In total these companies have profit in double digit billions! That's all coming from inefficiency and lack of real competition? is it totally necessary? does anyone think it possible to rival them in a decade with enough funding?
Stripe, Block, and PayPal each solved a massive pain point.
PayPal provided a way to pay people and vendors without giving away your credit card number.
Square made it easy to accept payment in person on a phone, without an extensive upfront underwriting experience and without expensive fixed monthly fees.
Stripe did the same as Square, but for accepting online payments.
Fraud and Risk come in many forms, and these providers, even with their UX innovations, sit on top of those same rails to reduce fraud. Without those rails, buyers can’t trust sellers and sellers can’t trust buyers.
In my opinion, you need to find a way to solve that problem before you can eliminate the fees being captured by these providers.
A lot of the fraud hinges on the fact that all you need to drain an account is a static card number. A lot of hacks are subsequently piled on top of that to try and make it harder (SCA/3D Secure, captchas, etc), and a lot of busywork is spent tidying up the consequences of that (chargeback handling, etc).
You could eliminate a lot of the fraud by moving off a mostly-static identifier to merchant, amount and time-limited tokens the user generates with their bank (or the merchant redirects them there). This would address a lot of the issues - the tokens are useless when leaked (as they only work against the merchant's own account) and can't be misused even by the merchant to go beyond the agreed amount or time limit.
This means with such a system you’d immediately eliminate a whole category of fraud, with the only thing remaining being merchant-level disputes like goods not as described/etc, which can easily be made optional and the user can choose to opt-in for the extra fee. Then you would actually have a good case for lower/no mandatory fees at all.
One problem you need to keep in mind is that fraud mitigation is a big industry in an of itself (some of it is real, some complete snake oil but relies on the underlying problem being real to sell itself) and wouldn't be in favor of a system that is inherently immune to (at least some types of) fraud.
PayPal: In Netherlands there is system called iDeal which provide online payments via tokens, without giving any of your data to seller (recipient). It is supported by all banks. It is super-convinient, you scan QR code by bank app on your smartphone if you pay on other device (laptop, computer) or link is opened by your bank app on mobile and you approve payment. You don't need to enter anything, only select your bank from the list. You don't need to pass your payment data to 3rd party like PayPal, there is no place to steal or phish your card or account data in this scheme.
Visa or MC could do the same, without additional parties. But no.
Stripe had a live dashboard over Black Friday that showed the dollar value of all transactions across their network, including those blocked for fraud. The fraud rate was nearly 12% of the total dollar amount of transactions.
The challenger to these will solve for a different problem. Not every transaction needs complex fraud detection or being able for the customer do to chargebacks.
For a 3% discount, would customers agree to use something that worked just like cash, where the transfer was instant and couldn't be undone? Then you don't have to worry about fraud, chargebacks, etc.
> Fraud and Risk come in many forms, and these providers, even with their UX innovations, sit on top of those same rails to reduce fraud. Without those rails, buyers can’t trust sellers and sellers can’t trust buyers.
In my opinion, you need to find a way to solve that problem before you can eliminate the fees being captured by these providers.
And failing the elimination of those issues there will always be some fees. New vendors can pop in and push the fee structure down if they can run a more efficient operation.
Most countries that aren't the US basically did this, in one way or another.
There are multiple ways of doing so, two-factor authentication (think 3d secure) is one, an oAuth like system where you log in to your bank on their website and consent to a wire transfer is another. There are variations on these ideas, the system we have here gives you a 6-digit code in your banking app which you can enter on any device, trusted or not, and then accept the transfer via a pop-up on your phone, no personal data involved.
As far as I understand, both US law and US history heavily incentivize the use of credit cards. There's no nice way for landlords, banks, mortgage lenders and other such institutions in the US to do "background checks" on their customers except through credit scores, and that incentivizes credit card use. There's also a regulatory difference in how credit versus debit card chargebacks are handled, making credit a lot more friendly to consumers in cases of actual fraud.
Then there's the historical aspect, in the era where there were no computers, and most vendors could at best call a bank to verify if a card was valid, a debit based system wasn't technically feasible, which is what put the US on the path of credit. A lot of poorer countries had the major cash-to-cards transition a lot later, in the era of chips and dial-up modems, which made debit a lot easier to implement, and so that's what they went with, and debit usually means far lower fees.
These systems act as sort of a fraud insurance. I think in an ideal world we would have low friction low cost money transfers, but people could purchase insurance against fraud. There are complications to this, such as how to be both efficient and avoid abuse, but it would simplify every day life not having to think about a million different payment systems.
I find it weird how fraud protection is used to justify why these companies are so popular because fraud is not something that most consumers care about up front, most people only start caring when it happens to them. Most tend to assume that every tool they use is secure by default. "This product is not insecure" is not a very compelling selling point IMO.
