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

https://news.ycombinator.com/item?id=41275342

by OnuRC • 2 years ago

257 351 2 years ago

news.ycombinator.com

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?

astrodust• 2 years ago

If you think building a Stripe or Visa replacement is easy, go ahead and try.

WarOnPrivacy2• 2 years 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_• 2 years ago

Put your efforts where your mouth is and go build your own "real competition" if you think its that easy.

WarOnPrivacy2• 2 years 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.

prng2021• 2 years 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

"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."

ToucanLoucan2• 2 years 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.

alwa2• 2 years 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.

throwaway48540• 2 years 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• 2 years 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• 2 years 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• 2 years 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• 2 years 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.

BeetleB4• 2 years 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.

tqwhite2• 2 years ago

I would use my debit card even if it behaved exactly like cash, ie, when the recipient got the money, my only way of getting it back is to sue them or call the police.

Obviously any electronic payment system needs to be secure internally but society lasted a long time and made fine progress when having your wallet stolen meant losing your money.

It would be fine to require a person to charge their debit card with a finite amount rather than have it be funded up to the limit of the supporting account and that would solve the last problem compared to cash.

multjoy2• 2 years ago

Not every transaction needs complex fraud detection or being able for the customer do to chargebacks.

Fraud is an industrial level enterprise. You absolutely need fraud detection if you're accepting payment that isn't cash.

stefan_• 2 years ago

EU caps interchange fees at 0.3%, which is probably still too much. The 3% is mostly to finance the various gimmick programs that make naive people think they are "gaming the system" with their 20th card in wallet (and because they can, of course).

tonyarkles2• 2 years ago

There's an issue that you're not addressing: what happens when someone who isn't me spends my money? I think people would be happy for the theoretical 3% discount until their account is drained and sent to North Korea with no recourse.

alberth• 2 years ago

You just described debit cards.

And there fees are 1/10 of that of credit cards, as a result of giving up these benefits.

ta_11383• 2 years ago

You are missing the opposite side of the fraud picture: Where it's not the business scamming you, but someone taking your credentials and spending up to the limit in a store that deals with no chargebacks. This is, if anything, the larger size of the fraud losses for the Stripes of the world. Fake businesses that use the cards either for testing if the creds are good, or where the owners charge cards that they obtained from some other malicious actor.

So it's not that I get 3% off by not supporting chargebacks, but whether I want to have a dollar under a payment system that supports someone emptying me out without recourse.... and the answer is often no.

crazygringo4• 2 years ago

Not every transaction needs complex fraud detection or being able for the customer do to chargebacks.

Well, not until you get hacked.

We might be happy with instant, no-undo transactions until our device gets hacked and our bank account with many thousands of dollars gets drained, through no fault of our own.

Then suddenly, complex fraud detection and transaction reversals seems like an awfully good idea.

Because the issue here isn't about chargebacks where you genuinely made the transaction but the business failed to deliver, and maybe you lose a couple hundred dollars. The issue here is about when you never authorized transactions at all, and you lose all your savings.

fuzzer371• 2 years ago

This has been done with Zelle and people are crying because they're dumb enough to fall victim to obvious scams.

grogenaut2• 2 years ago

Lol

If you have an unprotected vector fraudsters will find and exploit it. They're literally paid to do so.

I've seen fraudsters that are ridiculously persistent to make $2,000 in a year. But they just keep poking at it at a certain point you're able to ramp that up to $80,000 in a month I know they're good it was completely worth it to him for several years.

How I've seen people spend hundreds of hours to generate a few hundred dollars worth of in-game currency or on-site reward points.

immibis5• 2 years ago

Would the customer still agree to that 3% discount, after their computer got infected with a virus and 100% of their money was irrevocably gone?

darth_avocado• 2 years ago

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.

konschubert11• 2 years ago

No.

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.

kleinsch• 2 years ago

You leave your credit card on the table at a coffee shop. A thief takes it and goes to the grocery store. You’re going to do a chargeback.

carlosjobim2• 2 years ago

I just went grocery shopping. VISA was involved and took a few percent. Why??

