16 ms·

Ask HN: Do we need to pay billions in fees to Stripe, Block, PayPal and Visa/MC?

• chasebank 2y ago
  It would be interesting to listen to an interview with the Dwolla founder and see why they pivoted from their original idea of replacing card networks / ach and building a new payment network from scratch.
• izalutski 2y ago
  The payment processors are, at the core, specialist insurance businesses. They know how to underwrite transaction risk and counterparty risk and FX risk very well, better than generalist insurers, in part thanks to their scale. So these "billions" are actually a tiny fraction of the volume they process; counterparties are happily sharing a cut in exchange for peace of mind.
• davonbernette 2y ago
  [dead]
• deleted 2y ago
  [deleted]
• astrodust 2y ago
  If you think building a Stripe or Visa replacement is easy, go ahead and try.
  • WarOnPrivacy 2y ago
    Q: does anyone think it possible to rival them in a decade with enough funding? > If you think building a Stripe or Visa replacement is easy, go ahead and try. The use of easy here dismisses the Q's premise of a well funded decade.
• rose_ann_ 2y ago
  Put your efforts where your mouth is and go build your own "real competition" if you think its that easy.
  • WarOnPrivacy 2y ago
    Q: does anyone think it possible to rival them in a decade with enough funding? > go build your own "real competition" if you think its that easy. Another dismissive comment. What inspires these? The Q proposes a significant timetable and suggests adequate funding. I'd agree it's open ended but it sounds like the OP is inviting education on the topic.
• jakeinsdca 2y ago
  [dead]
  • paxys 2y ago
    Because a currency that fluctuates in value +/- 20% every week is exactly what people want in a payments system. Plus the exchange fees for Bitcoin is way higher than what regular payments processors charge.
    • Aachen 2y ago
      I hate Bitcoin as much as the next person but it's not really fair to criticise a technology that's potentially cool on the grounds that it doesn't have enough adoption. If it had the stability of entire countries behind it, it wouldn't fluctuate this much and even if it did, if everything's in that currency then you don't notice it in daily life either. The problem I have with it, is that the technology is inefficient at solving the problem as compared to a central authority issuing currency. Something using e.g. blind signatures sounds really cool but the tech was ahead of its time (paper stems from 1983) and by now it doesn't sound cool and new anymore. Example implementation: https://en.m.wikipedia.org/wiki/Ecash https://en.m.wikipedia.org/wiki/Ecash
      • fortran77 2y ago
        > it's not really fair to criticise a technology that's potentially cool on the grounds that it doesn't have enough adoption But that's not at all why the person you're responding to criticized it!
      • FabHK 2y ago
        > If it had the stability of entire countries behind it, it wouldn't fluctuate this much and even if it did, if everything's in that currency then you don't notice it in daily life either. Common misconception. You basically need currencies tied to countries (more precisely, OCAs or optimal currency areas, characterised by either 1. homogeneity with respect to external shocks (not the case e.g. within Europe), 2. complete factor mobility (not the case e.g. within Europe), or 3. transfer payments (that is, fiscal support)). In other words: If there were one currency (only), even with the stability of entire countries behind it, it would still fluctuate too much to be very useful. Or, to put it different again: You need FX. One currency is not enough.
• prng2021 2y ago
  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 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."
  • ToucanLoucan 2y ago
    > And yes it is all totally necessary Highlighting because it's important. We recently got a totally free and open payments system, probably hundreds of them in fact, and they're a disaster. All the inequity and risk that any money system inherently possesses, with zero protections for anyone involved and zero recourse if you're robbed blind, unless of course you're wealthy in which case the people actually in charge who insist they aren't in charge will write a whole bunch more code to give you you're money back even though that's not how this works for anyone else. And that's not even getting into the fact that every seven transactions used as much electricity as Visa uses per minute to handle hundreds of thousands.
    • alwa 2y ago
      By which I understand you to mean the cryptocurrency efforts, right? Man. That whole turn-of-the-2020s, peak-COVID period seems like such a collective fever dream in retrospect.
      • ToucanLoucan 2y ago
        Oh yeah. And I mean, I'd agree if there weren't still a substantial community of people swearing up and down that it was the future, despite all evidence to the contrary.
