[athrun]

It's about provisioning for credit losses.

Roughly speaking, when a transaction needs to be unwound, if the merchant cannot cover the reversal (for example, because it has defaulted), then the payment processor needs to pony up instead. Note that this isn't an edge case, this is something that happens every day.

If the payment processor defaults (gasp!), then the processor's sponsor bank needs to cover it. This is why a sponsor bank will have a lot to say about what a processor can and cannot do.

If the sponsor bank is unable to meet its obligations (argh!), then it's the card Network itself that is on the hook. This is why card networks have a lot to say about what a sponsor bank can and cannot do ;)

The key to understanding payment processing is to realise that the risk is very asymmetrical. The processing party collects only a small fraction of the transaction amount as fees, but is effectively on the hook for the full amount if things go pear shaped.

That is why the cost is typically proportional to the value of the payment.

You'll see fixed/capped fees mostly on payment methods that don't allow reversals (ie: not very consumer friendly), or that take place between highly trusted parties where credit risk can be handled through other ways.

[doctorpangloss]

Okay, why does this all work basically the same in Europe, but interchange fees are capped at 0.3% by law? The reason has nothing to do with fraud or technology.

[athrun]

1. Even in regulated markets like Europe, you’ll note that it’s still a percentage of the transaction value, not a fixed cost.

2. In EU, while Interchange is regulated, Scheme fees, Acquirer fees, and Processor fees are not. These are usually also expressed as percentage of the transaction value.

3. Because of the more limited avenues to offset risk, access to credit in EU is more difficult than in more dynamic markets like the US (not saying it’s good or bad, just highlighting that there are downstream impacts).

[kelnos]

I wonder if US issuers/merchants/customers are subsidizing their European counterparts. Maybe the "right" number is for everyone to pay 1.2% or something like that.

Of course, without price controls, most businesses will charge whatever they can get away with that doesn't cause them to lose too many customers, so...

[frollogaston]

I wish there were a "the customer is always wrong" way of paying digitally, so that there's almost no fee. Right now the only way is cash.

[JumpCrisscross]

> wish there were a "the customer is always wrong" way of paying digitally

People always manage to make it the processor’s fault. See the hysteria over people being scammed through Zelle.

[internetter]

crypto?