The EU caps interchange fees by law, the US doesn't (except on debit cards). As a result, credit card fees are much higher in the US because they can be. Credit card issuers kickback some of the fees collected from merchants in the form of rewards for using the credit card.
This is also called the "poor people tax", because the merchants all bake these fees into their prices, which rise accordingly for all customers, including those who pay cash, or use debit cards or credit cards without those kickbacks. In order to evade the "tax", you are basically forced to pay with a credit card that has good kickbacks (>= 2% is acceptable if I remember correctly) so you recoup those 2% that are implicitly included in any price of any good in any store. Those who lose out are people with poor credit rating, because they either have no access to the best cards or have to pay ridiculous fees to get them.
In my eyes it's useless circulation of money in the best case (when recouping via kickback) and a tax on the financially illiterate or poor in the worst case. In any case it is creating a lot of expensive administrative overhead for no economic purpose whatsoever, and thus a healthy capitalistic society should want to get rid of it - which is even relatively easy to do in this case, as the European regulation demonstrates.
This is an interesting development. I didn't know about that Supreme Court decision. So it effectively allows merchants to communicate a credit card surcharge as exactly that to customers, letting them know that it is caused by using a particular card?
Does that also allow merchants to put an additional surcharge depending on the card used onto a receipt? Or has that been deemed legal in an earlier ruling? Because I always thought the big card networks had some kind of legally binding contract with merchants which prohibits the addition of surcharges that only apply to their particular payment method - contract clauses that they could only muscle through because merchants effectively didn't have the possibility to just not accept Visa or MasterCard payments, while most of their competitors accepted them.
Credit card issuers also kick back millions to politicians to keep this status quo. In most places in Europe, this would be called bribery and corruption. To us, it's just lobbying. But a rose by any other name ...
My Czech bank (Equabank) also made withdrawals free anywhere in the world a few days ago; I was worried that this would come with hideous rate increases, but apparently not.
Weird instance of banking actually getting better with time?!
I think that's due to pressure from a number of fintech-companies such as revolut, monzo, transferwise, and what not. They focus on exactly just that, lower exchange rates and simpler money transfers.
A friend went to a talk from a large swiss bank and there was also this question, why they did not go faster forward. The answer was pretty short. Why kill a cashcow.
What I hear from people in the traditional banking sector, they actually don't mind the newer fintech companies such as Revolut, N26 and so on because they'll mainly attract the kind of customers that the traditional banks would rather not have. If you don't have a mortgage, loans, credit cards, stock or so on, then you're not really worth the hassle of having you as a customer. The fintech startups offer none of those things.
No surprises that shortsightedness pervades the traditional banking sector. These services appeal to people who like to travel, i.e. people who are relatively more well off. Then they hope to upsell other financial products to them.
I believe actually there was EU regulation that forced this...
When Monzo made EU withdrawals completely free (again), they said
> After a change in EU regulation on cross-border payments we've decided to remove ATM fees and limits for countries in the European Economic Area (EEA). This means in all EU countries (and a few more) your cash withdrawals are now free! You can see the full list of countries here.
Check what is the currency exchange fee - while you might not pay for withdrawal, they can still add a few % of the exchange fee (that’s at least the case for some of Polish cards).
Schwab's currency exchange fee (via withdrawal at non-US ATMs in local currency) has basically been the spot rate in my experience, for a decade or more that I've been using it. And there's no other fees so it's basically free forex (for small amounts I presume, they're not going to let you do that for $1M I bet).
How do you find out what exchange rate they use and how it compares to the spot rate? I have cynically assumed that they make money on this (despite claiming “no foreign transaction fee!”) but never knew how to check one company versus another.
I google “USD to GBP” or whichever currency right after I get the money. My BoA/Chase credit cards also give me basically spot rate conversions. Although this article explains why it might not make sense to use that number:
A Fintech banking startup in Switzerland (Neon) recently did the same. They also removed the surcharge on the exchange rate and now give the official MasterCard exchange rate.
>Cryptocurrencies, except BTC and a couple of others, are doing it right. A transfer should cost a fraction of a cent.
Most people would prefer to not be out all their life savings if someone swipes their card number. Combating and refunding fraudulent transactions takes some cost.