• throwaway48540 2y ago
  You need 2 things: users with your app/terminal, and a way to interoperate with the international banking system. If you can do that, it's technically feasible to create a vertically integrated replacement of the whole stack. It's going to be a huge investment though.
• oldprogrammer2 2y ago
  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.
  • DeepYogurt 2y ago
    > 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.
  • thesausageking 2y ago
    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.
    • rfw300 2y ago
      This is the purpose of Zelle, Venmo, money wires, and checks. But there are many problems they don’t solve, that customers and sellers prefer to be solved and are willing to pay for.
    • BeetleB 2y ago
      > For a 3% discount, It is fantasy to think they'd get a 3% discount. The goods in stores that take only cash do not tend to be cheaper than those that do. They know what people are willing to pay and will charge the price. If they see people are willing to pay $99 with a credit card, then they'll be willing to pay that with cash.
• Alcatros552 2y ago
  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.
  • alwa 2y ago
    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”
  • no_wizard 2y ago
    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. [0]: https://insight.kellogg.northwestern.edu/article/who-pays-generous-credit-card-rewards#:~:text=Wang%20finds%20that%20networks%20are,increased%20costs%20on%20to%20consumers 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
• jon_adler 2y ago
  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!
  • solardev 2y ago
    Do those services also deal with fraud, chargebacks, etc., or are they basically digital cash equivalents?
    • stickfigure 2y ago
      There are countless systems and they all answer that question differently.
    • comprev 2y ago
      iDEAL in the Netherlands is an instant credit from your account directly into the receivers. The KYC part has already been handled by your bank.
      • solardev 2y ago
        So basically, if you use that to buy something, you have no post-purchase protections from the payment provider itself (chargebacks, extended warranties, price protections, etc.?) like the kind credit cards will often provide?
        • radicalbyte 2y ago
          In a very limited form only. The fees are very low though. You still have all of your legal rights etc so as long as the retailer / manufacturer stays in business you get the warranty etc (EU law gives a warranty on "expected lifetime" but many try to limit that to 2 years - you have to sue to get more).
• WJW 2y ago
  Sure it would be possible with "enough" funding, almost by definition. If you can't, then the amount of funding clearly wasn't enough. I doubt you (or anyone btw) could get "enough" funding though. The amount of money you'd need just to get all their existing customers to switch would be monumental.
  • bastawhiz 2y ago
    Exactly. If you're a new company and your choice is either spending lots of capital to accept payments by building it from scratch or pay 2.9%+30¢, the decision is obvious. If you value your time at $100/hr and spend forty hours building such a system—never mind maintaining it—you'd have to process over $130,000 in volume (500 transactions at about $260 each) just to break even on fees. But you probably won't do it in a week, and you'll spend weeks each year maintaining it. I'd make an educated guess that for the vast majority of companies, it would be cheaper to process your first half million on Stripe than it would be to learn how to build a payments processor, build it, run it, and maintain it. You're saving peanuts for the principle of the matter.
• cyanydeez 2y ago
  Nor do we needntobpay billions to healthcare managers orninsurance companies. But we do, because capitalism both needs flexibility in separation of concerns and people need jobs and greed is its own fiefdom genersting maxhine. Think of it like evolution and social diversity. Studies in squirrels have shown that larger social groups create a need for greater phenotypical visual diversity, if only for identificTion
• jppope 2y ago
  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.
  • TheRealPomax 2y ago
    Who is "they" in that sentence?
    • plokiju 2y ago
      the elders of the internet
• xyst 2y ago
  > 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)
  • SoftTalker 2y ago
    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.
  • no_wizard 2y ago
    Discover and American Express are closed loop systems that may have marketing partnerships with banks but they actually issue the cards themselves and operator their own networks. As a result, the American Express API is actually decent[0]. [0]: https://gateway-na.americanexpress.com/api/documentation/integrationGuidelines/index.html?locale=en_US https://gateway-na.americanexpress.com/api/documentation/int...
• _xnmw 2y ago
  No we don’t, and I’m working on solving this problem. There’s no reason for a pure SaaS company to pay these middlemen if the only thing they buy and sell is software. Software vendors can settle accounts directly like banks do, we just need something like an ACH for SaaS. And I’ve been thinking a lot about how to do this while having the equivalent of a petrodollar to create underlying value based on a commodity. For example a meta currency for compute credits that is cloud agnostic.