It's actually difficult to justify Stripe's popularity aside from media monopolization preventing alternatives from gaining mindshare. Everyone knows Stripe but many don't know about the existence of alternatives.
Stripe, Block, and PayPal were never required to process transactions.
You can negotiate with a bank to get your own rate and then implement your own secure transaction processing. Visa is still required though.
I have worked at companies that bypassed those middlemen. Many companies don’t do it because they are okay with paying higher fees so they don’t have to deal with that extra headache, or because they work at smaller companies that think Stripe, Block, and PayPal invented payment processing when Visa and banks have been around for decades longer.
One aspect that's very important is legal. It's very hard / cumbersome to comply in legal for payment processing in one country, having it to comply in most countries is a massive feat, and an expensive one at that. Though yeah if you already has a mass, pressuring regulation may be easier.
And the value prop isn’t just the payments. Once you add things like inventory management, front/back of the house integration, taxes and a bunch of other things, you’re simplifying a lot of things for the business at a lower cost than having them pay for every one of those things.
I use PayPal for my tiny business. On the one hand, I'd rather not pay them 3% of my sales. On the other hand, if the features of PP (security, buyer protection, ease of use) increase my sales by a palpable amount, then it pays for itself.
Just imagine how different the Internet would look like today if receiving payments would’ve been as easy as receiving email from the beginning.
That it is not trivial for a single person on the Internet to receive payments without a third-party involved, in my mind, leads directly to an Internet that is based on ads and on monopolies:
You can’t make a living posting stuff online on your own private website. Because since you cannot receive money, any value that you add online can never be translated into value offline. So you need to post on someone else’s site, which then acts as a publisher, and has the economies of scale necessary to make taking payments viable. Or otherwise, you need to monetize your content by placing ads, again, using some middleman, who is big enough to be able to afford access to payments.
This is why I was excited about Libra (later renamed to Diem.) which was Meta's feeless digital currency that was scrapped. It could have been a Western WeChat Pay, which charges no fees up to 200 RMB ~= 20 GBP.
I don't see why they should get to shave a slice off of every transaction. It takes relatively little upkeep and they rake in huge profits.
The fees nudge businesses to use cash (well, to avoid tax too, sometimes.) or set a minimum transaction amount, which can mean fewer customers through the door.
I think a new, public infrastructure competitor could be healthy for economies worldwide.
It was not just "scrapped", they were basically forbidden from going ahead by regulators protecting the incumbents.
It's the same problem all cryptocurrency projects face. They allowed Bitcoin because Bitcoin is basically useless for payments, it's too slow and fees are way too expensive. Though Ethereum recently slipping through the cracks may disrupt the payments industry in a big way. Coinbase and Circle are already working on bringing direct stablecoin payment options to customers/merchants with USDC and other tokens afaik. Which would also be more decentralized than Facebook's Diem. Not sure how many people would trust corporate money, an open public ledger is preferable of course.
Coinbase + USDC are essentialy this now. They've started working with many merchants both in the real world and online to add USDC pay and transactions are less than a cent with Coinbase charging no additional fees.
Not at all. There are other solutions around the world that bypass the payment gateways and credit card acquirers. In Holland they have iDEAL, in Thailand they have QR Codes, in Australia they have BPAY and in China they have WeChat Pay. There are tons more around the world. As a merchant, it can be very expensive integrating directly with all the different options, which is where these companies help - for a fee.
If you want to maximise sales and minimise abandoned baskets, you’d better make it easy for your customers to pay using the method they prefer!
It’s the ultimate two sided marketplace and super hard to bootstrap.
But if you find a way to debit peoples bank account with 0 fees and 0 default risk and <5s latency, I believe you could potentially establish a reasonable super-low-fee payment provider and have a clear value proposition for merchants.
The problem is: Getting merchants and customers on board.
I’m personally super interested in this topic. If anyone what’s to chat about this: [email protected]
Unless you've worked for a payment processing company, or for a major retailer that does a lot of payment processing, you have no idea how much fraud or attempted fraud happens in transactions (you can even see it as a small retailer if you are getting sales online and say you'll ship international).
A credit card number is a symmetric secret that's printed on the outside of something that you hand to strangers all day. That's not exactly best practice.
If we moved to a PKI where the private keys live in secure enclaves, you could cut that fraud down significantly. But that won't happen, because then how would they justify the fees?
You're naming these companies that facilitate money moving in specific ways, but you could also zoom out and include a lot of banking which either serves to move money between parties or across space or time.
So I guess one question is: as credit unions are to banks, what missing organization type needs to exist as a counterpoint to payment services, which could return excess to owner-users?