Well, that's kind of an unfair strawman. Cryptocurrencies are best used as transactional currency instruments to buy with local cash and then immediately exchange for goods/services, rather than savings currencies to hide money in, risking high-beta loses from day-to-day.
What would be superior is if every nation's national post office provided basic banking, debit card and mobile payment services for free (think similar to China's amazing system), so that no one would have to be unbanked except by choice. If people are in the "gubberment shouldn't exist" camp, then there should be a trans-national, independent, non-profit credit card system that provides credit card processing and transfer of money at about the cost of delivery: no surprises and no exploiting a basic human need to hand over as much cash as possible to short-term interested stock speculators.
Bank transfers in Europe are now typically free. Cards expose the bank to a certain (small) degree of risk Nd administrative cost, so they’d probably stop offering the service if rates were regulated to zero.
I'm out of the loop on this stuff, but are others doing things to prevent the situation Bitcoin had a couple years ago, when it hit $37 per transaction?
That seemed to happen due to a massive price and volume increase, so is hard to design for. At the same time, at peak, it was still doing a tiny fraction of the volume that any of the credit card networks do.
Blockchain scaling is still a very active area of research, and anyone (like GP) telling you there's a battle-tested solution available today to replace Visa is lying to you.
On the precise issue of transaction cost predictability, I think most solutions would revolve around creating a market for the ability to execute future transactions. There's a hackish project on Ethereum doing just that: https://gastoken.io/
I bet the banks lose money on credit cards in EU. They are loaning out money up to 60 days for only a 0.3% fee. Interchange is meant to cover these loans.
(A) Yes, in many countries. (B) that card loan is only at effective 1.6% for 60 days; if it’s not paid at that point it turns into potentially 20%. (c) Most card payments are debit anyway afaik; no loan longer than a day or so involved.
I’m really surprised that the major credit card companies are not jumping into the mobile payment arena(similar to WeChat and Alipay). I think this is the future of consumer transactions.
I spent three months in China, and had 1 opportunity to use my credit card: booking a flight home. Everywhere else, I was out of luck. That forced me to use WeChat wallet and Alipay, and I got to say that the experience was really good. There’s so little friction to spending money and can be used for basically everything in China.
It must be way lower fees for everyone involved as well. I only need to do a single bank transaction for the month(loading my wallet) and then after that it’s just swapping credits. Perhaps that’s why cc companies are reluctant.
I think it was in the beginning, and its certainly easier to set up for Chinese citizens. The big hurdle is you needed a Chinese bank account. Alipay now has a Tourpass which is specifically made for foreigners.
Being a mobile payment system like that under Western regulations would be awfully close to a heavily-regulated bank. PayPal, for example, goes to great lengths to specifically stress that it is not a bank and doesn't need to be regulated like one.
Honestly, with the chip readers these days also widely accepting NFC payments (Google/Apple/Samsung Pay) I think it'll allow the US to leapfrog WeChat and AliPay by obviating the need for yet another financial middleman.
Chase tried to do this a few years ago with Chase Pay.
It was inconvenient and rarely accepted. Maybe updated PoS terminals will fix where they went wrong (IMO using QR codes), but it’s difficult to get people to switch from a card swipe/tap or phone tap.
That was surprising to me as well. Then again, if there is a per transaction fee multiplied by the amount of credit card transactions per day, I could see where those add up quick. A cursory search online stated over 100 billion transactions annually. So I could see where the fees are making more money than interest.
Interested rates are 25%/yr. People are carrying a balance either have a low balance or we bankrupt and don't pay. Meanwhile fees are on every months spending. If you spend to your limit every month, that's 12x the carried balance.
A lot of folks don’t know that merchants pay more for CNP transactions. Why? Well it’s simple, there is no alternative to cards for an online transaction, the issuers have power. people think it’s due to fraud... there is a lot more fraud with CNP transactions but not nearly enough to account for the 60 bp difference in rates.
> A lot of folks don’t know that merchants pay more for CNP transactions. Why? Well it’s simple, there is no alternative to cards for an online transaction, the issuers have power.
That may be true in many countries, but in India, there are cardless (non-credit/non-debit card) online payments available that are used a lot more than card based payments and are all instantaneous (similar to cards):
* Netbanking (where you're redirected to your bank's site and login to approve a specific payment)
* UPI (Unified Payment Interface), a private consortium [1] managed payment system where anyone can create a user@paymentprovider ID and exchange that as the receiver address instead of complex bank account numbers, branch details, etc. This also allows payment requests from merchants that one can login and approve.