• TheRealPomax 2y ago
  Depends on whether you want to use their services? If you live somewhere where it's easy to just instantly transfer funds form one bank to another for free (e.g. you live in the Netherlands), then no: none of those companies need to exist in your world. If you live anywhere else, all these companies are offering services that banks don't, or charge much more for. Or these days, don't even offer themselves, they literally outsource it (e.g. sending money from one bank to another is now a built-in-third-party-service in the form of agreements with Interac to handle low value EFTs). So can you rival them? Probably. Will you fail? More likely than not. Is there lack of real competition? Depends on where you live, but yeah the whole reason they got this big is because they found a real problem and solved it, charging just enough for people to go "well that's still worth it for me".
• TZubiri 2y ago
  Replace "billions" with 3%
• xnx 2y ago
  Central Bank Digital Currency takes away some (but not all) of the purpose for credit cards and other digital payment services. https://www.federalreserve.gov/central-bank-digital-currency.htm https://www.federalreserve.gov/central-bank-digital-currency...
  • BirAdam 2y ago
    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.
  • warkdarrior 2y ago
    CBDC does not solve fraud, liquidity, or disputes.
• fragmede 2y ago
  look up Red ocean vs blue ocean. Even if it was, there are better uses for a "decade with enough funding" unless you have some competitive advantage, like you're the CEO of Chase Bank or something. If you want to know how possible it is, consider that Bitcoin was released in 2009 and cryptocurrency's success at being used for payments - in the history of the world - it has been used for payments between people for something other than crimes, but adoption is way behind visa. Like, that alternative system exists (albeit not for free either) and there's no adoption. So the "billions" aren't exactly a market inefficiency. They make billions, but out of your life, how much do you pay to them. And then, do they perform a valuable service and charge money for that? Would you rather go to a bank and get cash and drive it to Amazon's local office, or mail them a cheque? For a fee, there are companies out there that will make it easier and faster and more convenient than that.
  • Aachen 2y ago
    > look up Red ocean vs blue ocean. For those not wishing to visit another site to learn new vocabulary first: blue-ocean market = entering into a new markt, red = entering into an existing market Interestingly, I never heard this term before but now twice in one week someone referred to it (linking an article from 2012 iirc). At least the other one provided a link, albeit to a 5600-word documentary that I'm sure everyone was thrilled to dig into when there are perfectly normal words for it as well (sounds less fancy if everyone is already familiar, though)
    • fragmede 2y ago
      I think readers here are intelligent and able enough to select the text and then choose "search Google" (if they haven't installed an ask ChatGPT extension yet), and don't need to be that spoonfed. I even put the words right together to make it easy. But thank you for doing that, I'm sure that much exertion would have been collectively exhausting.
  • codexon 2y ago
    Bitcoin is way behind visa because it sucks as a payment system. Have you ever tried buying something in bitcoin? The fees are insane and nearly all merchants require multiple confirmations which can take over an hour.
• fuzzfactor 2y ago
  I'm not ashamed to say I could never justify those kind of things even before they cost billions ;)
• dtagames 2y ago
  Platforms are where the money is at. Big SaaS companies built something large and complicated (their moat) that's difficult for a competitor to replicate or support. It takes thousands of people who know what they are doing to get a big SaaS platform in any industry to work -- and to keep it working through endless regulatory changes, hacks, user demands, tech limitations, and bugs. Once you have built something of this scale you're likely to charge as much as competition or perhaps even more -- not only to recoup your enormous costs but to return the expected profits to your capital backers.
• korbinschulz 2y ago
  I was wondering this myself. If we are paying fees why is it necessary to pay a % of each sale instead of paying a standard subscription? Sure it means more money for them, but is this really necessary?
  • jnordwick 2y ago
    purchasing protection and fraud need to be a percent. And "necessary" isn't the correct term for prices, "can" is.
• cedws 2y ago
  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.
  • multjoy 2y ago
    Cash has a processing cost to business as well, sometimes more than card processing fees. Not only do you have to pay to deposit, you have to store it, count it, secure it and transport it.
