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In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does

by objclxt 11y ago

In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does not. Whilst I'll happily congratulate Stripe for the investment, I don't myself see it as a good thing. With Stripe having investments from both Visa and AmEx they have little incentive to challenge the current fee structure. Stripe processes its payments in the US through a strategic deal with Wells Fargo, who have a substantial (> $1 billion) investment in Visa, who in turn have an investment in Stripe. Do any large retailers or merchants have similar investments in Stripe? I don't believe they do. If you're a merchant I wouldn't see Visa and American Express investing and taking equity in Stripe as a good thing. These are companies that have every possible reason to keep credit card fees as high as possible and prevent regulation from reducing them (which is exactly why Australia's fees are much lower - they're regulated). I like Stripe as a company. I think they do great stuff. But a Stripe that's received investment from the card networks is a Stripe less likely to make disruptive moves to break the monopoly card networks have today.

j3persson 11y ago
VISA provides a valuable service, and they need to get paid. It's not like Stripe is now just another cog in the machine. Well, this likely secures their future.
- objclxt 11y ago
  > VISA provides a valuable service Do they? Consider Brazil or the Netherlands, countries where the dominant way to pay for things online is by direct bank transfer. In the case of the Netherlands, iDEAL represents 54% of online transactions and offers instant transfer out of a customer's bank account at virtually zero cost to a merchant. Compare that to Visa in the US, where you get your payments several business days later at a substantial fee. What valuable service is Visa providing? They're not. I don't believe you'll be able to find a single large merchant in the US who thinks Visa provide anything approaching a valuable service.
  - Dwolb 11y ago
    This argument is silly. Value is determined by price and benefit. If VISA were not providing value, then no one would pay for their services. However this is not the case and we can find through unverified online sources that, "VISA creates value for all its stakeholders during the process. Cardholders’ benefit because of convenience, security, and rewards associated with card payments. Merchants benefit from improved sales by offering payment method options to the customers. Banks get new revenue streams through card fees, late payment interests, and transaction fee cuts." [1] [1] http://bmimatters.com/2012/03/19/understanding-visa-business-model/ http://bmimatters.com/2012/03/19/understanding-visa-business...
    - datashovel 11y ago
      You are living in a dream world. Give me access to Visa / US banking infrastructure and I'm 100% certain I can find ways to bring down costs by at least 99% and probably at the same time make it more secure and consumer friendly. Take the laissez–faire attitude in government, with a sprinkling of corruption at the highest levels of the financial industry, and you get merchant costs that you have in the US. Wow, what a claim, right? Let me ask you this. In what industry in the history of the world's economies can prices (such as those that banks / credit cards charge merchants) remain so stable in a truly competitive environment? Let me help you. The answer is NONE.
      - Dwolb 11y ago
        The point I was attempting to make was VISA does provide value. This value is estimated as the price clients pay plus the estimated benefit clients receive. This previous post also mentioned that you would be able to provide the same value VISA does given the same market opportunity (albeit at a lower price). Therefore I believe we are in agreement. I was not diving into VISA's market power, their ability to price their services, nor other politics.
        datashovel 11y ago
        I guess based on those definitions wouldn't you need to subtract value based on the differential between services provided vs cost of said services if in fact they are being offered at unreasonable price? Perhaps not on micro-scale, but on macro-scale it's certainly arguable that over priced goods extract value from an economy unnecessarily. In a way perhaps this sort of tactic can have negative overall effect on economy, and thus create negative value. Otherwise it would seem the word "value" has no real meaning.
geofft 11y ago
> Do you think it costs Visa 66% more to process a payment in the US than Australia? The answer is, of course, it doesn't. I know literally zero about credit cards beyond what I know as a user, but I can imagine a couple of reasons why that would be plausible, ranging from "There is more credit card fraud in the US" to "The market for credit card rewards in the US is more aggressive, and a 1.75% fee is a net loss for many US rewards cards". Can this really be dismissed out of hand like that?
- sksk 11y ago
  Fraud rates in the US are very, very low. I don't know the stats top of my head for CNP (Card Not Present or Online Fraud) but in general the industry as a whole was running at around 8-12bp couple of years back. It is not something that will materially change interchange rates. International fraud rates tend to vary but not 0bp. Many European countries adopted Chip and Pin early on, which reduced fraud rates but not to the point that will explain a 60+% diff. See my other comment on lobbying in the US.
  - needusername 11y ago