* IMPS (Immediate Payment System), another service by the same private consortium. [1]
* Rupay cards, a local payment network (now recognized in a few other countries) by the same private consortium [1] that's a replacement for Mastercard/Visa/Amex networks.
* Digital wallets by payment providers and "payment banks" that work like wallets and/or allow direct transfers from one's linked bank account, like Paytm, Amazon Pay, Amazon Pay UPI, Google Pay, PhonePe, and many, many more.
* Bank transfers that may take an hour or several minutes, as opposed to the instantaneous ones above, with systems like NEFT (National Electronic Funds Transfer, a batched inter-bank payments settlement system) and RTGS (Real Time Gross Settlement, a real time inter-bank settlement system).
Though digital payments are still not huge in percentage terms, the ones above likely handle a lot more volume than Visa and Mastercard do. The government has also pushed for zero MDR (Merchant Discount Rate) on certain payment and transfer options, and made them more attractive to merchants.
The U.S. is comparatively very backward in payment systems, costs and payment speeds.
[1]: The private consortium is called NPCI, which stands for National Payments Corporation of India.
I suspect that TPM-backed digital signature systems, like the nascent Apple Pay for Safari, will eventually become ubiquitous and eliminate the fraud angle.
* Fees will go up for card not present transactions (online and phone) and fall a bit for card present transactions.
* Overall, Visa is increasing fees to make more money than before since there aren’t any other details provided.
My take is that if Mastercard plays it right, this is a good time to capture a higher market share at Visa’s expense (though it wouldn’t come anywhere close to toppling Visa’s lead).
Some merchants in Singapore don't accept Visa, but accept Mastercard, because Visa's standard merchant agreement here prohibits adding a surcharge, but Mastercard's and Amex's don't.
And the published fees for large supermarkets are going down. Probably because they have the leverage and could even shape consumer behavior by making them used to some alternative.
Costco is unusual as only accepts the credit card issuer that their card is issued through, when AMEX issued their credit card they only accepted AMEX.
The Swedish company Klarna is a good example. It’s now so common among Swedish consumers to have a Klarna account that it’s probably the most frictionless way for customers to pay online.
I have a colleague who worked there like five years ago. She bought as much stock as she could. Once it IPO or gets acquired I suspect she’ll get a hefty contribution to her retirement.
We have "rewards" on our credit cards. Rewards aren't free, so they increase the fees.
>For banks, the $91.2 billion in fees they earn on credit-card portfolios is now more than the interest they charge on the loans.
The fees are ridiculous. Profit margins at restaurants are often 3-5% (per Google). There is still a cost to handling cash, but if cash cost ~1% all-in, their profits would go up 20-30%, just like that, assuming consumption stayed the same.
Fast food venues didn't accept credit cards for a long time, but eventually found people spent more paying with a card than cash. A $300 TV and a $5 hamburger "feel" exactly the same with cards, which certainly doesn't help consumerism in the US.
As an example, when I pay my property taxes, I can either pay by sending a check in the mail, doing an electronic check (ACH transfer that takes 2-3 business days to clear) and paying $0.25, or pay a 2% transaction fee. Stamps are $0.50, eventually I'll need to reorder checks (at a cost), so I do the ACH transfer.
I’ve been all in on using my banks bill pay system for a number of years now for property tax / water bill / etc. Stamps & check books cost money, but scheduling someone else to cut the check, stamp and envelope it, and stick it in the mail on a certain date is free. It boggles the mind.
Your bank's bill pay involves someone sending a physical check?
In Canada, we have "bill pay" for utility, property tax, credit card, etc. but all that happens is your bank transfers money to the biller's account. The biller pays a bit for this service but evidently much less than the cost of handling physical checks as I've never seen a surcharge for it. Even the small town of 3,000 I live in is set up to receive property tax and water payments through this system.
I think it depends, banks can have an established relationship with a utility or service that will accept bill pay as an ACH. At least with my bank, I can setup a bill pay for anybody. I just need to provide a name, address and account number. If I do this for someone the bank isn't familiar with, they send a check in the mail.