    • Atotalnoob 2y ago
      You also have to “buy” change. Banks don’t give bulk change that a cash business needs for free. You have to purchase standard denominations to give as change
  • trompetenaccoun 2y ago
    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. https://www.ft.com/content/a88fb591-72d5-4b6b-bb5d-223adfb893f3 https://www.ft.com/content/a88fb591-72d5-4b6b-bb5d-223adfb89... https://www.dw.com/en/facebook-backed-cryptocurrency-sold-amid-regulatory-pressure/a-60616823 https://www.dw.com/en/facebook-backed-cryptocurrency-sold-am...
• paxys 2y ago
  The total annual digital payments volume is estimated to be $11.5 trillion. Given that context a few billion dollars in profit off the top to add ease of use, security, fraud prevention etc. into the system doesn't seem all that absurd.
  • no_wizard 2y ago
    It’s not a few billion though. its tens of billions spread across a bunch of different organizations, honestly if you count Stripe, PayPal etc as well, you are in the hundreds of billions. In the last fiscal year for Visa, they alone made $14.9 billion in profit. This doesn’t factor any of the second order money effects either, like kickback to banks for rewards, and this is just Visa. Mastercard, American Express and Discover all factor into this too, at least in the US, and a quick glance suggested this is a world wide figure, which introduces even more variables The volume is also misleading because it does not differentiate on source, fee structure etc. it’s a gross (as in financial gross) number that says very little about how it was moved and what it cost to move it. Digital payments is a huge category
• janandonly 2y ago
  Newer players have a hard time in taking over the incumbents. I wish more companies used Zaprite https://zaprite.com/ https://zaprite.com/
• tqwhite 2y ago
  Yes we do. Why? Because the old people running our country have not figured out that digital money is money even though most spending is done using digital money. Because they love corporate profits more than citizen wallets, they restrict the US Mint to paper money instead of implementing a Federal payment system to support citizen use of digital money. Consequently, those companies effectively implement a regressive sales tax of around 3-4%. We should all have a federal debit card with zero processing fees that attaches to our bank accounts and the banks should be mandated to charge zero for federal debit card withdrawals. Alternately, a law should be passed that mandates these big companies to charge no processing fee for debit cards. If they can't make profits that are sufficiently obscene on credit card fees, tough luck. While at it, make a federal card processing function that is entirely funded by tax, just like paper money. It's an insane part of our government that it is impossible to modernize anything that touches the constitutional responsibilities.
  • jnordwick 2y ago
    > federal debit card I don't see how this could possibly be abused by law enforcement or politicians. I'm in!
• imarkphillips 2y ago
  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.
• slowmovintarget 2y ago
  Yes. Because they actually provide value both for the consumer and the seller for on-line commerce. "They make a lot of money!" is not a valid argument against.
• secondary_op 2y ago
  Yes - if you're want to further enrich PayPal Mafia et. al. and other bunch of golden billion elites [1], otherwise - No. [1] https://en.wikipedia.org/wiki/PayPal_Mafia https://en.wikipedia.org/wiki/PayPal_Mafia [2] https://en.wikipedia.org/wiki/Golden_billion https://en.wikipedia.org/wiki/Golden_billion
• KronisLV 2y ago
  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." PayPal requires the other person to either also have a PayPal or a Venmo account: https://www.paypal.com/us/business/operations/mass-payments 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?dashboard-or-api=api 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/ https://developers.klix.app/api/ (though they have bulk payments through the portal)
  • Animats 2y ago
    In the US, you can do an ACH transfer, bank account to bank account. Some US banks support FedNow, which does roughly the same thing as ACH, but in seconds rather than days. It's not widely used yet. $0.045 per transaction.
    • EVa5I7bHFq9mnYK 2y ago
      In the US, there is also a "pay a person" scheme, where you only need to know someone's phone number or email to send them money.
      • deleted 2y ago
        [deleted]
      • jeremyjacob 2y ago
        Are you referring to Zelle? I think the issue for users that keeps them on services like Venmo is primarily the UX. The Zelle experience varies depending on the customer’s bank. It’s a service run by and between the banks, who are generally not as user experience-focused as tech companies. One example of this is that there is no feedback when sending money to a phone number that is not on the platform. The funds just go into the void and are returned a couple days later. By contrast, Venmo lets the payer verify the payee with their profile picture, username, and phone number.