    > Fraud rates in the US are very, very low. And most transactions are online authorized anyway and issuers run real-time fraud detection systems.
- pbreit 11y ago
  At this point, a large portion of the fee goes to fund rewards. Despite that, there's been an inexplicable shift in payment volume to debit cards which have little or no rewards.
  - danj565 11y ago
    Maybe attributed to debt conscious millennial generation? I believe this is why financial management services like Simple and Moven that offer only debit cards are becoming more popular.
pc 11y ago
> In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does not. The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards -- much of which then, in turn, gets passed to consumers in the form of rewards. So, whether it costs more depends on your definition of "cost" -- but Visa itself does indeed incur much higher fees in the US (since they're paying more to banks). To a large degree, it's just a different equilibrium. That aside, I'm one of Stripe's cofounders. We're not beholden to credit cards: Stripe was the first major payments company to support Bitcoin; we support Alipay; we support ACH. We funded Stellar. And we have more in the works. But we should acknowledge that credit cards are by far the dominant instrument today. The purpose of this partnership is to help build products that improve the experience of accepting credit cards on behalf of the businesses that use Stripe. (And there sure is plenty of improvement possible there!)
- objclxt 11y ago
  I do always appreciate your willingness to comment here on stories about Stripe, so first of all thanks for taking the time to reply. I know so many people who have great experiences using Stripe and love the services you provide - I've evangelized them myself on occasion. But it is good, I think, to be a little skeptical about vertical integration - which isn't a bad thing per se, but you do have to wonder whether investments by the established card networks will have any impact on Stripe's ability to disrupt the space and work to benefit the merchant, rather than the bank (or both!). It's really good it sounds like that's not the case. > The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards Whilst this is true, it's also true that until 2008 Visa was owned by the issuing banks, and since Visa IPO'd the banks have maintained significant investments. So I don't think it's quite as clear cut as "the banks vs the networks". They have a somewhat symbiotic relationship. I think it's pretty clear that there's no appetite in the US on either the banks or the networks to reduce interchange unless forced to by regulation. And I think that's going to happen one day just as it did for debit cards, and it will be really interesting to see how the payment processors react to that - whether they lobby against it, or for it.
  - 11y ago
manicdee 11y ago
In the US the bank gets paid by Visa for each transaction. In Australia the bank pays Visa. So yes, I think it costs Visa that much extra to process a payment in the US. Clearly so. Also, in Australia a Visa transaction is handled by Visa, while in the US the transaction is handled by the card issuer. In Australia we get Visa/Mastercard cards with our bank's barding on it, in the US you get the bank's card with Visa/Mastercard payment clearing. At least that is how I understand it. All I know is that each Visa debit/credit transaction costs me $2.50, while EFTPOS costs me nothing. Same card, different button on the EFTPOS terminal. PayWave is Visa, not EFTPOS. Pay that $25 tank of petrol with PayWave, get slugged 10% in processing fees :(
thejosh 11y ago
Is it because in the US there is a fee for Bank Transfers? Here in AU bank transfers are free.
- gnopgnip 11y ago
  Many US banks have free bank transfers.
bebrown2 11y ago
"In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does not." Yes, actually, it does. Payment processors like Stripe (technically, an ISO) and its merchant acquirer partners must pass through most of their fees as interchange to the bank which issues a card. Those fees are much higher here in the U.S. versus Australia, where they are regulated. A typical U.S. payment processor charges ~2.3%, of which the processor retains 0.5%, 0.1% goes to Visa, and the remaining ~1.7% goes to the card issuer. (This averages out card-present and card-not-present sales across all sizes of merchants, and is just a rough estimate, so no judgement on Stripe's fee level, which is reasonable for a simple blended rate for e-commerce.) All of the processor's product development, marketing, operations, profit, etc., have to come from that small 0.5% margin. (That said, it's still a good business, with 50% margins at scale.)
jonathancordeau 11y ago
"If you're a merchant I wouldn't see Visa and American Express investing and taking equity in Stripe as a good thing." What's best for the merchant is what's lost in much of these discussions. The continued fragmentation of the industry has left merchants struggling to navigate necessary customization and even more difficult documentation; although Stripe has led well in this area. Since accepting alternate payment methods and the ability to switch processors is prohibitively difficult, competition is artificially constrained - leaving "fees as high as possible". That's why we're building http://accepton.com http://accepton.com Would love to chat: jonathan [at] accepton {dot} come

by objclxt 11y ago

j3persson 11y ago

VISA provides a valuable service, and they need to get paid. It's not like Stripe is now just another cog in the machine. Well, this likely secures their future.