In the early 2010s I worked for Fiserv, who at the time provided "online bill pay" services to about 80% of US banks (I don't recall if they're in Canada or not). The overwhelming majority of the bank customers using that service held beliefs similar to what you expressed... it's an online payment through my bank, why on earth would it be a paper check?? They were wrong. The really fun thing about that system was that the customer had absolutely no way to tell what kind of payment the system was going to send to a given payee. A payment that processed electronically for years could suddenly go as a physical check for any number of reasons. Maybe the customer changed something that was slightly incorrect... maybe they should have changed something but didn't... maybe the system just had a hiccup that day.
Regardless of who makes your bill pay service or exactly how it works, my main advice if you use any bill pay service is to ready the fine print very closely and be sure you understand what you have to do to be covered (late fee reimbursement, etc) if a payment does get screwed up.
Don't read the fine print, it's always bad ("we'll charge a fee if we want") and you can't avoid it (no free market for competitors) and knowing it only increases your risk liability.
It’s hit or miss, some utilities/bills are handled in the bill pay system as bank transfers, but other utilities they fall back to issuing checks. For me I’d say it’s 50/50, in a 500k person county.
We have a national payment card system in Denmark (Dankort). Depending on the number of transactions a business has. A business can pay down to $0.03 per transaction.
Obviously, Visa and Mastercard are trying to see if they can ruin the system.
Several of my credit cards rebate at 2%, so I’ll use the card for anything that charges a credit card processing fee up to 2%, even more if I can avoid a stamp, envelope, and the time involved mailing it.
I just paid some property taxes with one instead of ACH; keeps all of my accounting in one place in the card, and the payment is immediate instead of waiting for the ACH payment to wind its way through the antiquated Fed plumbing. Anyone who won’t take a CC, I’ll use Plastiq; they cut a check, I pay the CC fee, but it’s still rebated back.
Your property taxes don't charge a credit card fee? That's graft of the higher order, handing tax payments over to payment processors. In my state that's illegal.
They are negotiating with very few entities: just 2 (Visa and MasterCard) account for most card holders. Throw in Amex, and Discover if you want and you've covered nearly 100%.
Merchants don't have a lot of negotiating power, so they are really not in a position to dictate prices. Visa and MasterCard are in a position to dictate prices.
Depends on the territory. In Hong Kong all major credit cards plus several local payment processors plus WeChat and AliPay are accepted at McDonald's, for example.
They regularly do crossovers and promotions to encourage people to use the cheaper ones.
No one trusts their landlord or the software vendors they choose with a direct connection to their bank account. That's just asking for a cascade of overdraft fees.
It's not a "direct connection" in the sense that the other end has any control. The typical way to set this up is that you create a repeating payment to (say) pay your rent electronically on the same day every month, and you can stop or alter the payment at any time.
I thought it was great until I watched someone get buried in fees by it. They forgot about the automatic payment while dealing with the crisis that used up all their money.
They sorted through the fees and got things turned back on by explaining the situation, but it was a nightmare. Precarity is hard to understand if you've never been in or near it, or if it's a distant memory for you. It's overwhelming on a good day.
It seems VERY unlikely they forgot that they didn't have to pay rent all of a sudden?
The way it works fore me here in the EU is that bills land in my bank account and I log in on mobile, select the ones I want to confirm, and sign the transfer.
We also have bank to bank instant transfers for free (useful for paying back 1/2 pizza etc) without external private middlemen. US banking feels so legacy, much more so than the COBOL I work on.
U.S. banking is not as bad as some make it out to be. Every bank I've delt with offers the same things you describe. Here, it is less dependent on the bank and more dependent on the biller. All my credit cards (even those from other banks) offer ebilling, and bills are visible in my online banking each month. Utilities like electric and internet, medical providers, etc., generally don't. But I can pay them all through the bank anyway, and I don't have to worry how it happens; the bank chooses ACH or they mail a bank check. Either way, I know exactly when it will clear, and exactly how much it will cost me: $0. I can also use the bank's mobile app to send money from person to person, instantly and with no fee.
Well, there certainly are banks in the US that don't, and why are apps like Venmo a thing over there if the same thing can be done already? =/
I guess it's because of the bank you chose, since the one my relatives use don't have any of that, and are those apps bank-specific? Do people not having your bank also receive the money instantly?