• konschubert 2y ago
  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: mail@konstantinschubert.com
  • bbyford 2y ago
    + 1 for sure. My personal interest is more aligned with crypto (back in 2008) where I would like to see a transation layer which is independent... feel free to use banks or not, invest or not, but the way you move moeny about is shared and not owned by anyone.
  • warkdarrior 2y ago
    Some things to keep in mind from the merchant perspective. A merchant will care about cost per transaction, cost of fraud/chargebacks, acceptance by customers, and integration into their backend systems. Once you have these solved, merchants will flock to you.
    • konschubert 2y ago
      I’m a merchant myself, I sell e-paper calendars. Last year I paid about 4% of my revenue for transaction costs in various shapes. That’s very roughly 20% of my margin. (!) Some of these are hidden as very bad, but non-optional, currency conversions. The hard one here is acceptance by customers. No merchant wants to clutter their checkout page with a button that nobody understands. Or worse, have customers get trapped in a dead-end payment process.
      • jahabrewer 2y ago
        Another way to think about this is in terms of how many marginal customers you get from being able to accept payments over the Web. 4% starts sounding less bad
• jrflowers 2y ago
  Pretty much, yeah
• kwhitefoot 2y ago
  In Norway most in store purchases go through a system run by the Norwegian banks which have much lower transaction costs: Bank Axept https://bankaxept.no/hjelp/priser-for-bankaxept https://bankaxept.no/hjelp/priser-for-bankaxept The fee is 0.135 %
• nyrikki 2y ago
  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.
• deleted 2y ago
  [deleted]
• gauravkm 2y ago
  India’s UPI system is an example that allows for low cost payments without additional fees
• mixmastamyk 2y ago
  In countries with modern banking, this has been solved for many/most transactions. Maybe fednow can do that in a few years. I’d build on that rather than reinvent the wheel.
• textlapse 2y ago
  You mean like UPI? For a nascent industry such as India I imagine you could: but for a legacy infrastructure such as that of the US - very advanced a few decades ago but now showing its age - the momentum is too hard to deprecate and start over. Just like how fast the developing world had pretty good mobile networks in a short amount of time. There are still a lot of lessons to learn from the Indian model but I guess the US incumbents would artificially add road blocks via legal or subtle measures to maintain the status quo and instead offer band aid solutions.
• abeppu 2y ago
  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?
  • jahabrewer 2y ago
    I'm a credit union member and... idk I've become disillusioned. Their products and rates are consistently worse than national banks. I won't feel like I'm sharing in anything. The execs seem to get good comp though.
    • deleted 2y ago
      [deleted]
• zoklet-enjoyer 2y ago
  Use stable coins instead
• tebbers 2y ago
  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.
  • Nextgrid 2y ago
    Open Banking is an overengineered and terrible solution, requires middlemen and there's nothing "open" about it. Do not fall for the hype. Basically, instead of having a URL scheme to represent a bank transfer request that your banking app could register itself for and handle, they'd rather rely on a middleman to get a broad read/write access token to your bank account so they can initiate the payment from there. These tokens are not scoped. When you do this, you fully trust the merchant (and theoretical legal recourse you may have) to not lie and only initiate the bank transfer for the amount they claimed - but there's nothing technically preventing them from taking more, or silently also grabbing your account history in the process (no bank provides an audit trail to know which read actions were taken). In fact, I suspect the fact you can do a read access as a byproduct "for free" and silently is a big part of why this type of payment is pushed so heavily. In addition, "Open" banking requires either significant regulatory/licensing hurdles, or a middleman like TrueLayer who (at least at one point, not sure how it is now) will be happy to lend their license to you for a fee. On top of that, you either need a middleman or need to integrate with each bank's API separately - so generally speaking, you'll always need said middleman. All for something that can be resolved on the client side with a simple URL scheme. But don't expect a corporatocracy like the UK to go for the simple solution if they can instead go with one that provides turf to as many middlemen and parasites as possible.
• levelz 2y ago
  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).
  • __MatrixMan__ 2y ago
    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?
    • eps 2y ago
      3DS exists and it is widely supported.