This was something that was supposed to be solved by the original internet they just never got around to it. You are not wrong though... the issue as many people pointed out is that you are focusing on the transactions. The problem these companies solve isn't just the transaction network - their values is primarily how they deal with fraud, governance, currency conversions, etc.
Basically it works like this: when you go to pay online, open the bank app on your phone, pick “pay by Blik”, copy the temporary 6 digit code, and paste it on to the online store’s website. You then also have to confirm the transaction on your phone.
It takes 5 seconds and is significantly easier than paying with a credit/debit card. It’s a shame this isn’t a thing in the US.
The reliance on a phone seems terrible, I would never install a banking application unless sufficiently threatened. I prefer our (Czech) more-or-less direct bank transfers, for which I don't need to leave my web browser.
The problem is that the ownership of the Fed is by the member banks. A CBDC is therefore a no-go in the USA. It would disintermediate money transfer and banks would lose billions.
You know what I find odd? The fact that we don't seem to have nice payout services that I'm aware of, that would let me payout some money to a service provider from a platform accout, like "Hey, here is my bank account, here's their account and here's how much I want to transfer to their bank, give me an API to handle it without me needing to think about PSD2."
Even local solutions here in EU that allow paying with an internet bank integration, still don't give you the ability to do fully automated payouts, like Klix: https://developers.klix.app/api/ (though they have bulk payments through the portal)
Banks earn revenue from interchange fees on debit and credit card transactions.
Consumers don’t have any incentive to leave behind their current rewards programs.
Merchants want to accept any payments they can and/or don't have leverage to fight the fees that partially fund networks using rewards to compete for customers.
Perhaps something will arise from FedNow like efforts but as consumers don't see the inflated prices from those rewards programs I don't see any incentives to change.
I can tell you it isn't difficult to build something like they have. The issue is more likely to get banks onboard to issue cards/payment instruments for your unknown payment network which has no terminals, the barrier to entry is very high.
Isn’t the second part—getting counterparties to trust you—an essential part of building something like they have?
I’m reminded of the old joke about the tech who thumps a machine to fix it, then sends a $5000 bill. $5 for coming out and thumping, $4995 for knowing where to thump.
Maybe instead of “3% to update some tables in a money database,” it’s more properly “.001% for the database update, 2.999% for being trustworthy enough that everyone is willing to trade goods and services on the strength of our promise that they’ll get paid”
I work in fintech specifically in payments and have for a few years now, including working on payment rails. I am going to give my best tl;dr based on my experience and knowledge.
From my point of view it isn’t really about partner banks. It’s about the rails, nearly 100% about the rails (IE the network). You’d only need one partner bank to move funds, which is how CashApp does it for example, but payment networks (the rails) is a different beast all together and I’ll do my best to outline this.
The bigger problem is going to be the rails. Visa and Mastercard as a model wouldn’t make as much sense for a new system to start with, rather you would want to be a closed loop system like American Express and Discover, because it’s extremely unlikely you’re going to be lowering any fees if you have to transit on Mastercard or Visa, but this means you have to control the entire on ramp, from issuing cards to operating the network. This as time has gone on has gotten very complicated from a regulatory standpoint and much of it for good reason, not to mention the high entry cost and long tail time it will take to see adoption. In fact you would likely run up against the reason why fees are so high, which I will get into in a minute. This is all the reasons why Capital One is trying to buy Discover, because they want to lower their fees for their cards so they can net more profit per transaction with lower per transaction costs, but this won’t translate into anything being cheaper for merchants (which is what we are really talking about) because of one really big draw of credit cards: Rewards[0]
The biggest driver of higher over time transaction costs isn’t the operation of the network. Which does cost money and it is unlikely operating any network would be zero cost or near zero cost, but rewards balloon the cost to merchants because of how things are structured and incentivized.
In a very simplistic breakdown it goes like this: if I am a card issuer like a bank, American Express or Discover and offer rewards, someone has to pay for that. Now you think the sky high interest rates would be enough but, while they in part cover the costs of the bank and they make lots of money on this, the truth is rewards are funded in large part (and sometimes solely) by kick backs on fees paid by merchants to the network operators, e.g. Visa, who may charge 3% they may only keep 0.50% of that and pass the rest back to the issuer as a kick back. This is negotiated by a number of means and the percentages are all different based on a bunch of factors but this is essentially how it works. This in part is done to incentive more transactions over the card network, particularly as a credit transaction which isn’t fee regulated, where as debit cards have a legal limit, which averages out to ~7 cents per transaction, significantly lower than credit cards.