Because you paid with a VISA card instead of paying by cash. Hint: it says Visa on the card.

ta_11383• 2 years ago

Because you don't want someone that steals your credentials to spend large amounts of money in things they ship to themselves, instead of to you!

blacklion• 2 years ago

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.

deepsun2• 2 years ago

Same thing in Ukraine. And it's not because they face less fraud attempts, it's just their tech is years ahead of US.

olejorgenb• 2 years ago

I believe Vipps in Norway is similar as well

t0mas882• 2 years ago

iDeal is working on international expansion, so it may become available in other European places.

The main downside of iDeal for consumers is that it's irreversible. If you pay and then never receive the product, you can't get your money back. While PayPal and credit cards do offer that extra protection to consumers.

So iDeal is really only good for the merchants due to the very low transaction costs.

farrelle25• 2 years ago

Just back from Poland- they have a great system 'BLIK' that sounds like iDeal...

Most merchants have a BLIK button... you click it, enter a 6 digit code created on your banking app. Purchase complete. Takes a few seconds. No card numbers, CCV etc..

Nextgrid17• 2 years ago

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.

martinald2• 2 years ago

This is already happening, 16 digit PANs are due to be phased out https://developer.visa.com/capabilities/vts

immibis5• 2 years ago

I often make medium-to-large purchases using SEPA bank transfer. The merchant gives me a bank account number, a random or serialized reference code, and a week to make payment. I go to my bank, and send the money to the bank account, inputting the same reference code. Once it arrives (usually within the day or the next morning) the thing is paid. This works for most online purchases that are not urgent and support the payment type.

lifeisstillgood2• 2 years ago

Can I understand this flow?

I want to buy a CD from Amazon for 19.99. I click on my bank application (or maybe some QR code on Amazons site) And that tells my bank app on my phone to authenticate my phone agains the bank And ask for a 16 digit number that is solely for amazon, 19.99 and 20240812

hugs2• 2 years ago

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...

This almost sounds like a subtle recommendation for the Lightning Network. It's based on single-use invoices that are locked to a specific recipient and is usually limited to specific amounts.

throwway_278314• 2 years ago

I'm not sure you can eliminate fraud. You can shift it around, but not eliminate it.

Sweden thought going cashless would reduce crime. Nope, crime increased.

EVa5I7bHFq9mnYK3• 2 years ago

You seem to have described Google pay and its tokenization scheme.

hyperman1• 2 years ago

You've described Bancontact, the standard Belgian payment system since the 1980's or so. I suspect most EU countries have similar stories.

Paypal etc basically exist to deal with the backward underinvested USA payment systems.

azthecx• 2 years ago

Portugal like many European banks already has a working solution to this for 20 years where you can create temporary card numbers and use that instead or, as of late, pay directly through an app that enables this same behaviour.

The Netherlands had a similar system where they used physical totp (I believe) terminals which generated them from your bank card + pin, completely offline. Nowadays everyone uses iDEAL identically to what you describe.

sidewndr462• 2 years ago

From a merchant perspective, there is a significant group that view this as a feature. Not a bug. Once a merchant gathers you credit card info, they can submit basically any transaction they want at any time. Yes, if you do this enough your payment processor will cut you off. But for businesses like gym membership, NYTimes subscription, car rentals, etc. it's a core feature.

The product in that case is not "payments as a service" to the consumer but in fact "payer as a service" to the business. If consumers didn't represent an unbounded ability to generate recurring revenue there are lots of profitable businesses that would go under overnight.

roughly• 2 years ago

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.

fragmede6• 2 years ago

Which, we've got to ask about the false positive and the false negative rate. it's annoying when it's really me and I try to charge something and it gets declined, but also the fraud detection can't be 100% effective, so the real rate is probably higher.

miki123211• 2 years ago

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.

m463• 2 years ago

Most countries that aren't the US basically did this, in one way or another.