      • __MatrixMan__ 2y ago
        Doesn't that just trade one symmetric secret for another? (your password) I suppose it's a little better because you probably haven't written your password on the side of your card, but everytime I have to go through it it feels like I'm getting phished. Also, SSL seems kind of messy for the job. You've already got the processor as a third party, now the CA's are a fourth party, plus whoever gets to install certs on that device as a fifth... You could just have the card sign the transaction and have the merchant send that signature to the clearinghouse. For online orders, your phone could just be the payment terminal, and still the secret on the card is the signing key. But none of that actually helps unless you deprecate the insecure stuff.
        • dzikimarian 2y ago
          3ds is usually done with inapp confirmation these days. Your bank is responsible for the experience.
• pxeger1 2y ago
  Visa and Mastercard both have net profit margins of around 50%. So unless you think they’re taking on vast commercial risk, which I don’t, then there’s no reason we should be paying so much in fees.
• greenthrow 2y ago
  At least 3 of those companies came into existence in relative recent history. If you think you have something to offer, then do it.
• gizmo 2y ago
  Thanks to modern payment companies we are already living in the good place. Before Paypal you almost couldn't get paid on the internet at all. If you wanted to accept credit card payments it was a whole ordeal and banks didn't understand why anybody even wanted to sell things on the internet. Payment processing also got much cheaper. It's arguably still more expensive than it should be, but giving up a few percentage points in revenue in exchange for frictionless payments is a really good deal.
• NotYourLawyer 2y ago
  Just use Bitcoin! lol
  • kinakomochidayo 2y ago
    should just use USDC on Base instead - no high transaction fees like with Bitcoin, no crappy UX with Lightning, cheap transactions, free bridging, and no conversion fees for USDC -> USD unlike BTC -> USD.
• reboot81 2y ago
  I wonder what EU will come up with in the future, some kind of digital cash? Private transactions that must work instantly with all banks doing business in the EU? Several countries here have their own solution, but none of them are compatible with each other. (Please correct me)
  • cschuijt 2y ago
    Since a few years ago, the ECB is already looking into the possibilities for implementing a digital euro as another way of paying across the entire Eurozone. The phrase "digital euro" has been kind of a political boogeyman because of the privacy concerns (fair) and implications that the physical euro might disappear (less fair, the right to be able to use it as legal tender is enshrined in the EU treaties and that can't be changed without everyone agreeing to it), but the base idea is to create a public infrastructure that would do what payment processors and credit card companies are doing for a hefty fee right now. Which, to me, sounds like a great answer to this problem.
    • fwn 2y ago
      There is also the European Payment Initiative (EPI). It's an organization set up by a group of banks to streamline payments around (AFAIK) SEPA instant credit transfers. While I'm highly skeptical of shared initiatives by European banks, I'm far more skeptical of CBDCs, and the current EPI plans seem to be slightly less bad than current payment processes, power and privacy wise. They're just as slow as you'd imagine though. It'll probably be usable by 2050 or something.. https://en.wikipedia.org/wiki/European_Payments_Initiative https://en.wikipedia.org/wiki/European_Payments_Initiative
  • FabHK 2y ago
    Money (like stocks and bonds and ETFs and ...) is already digital.
• doctorpangloss 2y ago
  Yes someone can disrupt this, but only really banks and Apple can do this in the US. All you need is stakes to lose besides money, like credit scores or even like Internet access, and robust, compulsory authentication.
  • leros 2y ago
    You can't easily disrupt it because it's a two-sided marketplace between consumers and payment providers. You could launch a Stripe competitor called CheapPayments but it would still have to pay standard Visa/etc processing fees so it can't be cheaper than Stripe. You could launch a Visa competitor called CheapCard that has half the processing fees of Visa, but no merchants or payment processors would take CheapCard so people would continue using Visa.
• rswail 2y ago
  See UPI, FedNow, PromptPay, Osko/PayID/PayTo, iDeal etc etc.
• leobg 2y ago
  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.
  • deleted 2y ago
    [deleted]
  • godzillabrennus 2y ago
    I agree. These middlemen take our work and monetize it never cutting us in (Google, Facebook, X, etc…)
    • mgraczyk 2y ago
      There's a reason Facebook is printing money and X is not making any (and essentially never has). It's actually not the user generated content that primarily matters for ad revenue. Time spent on the site is necessary but not sufficient
      • fragmede 2y ago
        > essentially never has Twitter generated $3.4 billion in revenue in 2023. That's a helluva money printing machine. About a fourth the size of Facebook's. I don't know how big yours is, but thats bigger than mine. The problem is that, even with such a big money printing machine, if it costs more to operate than it spits out, you don't make money. Twitters problem wasn't getting money, they were getting huge piles of it. It's that they spent more than was coming in. Paying people to make the service happen, especially people to deal with the people who want to give them money to run advertisements, on top of with everything else, was expensive.
