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One thing that often gets overlooked with respect to payments is consumer preference (and this is actually the primary driver of cost). Why do credit cards cos

One thing that often gets overlooked with respect to payments is consumer preference (and this is actually the primary driver of cost). Why do credit cards cost 2-3% to process? Because of expensive rewards programs given to the consumers who use the card. Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. Except in edge cases, merchants have no choice but to accept credit cards despite the cost. While Visa, Mastercard & Amex frequently get the blame, the lions share of the processing fee flows to the issuing bank of the card, and the lions share of that fee goes to fund rewards programs. (There are other perks to credit cards that encourage consumer usage, including chargeback protections, free 30 days of float, near universal acceptance, etc) Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. Or if you, as the merchant, have such market power that you can mandate a less preferred but cheaper form of payment (like cash or debit card or ACH - this is why you often can't use your credit card to pay a parking ticket or your taxes)

rurp 6y ago
> Why are there expensive rewards programs? Because consumers like them! I'm not convinced of this. The credit card costs are already baked into prices and so as a consumer I can either play the cc rewards game and get back a decent chunk of those fees or I can use cash and a few % of each purchase I make goes towards subsidizing the folks who do play the rewards game. This is not a situation that can be resolved by consumer choice, because you'll never get millions of people to all voluntarily agree to give up hundreds of dollars a year in the vague hope of some change down the line.
PickledJesus 6y ago
Or unless there's regulation, as happened in the EU. Rewards programs got largely killed in the EU by the interchange fee limits in the last few years: https://en.wikipedia.org/wiki/Interchange_fee#European_Union https://en.wikipedia.org/wiki/Interchange_fee#European_Union Card fees can be below 1%
thaeli 6y ago
At many American gas stations, (I don't know how applicable this is in other countries) there is a lower "cash" price because the station doesn't have to pay credit card fees on the transaction. It's less convenient, because you have to park, go to the cashier, give them cash, go back to your car, fill up, go back to the cashier, get your change, and then go - versus put credit card in pump, fill up, go. It's ultimately a consumer choice and some choose each option. I'd love to have something similar for online payments. Give me a price, then charge transaction fees for credit and lower fees for debit or ACH, etc.
- digianarchist 6y ago
  Companies like GoCardless exist for this reason. Problem is that fraud is still a thing and cash payments over the internet aren’t possible.
  - arcticbull 6y ago
    Interac Online in Canada offers this, for Canadian merchants with Canadian customers. It’s basically cash over the internet. Makes sense you wouldn't have tried this if you weren’t :) [1] [1] https://www.interac.ca/en/consumers/products/interac-debit/e-commerce/ https://www.interac.ca/en/consumers/products/interac-debit/e...
    - eigenvector 6y ago
      Interac Online appears to have been deprecated by most major Canadian banks in favour of Visa Debit. My understanding is the Visa Debit cards issued by banks like TD and Scotia are dual-mode: transactions will be processed through the Interac network when possible, with the lower Interac fees applying, and through the Visa network otherwise. I don't know if the merchant fees for Visa Debit are any different to using a Visa credit card.
      - arcticbull 6y ago
        Looks like its 50/50. Banque Nationale and BMO only issue vanilla Interac cards, and in RBCs case, you get two debit cards: an Interac and a virtual Visa Debit. To your point dual mode Interac/Visa Debit are not eligible for Interac Online. When at a physical point of sale, a Visa Debit card is processed over Interac rails, and I believe Interac interchange prevails. At one point back in 2009 Visa was going to set up their own debit network in Canada, but as of 2010, my understanding is they gave up on the plan. The value add from the Visa Debit rails is for international online purchases, for phone purchases and for international point of sale purchases, neither of which are well supported by Interac-only cards.
kmonsen 6y ago
That’s because the price is not allowed to be cheaper even if you post with “cash” like debit cards on the internet so of course consumers will use 5% credit cards when the price is the same. In Europe there is quite often a fee for credit cards, cheap airlines come to mind. Why would a save consumer not decrease risk and get something back for the same price?
mam2 6y ago
Its 2% in europe too where theres no real reward programs.
- arnvald 6y ago
  The difference is actually wider, for example: * Singapore 3.4% (https://stripe.com/en-sg/pricing https://stripe.com/en-sg/pricing) * US 2.9% (https://stripe.com/pricing https://stripe.com/pricing) * Poland 1.4% (https://stripe.com/en-pl/pricing https://stripe.com/en-pl/pricing) (+ some fixed amount in every country) In some cases it can be even more expensive (see Adyen pricing for Amex or Diners cards: https://www.adyen.com/pricing https://www.adyen.com/pricing) This is a large difference and partially explains why the loyalty programs in Europe are not that attractive
  - mam2 6y ago
    I also kinda feel europeans would find reward programs stupid and call bullshit. In the sense that someone would readily build a "no reward" chain and get adoption real quick. I mean there IS reward programs somehow, but it's not like they give you 30% off sometimes like in the US. I always found them outrageous in a way when I was in the US.
wolfgke 6y ago
> Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. That is very US-centric - for example, this all does not hold in Germany (many people are actually still cautious of credit cards there). > Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. In the EU, there is: SEPA direct debit.
emodendroket 6y ago
The rewards points are nice but the primary reason I use a credit card is that it's a convenient way to pay and if someone is somehow able to fraudulently use the card they're not directly debiting my bank account.

