because it's very difficult to under-cut them as a competitor.

PeterisP 12y ago

"Because they can" is the best explanation. These fees do fund all the CC infrastructure (terminals, technology, cards, servers, chargebacks, fraud compensations) and the benefits that card issuers give to cardholders, but there's still a lot of space for profit. There's a strong lock-in as most merchants really, really want to accept cards instead of leaving the system, and little competition (the interchange is unified for all banks), so it's almost like a cartel where the prices go down only when/if forced by regulation.

seanmcdirmid 12y ago
These are for debit, not credit transactions, so I don't think charge backs or fraud apply.
- PeterisP 12y ago
  Yes, credit cards "cost more" on fraud issues and that's why they get different, higher interchange fees. But in general it depends on the place - US has a strong legal difference between fraud on debit and credit cards, but there still is some fraud protection even for debit cards and in (for example) EU the consumer rights for debit cards also includes chargebacks for unauthorised transactions and compensation of losses with stolen/fraudulent credentials above a certain level (100 EUR if I recall correctly); and banks still require a lot of monitoring infrastructure and security people to reduce debit card fraud simply because customer satisfaction requires that the fraudsters don't run rampart.
  - deleted 12y ago
    [deleted]
  - seanmcdirmid 12y ago
    Banks in the US don't really care about credit card fraud "that much" since the onus is on the merchant. Since debit cards require a PIN, the only fraud that even comes up is cloning and PIN scraping via fake ATMs (chips might help here, but they have these problems even in Europe, so I'm not certain).
    - otuutti 12y ago
      Know more about EU set up but the reality is that there is a lot of infrastructure costs and some fraud as well (~4.04bsp @$101 average). So costs for ~$2000 in fees can be up to ~$400. Signature cards are not secure whereas EMV cards hit a 0.42bsp fraud rate ($148 average). Of course still room for profit but the above numbers show why merchants are interested in EU fees and security.
- chisleu 12y ago
  It definitely does. It didn't use to be the case, but many banks now offer the same protection from credit theft as a credit card. My local bank only requires that I alert them as soon as I notice it, but their map-reduce jobs have always caught the crooks before I would have ever known.
dalke 12y ago
I particularly liked the paragraph: > As for the retailers who point to lower swipe fees in Europe, Aufseeser counters that they are so low that “credit card companies are finding it tough to make any money at all” there. Why should it be easy to make money? Ahh, right, because with the regulations they want, they can.

DanielBMarkham 12y ago

You don't have to assume nefarious motives and evil bank lords (But have fun with that if you like. I'm sure some are bad, some are good, but let's be charitable and assume other folks are intelligent and well-meaning, at least for the duration of this comment). The reason is very simple: banks are established entities by the government. Banks have very complex, old, and unwieldy ways of doing business. There's a huge chunk of infrastructure feeding and maintaining the existing system: COBOL programs, call centers, technicians, offshore IT, and so forth. All of this was funded assuming that the current status quo would continue. Worse, nobody can really afford to replace all of that crap in-place. Some banks are lucky to get basic UI changes done to their website under any kind of cost control. Usually, when some new way of doing business comes along, the new guys start from scratch. All their stuff is new and cheap. Customers get more cool stuff for way less money. But that's not how it is with banks. New guys are not allowed. They own the game. So they're stuck, and we're stuck. Voters can get angrier and angrier and get more laws passed to "stick it to the bankers", but at the end of the day, unless you want to destroy your banking system? Customers have to eat any costs of change. Meanwhile all these neat startups around banking are paying out the ass and taking on huge risks just trying to tinker around the edges. This is what a non-competitive market looks like. If you think about it, what PayPal accomplished was nothing short of a miracle. Kudos to those guys.