• raytopia 2y ago
  You could do things the old way. Just accept cash or checks (probably via the mail) and then either mail the product back to the address on the envelope or just send back a piece of paper with a key on it.
• __MatrixMan__ 2y ago
  The fees are bad, but I think the attack surface is worse. The easiest way to shut any business down is to go after its ability to collect payments.
• FabHK 2y ago
  1. Moving stuff in a ledger from A to B (sending money around in general) is all fairly trivial from a technology standpoint, but only a minuscule part of what financial institutions are doing. They spend a lot of money and effort on combatting fraud and making sure rules and regulations (KYC, AML, CTF, sanctions, etc.) are being followed. (The crypto bros (and some FinTechs) solve a tiny part of the puzzle with a new technology (not even good/efficient tech in case of crypto), and then think that they alone have solved it, and that the rest is easy, and that they are now in a position to take over finance. Not so.) 2. Costs vary tremendously by jurisdiction and industry structure. In Europe, bank transfers within the SEPA region are basically free (instantaneous transfers might cost 35 cents or so). Bank transfers, direct debit, and standing orders have been ubiquitous and cheap for a long time, and checks and credit cards are rarely used (on the continent; the UK is closer to the US system). There was no need for PayPal, as it was fairly trivial to pay bills. (Only when Ebay bought PayPal and made it the default payment method did PayPal get any traction in Europe, I think.) Similarly, credit card interchange fees are capped at 0.5% in the EU. That means fewer card rewards (which arguably benefit mostly the rich), and less credit card marketing. The banking system in the US is quite crap, but that's not due to stupidity, but a mix of a) well intended regulation that intends to support small regional banks, b) misguided business-friendly regulation with insufficient consumer protection. 2.b. I think Visa/MC/Amex are ridiculously expensive in many jurisdictions, and that they basically skim off some 2% or so of the entire retail revenue is ridiculous. They should be treated as cheap infrastructure. But this requires sensible regulation. It's not a technological issue. 3. There are lots of somewhat successful neo-banks, neo-brokers, etc. in many jurisdictions. I don't think many of them have extraordinary profits. And that's because, no, it's not "all coming from inefficiency and lack of real competition". Sure, the sector is so heavily regulated (like aviation) that you can't just walk in and compete willy-nilly. That has some downsides, but it also has advantages. 4. A bank that makes insufficient profits and tethers on the brink of insolvency invites bank runs. That's one reason regulators are not pushing too hard for more competition. (Replacing the current fractional banking system with private credit + narrow banking might be an option, but that's a huge and complicated topic...) For deep insight, I recommend Bits about Money by Patrick McKenzie (patio 11 on HN). https://www.bitsaboutmoney.com https://www.bitsaboutmoney.com https://news.ycombinator.com/user?id=patio11 https://news.ycombinator.com/user?id=patio11
• eddd-ddde 2y ago
  At least in Mexico the central bank provides APIs to integrate payments into your apps. This are COMPLETELY free, not even a cent of comission.
• tonymet 2y ago
  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.
  • lobsterthief 2y ago
    Also, it’s kind of weird that we hand someone a piece of paper (a check) that has our account and routing number on it
    • tonymet 2y ago
      Check fraud was significant . But overall finance fraud has seemed to increase despite improved security
• Yeul 2y ago
  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.
  • drstewart 2y ago
    Yeah, it's so nice to see the small guys (e.g. Rabobank - Revenue €12 billion (2022) or ING Group - Revenue €18.561 billion (2022)) get a win
• deleted 2y ago
  [deleted]
• nraynaud 2y ago
  It’s clear that more and more companies are inserting a fee on a transaction that would happen with or without them, rather than making the pie bigger.
• zephyra334 2y ago
  [dead]
• coding123 2y ago
  You'd have to break into the POS market.
• Schnitz 2y ago
  I think the question you are really asking is if payment rails should be a public utility or publicly owned (government run) service.