Most countries that ARE the US put the burden on the business and the credit card companies, and limit the liability to the credit card holder ($50 max, sometimes $500)

I've known people in other countries that lost money and they were SOL in comparison. Maybe they have cheaper transaction fees.

zeroCalories• 2 years ago

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.

analog31• 2 years ago

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.

katzinsky• 2 years ago

The whole point of a credit card is that you can give the number out. You're nesting solutions here.

fendy3002• 2 years ago

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.

treflop2• 2 years ago

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.

jongjong• 2 years ago

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.

Alcatros552• 2 years 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.

alwa2• 2 years 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_wizard3• 2 years 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-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• 2 years 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!

solardev5• 2 years ago

Do those services also deal with fraud, chargebacks, etc., or are they basically digital cash equivalents?

stickfigure• 2 years ago

There are countless systems and they all answer that question differently.

comprev2• 2 years 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.

Aachen6• 2 years ago

I thought chargebacks were generally considered a pain: for merchants because it's used by abusive customers, and by customers because it means the merchant (or rather, their payment provider) needs to play a guessing game about whether you're going to do a chargeback and may baselessly deny you the purchase, as well as increasing the cost for everyone due to this increased risk the merchant has

Or maybe it's just me but I greatly prefer the non-algorithmic non-pay-on-credit mechanism where I simply pay for my purchase and the other party has no reason not to take my money (and the bank no reason not to issue the payment method to everyone: as an EU foreigner in Germany without pre-existing German credit score, getting a card at all was a pain, no matter if I could guarantee it with some insane deposit amount... I have the money, they just didn't want to issue a number to pay with because of algorithm magic). Now that I got that card number by co-guaranteeing with a German, purchases often fail like when I use mobile data which is from a Dutch phone number and so it looks foreign and I guess smells like non-standard situation → must be fraud, let's deny the purchase

Digital replacements for cash, like the aforementioned iDeal system, just always works and is available to everyone with a bank account in the Netherlands (iirc they're looking to start using it EU-wide because the costs are so low). No need to pre-pay either (like with paypal credit) because it just draws from your regular account. Another advantage is that it is owned by the banks collectively so you're not giving a ton of information to a third party, like most German-native payment options requiring to verify a phone number before you're allowed to pay the merchant for absolutely no reason other than tracking

anodari• 2 years ago

The brazilian PIX is a digital cash transfer from bank account to account built by our central bank. It doesn't handle fraud and chargebacks which must be done by the seller or third parties.

Nextgrid17• 2 years ago

If the systems are local to a specific country, they could reasonably skip the idea of chargebacks and just rely on the legal system to resolve any disputes?

WJW• 2 years 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• 2 years 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• 2 years 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• 2 years 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.

TheRealPomax2• 2 years ago

Who is "they" in that sentence?

plokiju• 2 years ago

the elders of the internet

xyst• 2 years 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• 2 years 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_wizard3• 2 years 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/int...

_xnmw• 2 years 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.

TheRealPomax2• 2 years 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• 2 years ago

Replace "billions" with 3%

xnx• 2 years 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...

BirAdam• 2 years 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.

warkdarrior4• 2 years ago

CBDC does not solve fraud, liquidity, or disputes.

fragmede6• 2 years 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.

Aachen6• 2 years 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)

fragmede6• 2 years 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.

codexon2• 2 years 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.

toomim• 2 years ago

Try Bitcoin Cash. It's Bitcoin as it was intended. Transactions are practically free, and zero-conf hasn't been crippled by RBF!

fuzzfactor• 2 years ago

I'm not ashamed to say I could never justify those kind of things even before they cost billions ;)

dtagames• 2 years 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• 2 years 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?

jnordwick3• 2 years ago

purchasing protection and fraud need to be a percent. And "necessary" isn't the correct term for prices, "can" is.

cedws• 2 years 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.

multjoy2• 2 years 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• 2 years 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• 2 years 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-223adfb89...

https://www.dw.com/en/facebook-backed-cryptocurrency-sold-am...