Now this has created a system of kickbacks and rewards. This benefits three parties: Banks, who get tons of profits off of the high interest on credit cards plus the kickbacks fund rewards. Savvy (and usually wealthy) consumers, who can effectively get the “tax” in higher prices this has observed to cause over time as fees rise paid back to them as rewards at no cost (full paid monthly balances) and the network operators.
This leaves merchants to bare the real burden, as well as consumers who haven’t or otherwise unable to take advantage of reward programs to offset costs, namely the poor and lower middle class folks.
Now knowing this, how would you build up a 3 sided network (the operator, the consumer and a bank) that upends this model, which lowers fees for merchants? Assuming you go with a closed loop model (likely the best move) you are left with a few options: lower rewards (or have none, realistically) and you won’t gain consumers. Lower the operator take which has risks the ability for operations to be profitable and regulatory compliant, or you need to fund in large part by merchant fees greater than 1%, which will inch you close to what you see today to begin with, or you may think to use “differential pricing” but in some instances this may enter into a questionable gray area legally to have differential pricing based on which network / payment method the customer uses and it can be burdensome to merchants, which in part is why Winco decided to very publicly disclose that they only take debit cards, for example. Finally, you could forgo all this and simply rely on credit card interest revenue but that is a surprisingly volatile proposition as you have defaults to consider, refunds, reward costs, security and regulatory compliance etc.
All the while you need to build out a network from scratch by working with merchants, which means you would have very slow adoption and users of the network wouldn’t be able to blindly use their cards where they shop today, because it’s not like you can tap into Visa or Mastercard networks as a back stop either[1]
For what it’s worth, you should do a deep dive on how retailers tried and failed to upend all this with their own ACH based payment systems, the biggest proponent of which was Walmart. They failed for a lot of reasons but not all of them are the reasons you think.
No we don’t need to pay billions. There are moves afoot in the UK to do direct bank to bank payments with Open Banking. HMRC (the UK tax authority) has been doing this for years. When I pay my tax bill, I select my bank, scan a QR code with my phone, that launches my banking app, I authorise the payment and off it goes in just a few seconds. Instant and a few pence, even for thousands of pounds. This particular implementation is provided by Ecospend but there are a few other companies offering this same service now in the UK.
I agree with the OP, Visa and MC charging so much is just insane when you think about it. It’s more expensive AND settlement times are days, not seconds. The only barrier is consumer awareness and detrimental UK legislation forbidding card fees to be added to bills which while well intentioned completely ruins any competition on payment methods.
You've lumped together companies that do very different things. I would just google "payment card network" and you can spend days going down rabbit holes to understand how complex the system is. And yes it is all totally necessary:
https://www.spreedly.com/blog/card-processing-network
"Visa, Mastercard, Discover, and AmEx also form the PCI Security Standards Council (SSC) alongside Japan’s JCB International. The PCI SSC acts as an authority in the payments industry, regulating and enforcing the PCI Data Security Standard (DSS) to protect cardholder information. The rules set by this consortium are not guidelines, but the ground-rules participants must abide by in order to participate in card-payments."
> In total these companies have profit in double digit billions
If you think about it.
Stripe, Block, PayPal only exist because of credit card networks (Visa, Mastercard, American Express, JCB, Discover) and issuing banks (JPM, WF, BoA, foreign banks). Those last two groups of entities have such terrible integrations/interfaces and fail to improve due to their oligopoly on the entire process of facilitating buyer and seller payment processing.
Stripe, Block, PayPal are just mere parasites living off of other parasites (the 3-7% transaction/network/issuing bank fees).
A “rival” is a complete dissolution of these parasitic entities. Cash used to be a good alternative, but comes with its own set of setbacks that do not meet our modern era (ie, can’t pay for items with cash in e-commerce, pains of handling high amounts of cash IRL)
Yeah I'm a big fan of cash but do you remember the days when that's all there really was? You had to go the bank every week to get it. There was risk of theft or loss for both individuals and businesses.
You could write personal checks, but not every business accepted them and if you were a business there was a period of days, sometimes weeks where you didn't know if a payment was good. I did pizza delivery in the 1980s, we accepted cash or check and I would guess about 1 in 10 checks were no good. That's a huge loss to absorb. And drivers would make occasional mistakes handling cash.
I remember when Visa and Mastercard started to get popular and widely accepted. Before that you had store credit cards, gas station credit cards, you were carrying around maybe half a dozen different cards just to do your normal purchases, or you were writing checks everywhere. e-commerce didn't exist yet but it would never have been possible paying by cash or check.
Visa/MC and later Paypal, Stripe, etc. solved real problems and provided real conveniences. That's worth something.
Consumers have an easy solution: pay with cash or check. Sadly, cash buyers will still pay the fees indirectly through price increases.
The government could do some easy deregulation here and force vendors to expose the transaction fees to the consumer. Similar to gas stations : pay 3% more for Visa than cash. This will have a big impact on big ticket items like appliances.