rurp 6y ago

> Why are there expensive rewards programs? Because consumers like them! I'm not convinced of this. The credit card costs are already baked into prices and so as a consumer I can either play the cc rewards game and get back a decent chunk of those fees or I can use cash and a few % of each purchase I make goes towards subsidizing the folks who do play the rewards game. This is not a situation that can be resolved by consumer choice, because you'll never get millions of people to all voluntarily agree to give up hundreds of dollars a year in the vague hope of some change down the line.

PickledJesus 6y ago

Or unless there's regulation, as happened in the EU. Rewards programs got largely killed in the EU by the interchange fee limits in the last few years: https://en.wikipedia.org/wiki/Interchange_fee#European_Union https://en.wikipedia.org/wiki/Interchange_fee#European_Union Card fees can be below 1%

thaeli 6y ago

At many American gas stations, (I don't know how applicable this is in other countries) there is a lower "cash" price because the station doesn't have to pay credit card fees on the transaction. It's less convenient, because you have to park, go to the cashier, give them cash, go back to your car, fill up, go back to the cashier, get your change, and then go - versus put credit card in pump, fill up, go. It's ultimately a consumer choice and some choose each option. I'd love to have something similar for online payments. Give me a price, then charge transaction fees for credit and lower fees for debit or ACH, etc.

digianarchist 6y ago
Companies like GoCardless exist for this reason. Problem is that fraud is still a thing and cash payments over the internet aren’t possible.
- arcticbull 6y ago
  Interac Online in Canada offers this, for Canadian merchants with Canadian customers. It’s basically cash over the internet. Makes sense you wouldn't have tried this if you weren’t :) [1] [1] https://www.interac.ca/en/consumers/products/interac-debit/e-commerce/ https://www.interac.ca/en/consumers/products/interac-debit/e...
  - eigenvector 6y ago
    Interac Online appears to have been deprecated by most major Canadian banks in favour of Visa Debit. My understanding is the Visa Debit cards issued by banks like TD and Scotia are dual-mode: transactions will be processed through the Interac network when possible, with the lower Interac fees applying, and through the Visa network otherwise. I don't know if the merchant fees for Visa Debit are any different to using a Visa credit card.
    - arcticbull 6y ago
      Looks like its 50/50. Banque Nationale and BMO only issue vanilla Interac cards, and in RBCs case, you get two debit cards: an Interac and a virtual Visa Debit. To your point dual mode Interac/Visa Debit are not eligible for Interac Online. When at a physical point of sale, a Visa Debit card is processed over Interac rails, and I believe Interac interchange prevails. At one point back in 2009 Visa was going to set up their own debit network in Canada, but as of 2010, my understanding is they gave up on the plan. The value add from the Visa Debit rails is for international online purchases, for phone purchases and for international point of sale purchases, neither of which are well supported by Interac-only cards.

kmonsen 6y ago

That’s because the price is not allowed to be cheaper even if you post with “cash” like debit cards on the internet so of course consumers will use 5% credit cards when the price is the same. In Europe there is quite often a fee for credit cards, cheap airlines come to mind. Why would a save consumer not decrease risk and get something back for the same price?

mam2 6y ago

Its 2% in europe too where theres no real reward programs.

arnvald 6y ago
The difference is actually wider, for example: * Singapore 3.4% (https://stripe.com/en-sg/pricing https://stripe.com/en-sg/pricing) * US 2.9% (https://stripe.com/pricing https://stripe.com/pricing) * Poland 1.4% (https://stripe.com/en-pl/pricing https://stripe.com/en-pl/pricing) (+ some fixed amount in every country) In some cases it can be even more expensive (see Adyen pricing for Amex or Diners cards: https://www.adyen.com/pricing https://www.adyen.com/pricing) This is a large difference and partially explains why the loyalty programs in Europe are not that attractive
- mam2 6y ago
  I also kinda feel europeans would find reward programs stupid and call bullshit. In the sense that someone would readily build a "no reward" chain and get adoption real quick. I mean there IS reward programs somehow, but it's not like they give you 30% off sometimes like in the US. I always found them outrageous in a way when I was in the US.

wolfgke 6y ago

> Why are there expensive rewards programs? Because consumers like them! And they insist on paying with a credit card because of them. That is very US-centric - for example, this all does not hold in Germany (many people are actually still cautious of credit cards there). > Payment costs won't materially decrease unless someone invents a form of payment that consumers prefer which doesn't have these cost burdens. In the EU, there is: SEPA direct debit.

emodendroket 6y ago

The rewards points are nice but the primary reason I use a credit card is that it's a convenient way to pay and if someone is somehow able to fraudulently use the card they're not directly debiting my bank account.