RunSet• 2 years ago

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.

Or authorities "allowed" Bitcoin because, given its lack of head to cut off, they had no choice.

Contrast with Ethereum's demonstrable central authority over its blockchain: When the developers were robbed of their coin by a hacker, they "reorganized" the Ethereum blockchain to undo the transactions associated with the theft.[0]

I regard Ethereum less as "slipping through the cracks" and more as a poison suppository greased and inserted by the powers that be.

[0] https://en.wikipedia.org/wiki/Ethereum_Classic#The_DAO_bailo...

TimJRobinson2• 2 years ago

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.

avnfish• 2 years ago

Yep, plus Apple is opening up the NFC API for tap to pay. I could easily see merchants accept both cards (2%+8c) and USDC (0%) at point of sale

paxys• 2 years 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_wizard3• 2 years 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

chasebank• 2 years 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.

janandonly• 2 years ago

Newer players have a hard time in taking over the incumbents.

I wish more companies used Zaprite https://zaprite.com/

tqwhite2• 2 years 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.

jnordwick3• 2 years ago

federal debit card

I don't see how this could possibly be abused by law enforcement or politicians. I'm in!

imarkphillips• 2 years 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• 2 years 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• 2 years 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

[2] https://en.wikipedia.org/wiki/Golden_billion

KronisLV• 2 years 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

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)

Animats• 2 years 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.

EVa5I7bHFq9mnYK3• 2 years 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.

konschubert11• 2 years 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

warkdarrior4• 2 years 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.

konschubert11• 2 years 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.

Terretta2• 2 years ago

It's the ultimate two sided marketplace … The problem is: Getting merchants and customers on board.

OK, but then there's the third side: banks.

find a way to debit peoples bank account with 0 fees and 0 default risk and <5s latency

Banks.

langcss• 2 years ago

Banks don't do this well. It isn't always low transaction time, it isn't always 0 default risk, it is usually 0 fees but not internationally and the UX is not great.

bbyford• 2 years 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.

jrflowers• 2 years ago

Pretty much, yeah

kwhitefoot• 2 years 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

The fee is 0.135 %

nyrikki• 2 years 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.

gauravkm• 2 years ago

India’s UPI system is an example that allows for low cost payments without additional fees

mixmastamyk• 2 years 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• 2 years 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• 2 years 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?

jahabrewer5• 2 years 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.

zoklet-enjoyer• 2 years ago

Use stable coins instead

tebbers• 2 years 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.

Nextgrid17• 2 years 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.

intelVISA• 2 years ago

Based on your description one imagines the 'open' part is where it opens your data up for aggregation.

levelz• 2 years 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__4• 2 years 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• 2 years ago

3DS exists and it is widely supported.

snotrockets3• 2 years ago

Or how many different rails and protocols there are, and how many of those you need to support if you actually want to serve most customers.

welder3• 2 years ago

Visa enables the fraud with their insecure payment system, then place the blame on merchants with chargeback fees.

pxeger1• 2 years 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• 2 years 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• 2 years 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• 2 years ago

Just use Bitcoin! lol

kinakomochidayo2• 2 years 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• 2 years 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• 2 years 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• 2 years 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

FabHK5• 2 years ago

Money (like stocks and bonds and ETFs and ...) is already digital.

doctorpangloss• 2 years 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• 2 years 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• 2 years ago

See UPI, FedNow, PromptPay, Osko/PayID/PayTo, iDeal etc etc.

leobg2• 2 years 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.

godzillabrennus• 2 years ago

I agree. These middlemen take our work and monetize it never cutting us in (Google, Facebook, X, etc…)

mgraczyk2• 2 years 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

fragmede6• 2 years ago

it's not just not trivial, it's quite cumbersome. but micropayments exist. assume I made some content and users wanted to give me 10 cents for it. if they didn't want to pay the 30 cent visa tax, they'd have to: create a Coinbase account, fund it, buy some crypto, install a wallet, move the crypto to the wallet, and connect the wallet to my website, before finally sending 10 cents my way. even if we handwave that the server side exists, how many users are going to bounce off of that?

adamtaylor_13• 2 years ago

There are solutions to this problem that don’t involve crypto.