Truth is: businesses and government agencies like the cards. 3% of sales is less than what is stolen from the register. State & federal agencies like CC because the records can be subpoenaed.
So consumers, payment cards, vendors, governments all like these cards -- there's very little to discourage their use.
In the Netherlands people use a system called iDeal. It was a masterstroke worthy of Sun Tzu by the banks at the onset of e-commerce to keep the American credit card companies out of the loop.
You know in Europe the card merchants are limited to about 1.3%. And the US could regulate this as well. In Australia you can add the card commission on top of the purchase easily. (Much easier than Stripe for instance).
To save payment fees there are probably easier sections of the payment process to focus on. For instance why do so many merchant banks insist on mandatory FX into 1 currency. This limitation means if I use Stripe I end up paying 9% commissions.
I wanted to share some thoughts on the significant fees we currently pay to companies like Stripe, PayPal, and Visa/Mastercard, which run into billions annually.
These fees are largely due to the complex infrastructure and intermediaries involved in traditional payment processing. However, the Bitcoin Lightning Network offers a promising alternative.
The Lightning Network is a decentralized, second-layer solution built on top of Bitcoin, allowing for near-instant transactions at a fraction of the cost.
It eliminates many of the intermediaries that drive up costs in traditional systems, potentially saving businesses billions in fees.
Additionally, it supports micropayments and offers enhanced security and privacy, making it a viable option for reducing our reliance on traditional payment processors.While there are challenges in adoption and regulation, the Lightning Network could become a strong competitor to these established players within the next decade, offering a more efficient and cost-effective solution for processing payments.
[+] [-] oldprogrammer2|1 year ago|reply
PayPal provided a way to pay people and vendors without giving away your credit card number.
Square made it easy to accept payment in person on a phone, without an extensive upfront underwriting experience and without expensive fixed monthly fees.
Stripe did the same as Square, but for accepting online payments.
Fraud and Risk come in many forms, and these providers, even with their UX innovations, sit on top of those same rails to reduce fraud. Without those rails, buyers can’t trust sellers and sellers can’t trust buyers.
In my opinion, you need to find a way to solve that problem before you can eliminate the fees being captured by these providers.
[+] [-] Nextgrid|1 year ago|reply
You could eliminate a lot of the fraud by moving off a mostly-static identifier to merchant, amount and time-limited tokens the user generates with their bank (or the merchant redirects them there). This would address a lot of the issues - the tokens are useless when leaked (as they only work against the merchant's own account) and can't be misused even by the merchant to go beyond the agreed amount or time limit.
This means with such a system you’d immediately eliminate a whole category of fraud, with the only thing remaining being merchant-level disputes like goods not as described/etc, which can easily be made optional and the user can choose to opt-in for the extra fee. Then you would actually have a good case for lower/no mandatory fees at all.
One problem you need to keep in mind is that fraud mitigation is a big industry in an of itself (some of it is real, some complete snake oil but relies on the underlying problem being real to sell itself) and wouldn't be in favor of a system that is inherently immune to (at least some types of) fraud.
[+] [-] blacklion|1 year ago|reply
Visa or MC could do the same, without additional parties. But no.
[+] [-] roughly|1 year ago|reply
[+] [-] thesausageking|1 year ago|reply
For a 3% discount, would customers agree to use something that worked just like cash, where the transfer was instant and couldn't be undone? Then you don't have to worry about fraud, chargebacks, etc.
[+] [-] DeepYogurt|1 year ago|reply
And failing the elimination of those issues there will always be some fees. New vendors can pop in and push the fee structure down if they can run a more efficient operation.
[+] [-] miki123211|1 year ago|reply
There are multiple ways of doing so, two-factor authentication (think 3d secure) is one, an oAuth like system where you log in to your bank on their website and consent to a wire transfer is another. There are variations on these ideas, the system we have here gives you a 6-digit code in your banking app which you can enter on any device, trusted or not, and then accept the transfer via a pop-up on your phone, no personal data involved.
As far as I understand, both US law and US history heavily incentivize the use of credit cards. There's no nice way for landlords, banks, mortgage lenders and other such institutions in the US to do "background checks" on their customers except through credit scores, and that incentivizes credit card use. There's also a regulatory difference in how credit versus debit card chargebacks are handled, making credit a lot more friendly to consumers in cases of actual fraud.
Then there's the historical aspect, in the era where there were no computers, and most vendors could at best call a bank to verify if a card was valid, a debit based system wasn't technically feasible, which is what put the US on the path of credit. A lot of poorer countries had the major cash-to-cards transition a lot later, in the era of chips and dial-up modems, which made debit a lot easier to implement, and so that's what they went with, and debit usually means far lower fees.