objclxt 11y ago
> VISA provides a valuable service Do they? Consider Brazil or the Netherlands, countries where the dominant way to pay for things online is by direct bank transfer. In the case of the Netherlands, iDEAL represents 54% of online transactions and offers instant transfer out of a customer's bank account at virtually zero cost to a merchant. Compare that to Visa in the US, where you get your payments several business days later at a substantial fee. What valuable service is Visa providing? They're not. I don't believe you'll be able to find a single large merchant in the US who thinks Visa provide anything approaching a valuable service.
- Dwolb 11y ago
  This argument is silly. Value is determined by price and benefit. If VISA were not providing value, then no one would pay for their services. However this is not the case and we can find through unverified online sources that, "VISA creates value for all its stakeholders during the process. Cardholders’ benefit because of convenience, security, and rewards associated with card payments. Merchants benefit from improved sales by offering payment method options to the customers. Banks get new revenue streams through card fees, late payment interests, and transaction fee cuts." [1] [1] http://bmimatters.com/2012/03/19/understanding-visa-business-model/ http://bmimatters.com/2012/03/19/understanding-visa-business...
  - datashovel 11y ago
    You are living in a dream world. Give me access to Visa / US banking infrastructure and I'm 100% certain I can find ways to bring down costs by at least 99% and probably at the same time make it more secure and consumer friendly. Take the laissez–faire attitude in government, with a sprinkling of corruption at the highest levels of the financial industry, and you get merchant costs that you have in the US. Wow, what a claim, right? Let me ask you this. In what industry in the history of the world's economies can prices (such as those that banks / credit cards charge merchants) remain so stable in a truly competitive environment? Let me help you. The answer is NONE.
    - Dwolb 11y ago
      The point I was attempting to make was VISA does provide value. This value is estimated as the price clients pay plus the estimated benefit clients receive. This previous post also mentioned that you would be able to provide the same value VISA does given the same market opportunity (albeit at a lower price). Therefore I believe we are in agreement. I was not diving into VISA's market power, their ability to price their services, nor other politics.
      - datashovel 11y ago
        I guess based on those definitions wouldn't you need to subtract value based on the differential between services provided vs cost of said services if in fact they are being offered at unreasonable price? Perhaps not on micro-scale, but on macro-scale it's certainly arguable that over priced goods extract value from an economy unnecessarily. In a way perhaps this sort of tactic can have negative overall effect on economy, and thus create negative value. Otherwise it would seem the word "value" has no real meaning.

geofft 11y ago

> Do you think it costs Visa 66% more to process a payment in the US than Australia? The answer is, of course, it doesn't. I know literally zero about credit cards beyond what I know as a user, but I can imagine a couple of reasons why that would be plausible, ranging from "There is more credit card fraud in the US" to "The market for credit card rewards in the US is more aggressive, and a 1.75% fee is a net loss for many US rewards cards". Can this really be dismissed out of hand like that?

sksk 11y ago
Fraud rates in the US are very, very low. I don't know the stats top of my head for CNP (Card Not Present or Online Fraud) but in general the industry as a whole was running at around 8-12bp couple of years back. It is not something that will materially change interchange rates. International fraud rates tend to vary but not 0bp. Many European countries adopted Chip and Pin early on, which reduced fraud rates but not to the point that will explain a 60+% diff. See my other comment on lobbying in the US.
- needusername 11y ago
  > Fraud rates in the US are very, very low. And most transactions are online authorized anyway and issuers run real-time fraud detection systems.
pbreit 11y ago
At this point, a large portion of the fee goes to fund rewards. Despite that, there's been an inexplicable shift in payment volume to debit cards which have little or no rewards.
- danj565 11y ago
  Maybe attributed to debt conscious millennial generation? I believe this is why financial management services like Simple and Moven that offer only debit cards are becoming more popular.