TimJRobinson2• 2 years ago

Only needs to be done once though. I tip and buy things all the time with my crypto wallet now, and it's less than a cent per transaction. Just waiting on more sites and stores to support it.

Credit cards were also a PITA when they first came out.

FabHK5• 2 years ago

if receiving payments would’ve been as easy as receiving email from the beginning.

In Germany, every business (and some individuals) has published their account number for ages (on the letterhead, website, etc.), typically right next to their address and email address (or fax number, for that matter).

And with that account number, you can just transfer money to the recipient. It really is as easy as email.

Lionga• 2 years ago

It really is not, and I would assume less 1% of consumer purchases are done using a bank tranfer / account number.

mcntsh3• 2 years ago

Imagine you are an sized e-commerce merchant. Someone checks out on your website and sends you a bank transfer. Then what?

You go through your ledger (bank account), find the transaction with an order ID as a memo (hopefully the buyer added it and correctly), and then you look up that order in your system and submit the order form to your warehouse?

leobg2• 2 years ago

Well, it really doesn’t suit itself for automation, much less for real-time transactions. Say, you want to sell access to an article on your website. It would be cumbersome for the customer to have to switch over to their online banking and typing in all details (ok, today we have QR codes, but you still need to jump through many hoops, much more than with, say, a credit card or PayPal payment). Then it takes time until the money shows up in your account - sometimes several days. And, finally, there was no API access available from the banks for small sellers that would have allowed them to build an integration, even if they had the resources to write custom software.

jahabrewer5• 2 years ago

You can’t make a living posting stuff online on your own private website.

There are many counterexamples to this.

Loughla• 2 years ago

I'm not trying to be stupid but can you name some?

null0pointer• 2 years ago

This use case is the entire point of cryptocurrencies. It’s just a shame that there wasn’t more effort spent on improving the UX rather than running the VC playbook on the ecosystem to seize control over it.

dmalik• 2 years ago

In Canada we've had email money transfer since 2003. It used to cost $1 if you had a different bank then the person you were sending to but now it's free. Generally only good for friends and marketplace items though. Can't use it for ecommerce.

bgnn2• 2 years ago

Why isn't it not possible for e-commerce?

raytopia• 2 years 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__4• 2 years 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.

FabHK5• 2 years 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://news.ycombinator.com/user?id=patio11

eddd-ddde• 2 years 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.

tonymet2• 2 years 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• 2 years 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

tonymet2• 2 years ago

Check fraud was significant . But overall finance fraud has seemed to increase despite improved security

Yeul2• 2 years 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.

drstewart3• 2 years 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

nraynaud• 2 years 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.

coding123• 2 years ago

You'd have to break into the POS market.

Schnitz• 2 years 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• 2 years 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.

drstewart3• 2 years 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).

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• 2 years 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!

_gzov• 2 years ago

I think the state should provide an alternative, or states jointly. Everyone needs to pay under capitalism.

keiferski2• 2 years 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

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• 2 years 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.

keiferski2• 2 years ago

It isn’t phone dependent. You can use the website too, if your bank has the option (mine does.)

rgreekguy• 2 years 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• 2 years ago

It can be premature optimization to save the credit card fees before learning to make the other 97.1% of each dollar.

diebeforei485• 2 years 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• 2 years ago

It comes from enshittification: https://pluralistic.net/2024/08/17/hack-the-planet/

pjdkoch• 2 years ago

wow, no mentions of blockchain.

mensetmanusman• 2 years 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.

aristofun• 2 years 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• 2 years 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.

RamblingCTO2• 2 years 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.

mcntsh3• 2 years ago

For p2p transactions yeah but most financial institutions lack the tooling necessary to make taking payments for orders viable.

Jasonbe• 2 years 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.

indulona• 2 years 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.

izalutski• 2 years 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.

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

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