[+] [-] zeroCalories|1 year ago|reply
[+] [-] jongjong|1 year ago|reply
It's actually difficult to justify Stripe's popularity aside from media monopolization preventing alternatives from gaining mindshare. Everyone knows Stripe but many don't know about the existence of alternatives.
[+] [-] treflop|1 year ago|reply
You can negotiate with a bank to get your own rate and then implement your own secure transaction processing. Visa is still required though.
I have worked at companies that bypassed those middlemen. Many companies don’t do it because they are okay with paying higher fees so they don’t have to deal with that extra headache, or because they work at smaller companies that think Stripe, Block, and PayPal invented payment processing when Visa and banks have been around for decades longer.
[+] [-] konschubert|1 year ago|reply
With 99% of my transactions I don’t care one bit about the ability to do chargebacks.
I just went grocery shopping. VISA was involved and took a few percent. Why??
I got my groceries. I’m not going to do a chargeback because the salad was bad.
Earlier, I bought something on Amazon. Again, VISA took a share. Why? In 15 years of shipping with Amazon they have always hinteres my returns.
[+] [-] fendy3002|1 year ago|reply
[+] [-] katzinsky|1 year ago|reply
[+] [-] darth_avocado|1 year ago|reply
[+] [-] analog31|1 year ago|reply
[+] [-] leobg|1 year ago|reply
That it is not trivial for a single person on the Internet to receive payments without a third-party involved, in my mind, leads directly to an Internet that is based on ads and on monopolies:
You can’t make a living posting stuff online on your own private website. Because since you cannot receive money, any value that you add online can never be translated into value offline. So you need to post on someone else’s site, which then acts as a publisher, and has the economies of scale necessary to make taking payments viable. Or otherwise, you need to monetize your content by placing ads, again, using some middleman, who is big enough to be able to afford access to payments.
[+] [-] cedws|1 year ago|reply
I don't see why they should get to shave a slice off of every transaction. It takes relatively little upkeep and they rake in huge profits.
The fees nudge businesses to use cash (well, to avoid tax too, sometimes.) or set a minimum transaction amount, which can mean fewer customers through the door.
I think a new, public infrastructure competitor could be healthy for economies worldwide.
[+] [-] trompetenaccoun|1 year ago|reply
It's the same problem all cryptocurrency projects face. They allowed Bitcoin because Bitcoin is basically useless for payments, it's too slow and fees are way too expensive. Though Ethereum recently slipping through the cracks may disrupt the payments industry in a big way. Coinbase and Circle are already working on bringing direct stablecoin payment options to customers/merchants with USDC and other tokens afaik. Which would also be more decentralized than Facebook's Diem. Not sure how many people would trust corporate money, an open public ledger is preferable of course.
https://www.ft.com/content/a88fb591-72d5-4b6b-bb5d-223adfb89...
https://www.dw.com/en/facebook-backed-cryptocurrency-sold-am...
[+] [-] multjoy|1 year ago|reply
Not only do you have to pay to deposit, you have to store it, count it, secure it and transport it.
[+] [-] TimJRobinson|1 year ago|reply
[+] [-] jon_adler|1 year ago|reply
[+] [-] konschubert|1 year ago|reply
But if you find a way to debit peoples bank account with 0 fees and 0 default risk and <5s latency, I believe you could potentially establish a reasonable super-low-fee payment provider and have a clear value proposition for merchants.
The problem is: Getting merchants and customers on board.
I’m personally super interested in this topic. If anyone what’s to chat about this: [email protected]
[+] [-] levelz|1 year ago|reply
[+] [-] __MatrixMan__|1 year ago|reply
If we moved to a PKI where the private keys live in secure enclaves, you could cut that fraud down significantly. But that won't happen, because then how would they justify the fees?
[+] [-] welder|1 year ago|reply
[+] [-] snotrockets|1 year ago|reply
[+] [-] abeppu|1 year ago|reply
So I guess one question is: as credit unions are to banks, what missing organization type needs to exist as a counterpoint to payment services, which could return excess to owner-users?
[+] [-] jppope|1 year ago|reply
[+] [-] TheRealPomax|1 year ago|reply
[+] [-] keiferski|1 year ago|reply
https://en.wikipedia.org/wiki/Blik
Basically it works like this: when you go to pay online, open the bank app on your phone, pick “pay by Blik”, copy the temporary 6 digit code, and paste it on to the online store’s website. You then also have to confirm the transaction on your phone.
It takes 5 seconds and is significantly easier than paying with a credit/debit card. It’s a shame this isn’t a thing in the US.