  • jordanb 2y ago
    This is basically what FedNow is. You've probably heard a lot of really bad things about it. The people who say these things probably are incentivized to do so.
    • drstewart 2y ago
      This is the opposite of what iDEAL is, since it's privately owned by a consortium of banks (https://en.wikipedia.org/wiki/Currence https://en.wikipedia.org/wiki/Currence). You've probably heard a lot of really good things about it. The people who say these things probably are incentivized to do so.
• h_tbob 2y ago
  I like to look at things from first principles. Karma if you will. What u plant is what grows. Debit card interchange fee in America is so low! Credit card interchange fee is so high. I think it’s because u are making a “deal with the devil” when u do credit. Buying stuff with other peoples money. So naturally the “devil” charges a high price for his service. If you want to do business with people buying on credit, you have to pay more. I think the universe is telling us we should quit with all the credit cards!
• toomim 2y ago
  [flagged]
• _gzov 2y ago
  I think the state should provide an alternative, or states jointly. Everyone needs to pay under capitalism.
• keiferski 2y ago
  In Poland there is a bank-to-bank payment system called BLIK. It works incredibly well and avoids the payment processing providers entirely. https://en.wikipedia.org/wiki/Blik 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 2y ago
    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.
    • keiferski 2y ago
      It isn’t phone dependent. You can use the website too, if your bank has the option (mine does.)
• rgreekguy 2y ago
  Of course, how else could you have them dictate where you can spend your money and where not? The Visa/MasterCard monopoly is pretty invisible, I feel. Few cases where they have enforced their power to forbid payments towards someone, but there are out there, at least in the past 5-6 years.
• j45 2y ago
  It can be premature optimization to save the credit card fees before learning to make the other 97.1% of each dollar.
• diebeforei485 2y ago
  The system is too complicated because it's built off static card numbers and there is too much fraud. X will disrupt this. They already have ID verification, money transfer licenses, and banking licenses. Just have a bank account with them and pay businesses (who are already on X) directly and skip Visa/MC altogether.
• fsflover 2y ago
  It comes from enshittification: https://pluralistic.net/2024/08/17/hack-the-planet/ https://pluralistic.net/2024/08/17/hack-the-planet/
• pjdkoch 2y ago
  wow, no mentions of blockchain.
• mensetmanusman 2y ago
  I wonder if the government could make a new type of physical cash with digital characteristics to solve this. If we know the grid was at risk of collapse during conflict or a solar event, it might make sense to mandate cash* below some dollar value as an anti fragile move.
• mharig 2y ago
  [dead]
• aristofun 2y ago
  The amount of money you make generally correlates to the amount of value you bring. With some exceptions and caveats, but it is the most fundamental role of money. Go and make something at least 1% as valueable and I'm sure you'll find your 1% of the market share.
• digitcatphd 2y ago
  Most of these fees go to the banks for using their cards, with the exception of PayPal. As a merchant I fucking hate PayPal, but you need to accept it since users are accustomed to it. They own the distribution channels which is convenience and habit from the consumer. Fraud doesn’t impact them and most have minimal to no real preventative methods in place, again this is the card company not the merchant processor filing disputes. Venmo already did this getting the furthest and still couldn’t overthrow the empire. The amount of funding you would need without a revenue model would force you into this model anyway so you would end up with the same business model. So no. Probably not.
• RamblingCTO 2y ago
  We have real time payments in the EU that at least should replace PayPal in theory. But it fails due to friction, as most older banks (not neo banks or fintechs) have no easy way to present someone your IBAN. I'd also be wary to just present my IBAN to strangers, as it's enough to create a direct debit (I believe it's called). I'd miss the abstraction layer of protection. But then again I got cheated and neither PayPal nor my neobank provider helped me.
  • mcntsh 2y ago
    For p2p transactions yeah but most financial institutions lack the tooling necessary to make taking payments for orders viable.
• Jasonbe 2y ago
  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.
• legithackar 2y ago
  [dead]
• indulona 2y ago
  Instant bank payments are already a thing and will be mandatory, across EU, by the end of next year. They will spread into other parts of the world if they don't have them already. So actually the payment cards will be on life support in next couple of years and might even go extinct if banks figure out terminals at the stores to not need cards issued and networks operated by foreign companies.
• MarcAntonyX 2y ago
  [dead]