pc 11y ago

> In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does not. The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards -- much of which then, in turn, gets passed to consumers in the form of rewards. So, whether it costs more depends on your definition of "cost" -- but Visa itself does indeed incur much higher fees in the US (since they're paying more to banks). To a large degree, it's just a different equilibrium. That aside, I'm one of Stripe's cofounders. We're not beholden to credit cards: Stripe was the first major payments company to support Bitcoin; we support Alipay; we support ACH. We funded Stellar. And we have more in the works. But we should acknowledge that credit cards are by far the dominant instrument today. The purpose of this partnership is to help build products that improve the experience of accepting credit cards on behalf of the businesses that use Stripe. (And there sure is plenty of improvement possible there!)

objclxt 11y ago
I do always appreciate your willingness to comment here on stories about Stripe, so first of all thanks for taking the time to reply. I know so many people who have great experiences using Stripe and love the services you provide - I've evangelized them myself on occasion. But it is good, I think, to be a little skeptical about vertical integration - which isn't a bad thing per se, but you do have to wonder whether investments by the established card networks will have any impact on Stripe's ability to disrupt the space and work to benefit the merchant, rather than the bank (or both!). It's really good it sounds like that's not the case. > The extra interchange in the US doesn't go to Visa but instead to the banks that issue the cards Whilst this is true, it's also true that until 2008 Visa was owned by the issuing banks, and since Visa IPO'd the banks have maintained significant investments. So I don't think it's quite as clear cut as "the banks vs the networks". They have a somewhat symbiotic relationship. I think it's pretty clear that there's no appetite in the US on either the banks or the networks to reduce interchange unless forced to by regulation. And I think that's going to happen one day just as it did for debit cards, and it will be really interesting to see how the payment processors react to that - whether they lobby against it, or for it.
- 11y ago

manicdee 11y ago

In the US the bank gets paid by Visa for each transaction. In Australia the bank pays Visa. So yes, I think it costs Visa that much extra to process a payment in the US. Clearly so. Also, in Australia a Visa transaction is handled by Visa, while in the US the transaction is handled by the card issuer. In Australia we get Visa/Mastercard cards with our bank's barding on it, in the US you get the bank's card with Visa/Mastercard payment clearing. At least that is how I understand it. All I know is that each Visa debit/credit transaction costs me $2.50, while EFTPOS costs me nothing. Same card, different button on the EFTPOS terminal. PayWave is Visa, not EFTPOS. Pay that $25 tank of petrol with PayWave, get slugged 10% in processing fees :(

thejosh 11y ago

Is it because in the US there is a fee for Bank Transfers? Here in AU bank transfers are free.

gnopgnip 11y ago
Many US banks have free bank transfers.

bebrown2 11y ago

"In the US Stripe charges 2.9%. That's 66% more than in Australia. Do you think it costs Visa that much extra to process a payment in the US? No, it clearly does not." Yes, actually, it does. Payment processors like Stripe (technically, an ISO) and its merchant acquirer partners must pass through most of their fees as interchange to the bank which issues a card. Those fees are much higher here in the U.S. versus Australia, where they are regulated. A typical U.S. payment processor charges ~2.3%, of which the processor retains 0.5%, 0.1% goes to Visa, and the remaining ~1.7% goes to the card issuer. (This averages out card-present and card-not-present sales across all sizes of merchants, and is just a rough estimate, so no judgement on Stripe's fee level, which is reasonable for a simple blended rate for e-commerce.) All of the processor's product development, marketing, operations, profit, etc., have to come from that small 0.5% margin. (That said, it's still a good business, with 50% margins at scale.)

jonathancordeau 11y ago

"If you're a merchant I wouldn't see Visa and American Express investing and taking equity in Stripe as a good thing." What's best for the merchant is what's lost in much of these discussions. The continued fragmentation of the industry has left merchants struggling to navigate necessary customization and even more difficult documentation; although Stripe has led well in this area. Since accepting alternate payment methods and the ability to switch processors is prohibitively difficult, competition is artificially constrained - leaving "fees as high as possible". That's why we're building http://accepton.com http://accepton.com Would love to chat: jonathan [at] accepton {dot} come