[+] [-] premysl|1 year ago|reply
[+] [-] xnx|1 year ago|reply
[+] [-] BirAdam|1 year ago|reply
[+] [-] warkdarrior|1 year ago|reply
[+] [-] KronisLV|1 year ago|reply
PayPal requires the other person to either also have a PayPal or a Venmo account: https://www.paypal.com/us/business/operations/mass-payments
Stripe requires the person to also have a Stripe account: https://docs.stripe.com/connect/add-and-pay-out-guide?dashbo...
Even local solutions here in EU that allow paying with an internet bank integration, still don't give you the ability to do fully automated payouts, like Klix: https://developers.klix.app/api/ (though they have bulk payments through the portal)
[+] [-] nyrikki|1 year ago|reply
Consumers don’t have any incentive to leave behind their current rewards programs.
Merchants want to accept any payments they can and/or don't have leverage to fight the fees that partially fund networks using rewards to compete for customers.
Perhaps something will arise from FedNow like efforts but as consumers don't see the inflated prices from those rewards programs I don't see any incentives to change.
[+] [-] Alcatros552|1 year ago|reply
[+] [-] alwa|1 year ago|reply
I’m reminded of the old joke about the tech who thumps a machine to fix it, then sends a $5000 bill. $5 for coming out and thumping, $4995 for knowing where to thump.
Maybe instead of “3% to update some tables in a money database,” it’s more properly “.001% for the database update, 2.999% for being trustworthy enough that everyone is willing to trade goods and services on the strength of our promise that they’ll get paid”
[+] [-] unknown|1 year ago|reply
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[+] [-] no_wizard|1 year ago|reply
From my point of view it isn’t really about partner banks. It’s about the rails, nearly 100% about the rails (IE the network). You’d only need one partner bank to move funds, which is how CashApp does it for example, but payment networks (the rails) is a different beast all together and I’ll do my best to outline this.
The bigger problem is going to be the rails. Visa and Mastercard as a model wouldn’t make as much sense for a new system to start with, rather you would want to be a closed loop system like American Express and Discover, because it’s extremely unlikely you’re going to be lowering any fees if you have to transit on Mastercard or Visa, but this means you have to control the entire on ramp, from issuing cards to operating the network. This as time has gone on has gotten very complicated from a regulatory standpoint and much of it for good reason, not to mention the high entry cost and long tail time it will take to see adoption. In fact you would likely run up against the reason why fees are so high, which I will get into in a minute. This is all the reasons why Capital One is trying to buy Discover, because they want to lower their fees for their cards so they can net more profit per transaction with lower per transaction costs, but this won’t translate into anything being cheaper for merchants (which is what we are really talking about) because of one really big draw of credit cards: Rewards[0]
The biggest driver of higher over time transaction costs isn’t the operation of the network. Which does cost money and it is unlikely operating any network would be zero cost or near zero cost, but rewards balloon the cost to merchants because of how things are structured and incentivized.
In a very simplistic breakdown it goes like this: if I am a card issuer like a bank, American Express or Discover and offer rewards, someone has to pay for that. Now you think the sky high interest rates would be enough but, while they in part cover the costs of the bank and they make lots of money on this, the truth is rewards are funded in large part (and sometimes solely) by kick backs on fees paid by merchants to the network operators, e.g. Visa, who may charge 3% they may only keep 0.50% of that and pass the rest back to the issuer as a kick back. This is negotiated by a number of means and the percentages are all different based on a bunch of factors but this is essentially how it works. This in part is done to incentive more transactions over the card network, particularly as a credit transaction which isn’t fee regulated, where as debit cards have a legal limit, which averages out to ~7 cents per transaction, significantly lower than credit cards.
Now this has created a system of kickbacks and rewards. This benefits three parties: Banks, who get tons of profits off of the high interest on credit cards plus the kickbacks fund rewards. Savvy (and usually wealthy) consumers, who can effectively get the “tax” in higher prices this has observed to cause over time as fees rise paid back to them as rewards at no cost (full paid monthly balances) and the network operators.
This leaves merchants to bare the real burden, as well as consumers who haven’t or otherwise unable to take advantage of reward programs to offset costs, namely the poor and lower middle class folks.
Now knowing this, how would you build up a 3 sided network (the operator, the consumer and a bank) that upends this model, which lowers fees for merchants? Assuming you go with a closed loop model (likely the best move) you are left with a few options: lower rewards (or have none, realistically) and you won’t gain consumers. Lower the operator take which has risks the ability for operations to be profitable and regulatory compliant, or you need to fund in large part by merchant fees greater than 1%, which will inch you close to what you see today to begin with, or you may think to use “differential pricing” but in some instances this may enter into a questionable gray area legally to have differential pricing based on which network / payment method the customer uses and it can be burdensome to merchants, which in part is why Winco decided to very publicly disclose that they only take debit cards, for example. Finally, you could forgo all this and simply rely on credit card interest revenue but that is a surprisingly volatile proposition as you have defaults to consider, refunds, reward costs, security and regulatory compliance etc.
All the while you need to build out a network from scratch by working with merchants, which means you would have very slow adoption and users of the network wouldn’t be able to blindly use their cards where they shop today, because it’s not like you can tap into Visa or Mastercard networks as a back stop either[1]
For what it’s worth, you should do a deep dive on how retailers tried and failed to upend all this with their own ACH based payment systems, the biggest proponent of which was Walmart. They failed for a lot of reasons but not all of them are the reasons you think.
[0]: https://insight.kellogg.northwestern.edu/article/who-pays-ge....
[1]: I’m not a lawyer but I’m almost certain they have no legal obligation to allow anyone on their network even after the settlement awhile back
[+] [-] tebbers|1 year ago|reply
I agree with the OP, Visa and MC charging so much is just insane when you think about it. It’s more expensive AND settlement times are days, not seconds. The only barrier is consumer awareness and detrimental UK legislation forbidding card fees to be added to bills which while well intentioned completely ruins any competition on payment methods.
[+] [-] prng2021|1 year ago|reply
"Visa, Mastercard, Discover, and AmEx also form the PCI Security Standards Council (SSC) alongside Japan’s JCB International. The PCI SSC acts as an authority in the payments industry, regulating and enforcing the PCI Data Security Standard (DSS) to protect cardholder information. The rules set by this consortium are not guidelines, but the ground-rules participants must abide by in order to participate in card-payments."
[+] [-] xyst|1 year ago|reply
If you think about it.
Stripe, Block, PayPal only exist because of credit card networks (Visa, Mastercard, American Express, JCB, Discover) and issuing banks (JPM, WF, BoA, foreign banks). Those last two groups of entities have such terrible integrations/interfaces and fail to improve due to their oligopoly on the entire process of facilitating buyer and seller payment processing.
Stripe, Block, PayPal are just mere parasites living off of other parasites (the 3-7% transaction/network/issuing bank fees).
A “rival” is a complete dissolution of these parasitic entities. Cash used to be a good alternative, but comes with its own set of setbacks that do not meet our modern era (ie, can’t pay for items with cash in e-commerce, pains of handling high amounts of cash IRL)
[+] [-] SoftTalker|1 year ago|reply
You could write personal checks, but not every business accepted them and if you were a business there was a period of days, sometimes weeks where you didn't know if a payment was good. I did pizza delivery in the 1980s, we accepted cash or check and I would guess about 1 in 10 checks were no good. That's a huge loss to absorb. And drivers would make occasional mistakes handling cash.
I remember when Visa and Mastercard started to get popular and widely accepted. Before that you had store credit cards, gas station credit cards, you were carrying around maybe half a dozen different cards just to do your normal purchases, or you were writing checks everywhere. e-commerce didn't exist yet but it would never have been possible paying by cash or check.
Visa/MC and later Paypal, Stripe, etc. solved real problems and provided real conveniences. That's worth something.
[+] [-] tonymet|1 year ago|reply
The government could do some easy deregulation here and force vendors to expose the transaction fees to the consumer. Similar to gas stations : pay 3% more for Visa than cash. This will have a big impact on big ticket items like appliances.
Truth is: businesses and government agencies like the cards. 3% of sales is less than what is stolen from the register. State & federal agencies like CC because the records can be subpoenaed.
So consumers, payment cards, vendors, governments all like these cards -- there's very little to discourage their use.
[+] [-] lobsterthief|1 year ago|reply
[+] [-] Yeul|1 year ago|reply
[+] [-] drstewart|1 year ago|reply
[+] [-] imarkphillips|1 year ago|reply
To save payment fees there are probably easier sections of the payment process to focus on. For instance why do so many merchant banks insist on mandatory FX into 1 currency. This limitation means if I use Stripe I end up paying 9% commissions.
[+] [-] Jasonbe|1 year ago|reply
These fees are largely due to the complex infrastructure and intermediaries involved in traditional payment processing. However, the Bitcoin Lightning Network offers a promising alternative.
The Lightning Network is a decentralized, second-layer solution built on top of Bitcoin, allowing for near-instant transactions at a fraction of the cost.
It eliminates many of the intermediaries that drive up costs in traditional systems, potentially saving businesses billions in fees.
Additionally, it supports micropayments and offers enhanced security and privacy, making it a viable option for reducing our reliance on traditional payment processors.While there are challenges in adoption and regulation, the Lightning Network could become a strong competitor to these established players within the next decade, offering a more efficient and cost-effective solution for processing payments.