Most of the medium to large banks have that option. Many partner with Zelle because it is not bank specific, though I once had a credit union account that let me do ACH transfers to other accounts. But as you point out, there's also PayPal and Venmo. My Amex lets me split purchases by calculating the portion and sending PayPal or Venmo requests on my behalf. I think the largest difference may be that there's no one way to do a thing, while at least to me as an outsider, it feels like Europe has One True Way.
It happens like this: you can pay rent without penalty up to say, the fifth of the month. Auto pay is set to come out of your account on the first. Sometimes you need the extra few days to get everything in line, but because everything is so tight and hectic, you forget that you won't actually get to flex those few days, and the payment comes out earlier than you expected.
The timing of payments can be a real burden when you're on the edge. I wrote about a time something similar happened to me a few years back https://news.ycombinator.com/item?id=6424493 This is about overdraft fees, specifically, but it's the same principle.
You’re always going to have trouble if you forget about any aspect of your money. I use automatic payments to pay my cell phone bill and yet I have a monthly reminder on my calendar to make sure the payment went through without a problem. Yeah, it’s more work than just forgetting about it but now I know I won’t be buried in fees either for overdraft or for not paying my bill.
Anyone who knows your ABA and account number has a direct connection to your bank account. This is why I never write checks unless I absolutely have to. Everything a would-be thief needs is right there in the clear.
I didn't mean to suggest a landlord might do it on purpose. Everyone can go in with the best of intentions and still find themselves on one side of this scenario.
So why are middle men taking a cut in the US that other countries don't have?
Why electronic payment costs money in the US? That's the cheapest way to pay and process payments. In Finland that cost's nothing and it's the default for paying large bills and payments.
In most European countries SEPA and its predecessors have taken this role for most people. I’m 34 and have never had a personal cheque book; there’s just no need.
It is a cultural thing to an extent though; there are EU countries where they’re still used to some extent despite the presence of a modern banking system.
I'm not european, so am unfamiliar: would you use a SEPA transfer for, say, a $1000 tv from a small business retailer? What about buying a $3000 used car from an individual?
I bought my last two cars via SEPA, the first from an individual, the second from a dealership. Both were used, but still significant sums. In both cases I of course had a signed contract in hand before sending the money, and have done a bit of due diligence on my business partner (I met the private individual at their home address, and checked out how long the car dealership has already operated there and whether there were any signs of imminent bankruptcy). And of course I got hold of the vehicle immediately after the transfer went through (which is guaranteed in a single business day nowadays; when I bought the first car it was still in the area of 2-3 days).
As for the $1000 TV, I would probably pay that at an electronic payment terminal with a debit card. If buying from a retailer, that's usually the way to go, no matter how small.
In many EU countries, you'd buy that tv using a debit card if at a physical retailer. Online, credit card purchases are the default.
Buying a used car form an individual might happen in cash. Some countries will not allow cash transactions over 3000€. So depending on the price, it might also happen with a SEPA transfer.
Most people would use a card for the TV, at least in person (online it’s very country dependent; probably card in the UK or Ireland, but could be SEPA, something like SOFORT or various other things in Germany, say). Not necessarily visa/mc; many countries have national networks, which are typically cobrandec with visa/mc.
Car could be SEPA (or equiv in non-Eurozone countries), bank draft, or even cash, though cheque is possibly less likely due to fraud concerns. Some people do it by actually physically going to a bank with the seller, I think (I don’t drive, so have never done his myself).
For in person stuff, where you live plays a role too; only a minority of countries currently have SEPA Instant, though that should change soon. For everyone else, it’s a day or so delay from when you send the payment in the bank app.
For larger transactions, ACH is becoming much more desireable. A bank I do business with currently offers originating next day ACH for $1 a transaction. When you add up the dollar cost of a stamp, check, and envelope, and the time expense of printing, mailing, and waiting for it to clear, ACH is highly affordable. I'm surprised taxing authorities still charge fees for getting paid faster when ACH is so cheap.
This might be a stupid question, but do you have to pay a fee for transferring money from one bank to another bank when both banks are located in the US?
Because the banks charge a fee (well, some of them do).
I know that sounds stupid but it's the truth. There is no law against banks charging fees like this, banks like to make money (don't we all!), and (significantly) banks don't seem to lose customers by charging these fees.
They're still commonly used to pay bills for stuff like rent, though it's less common now than say a decade ago. For things like electric bills the provider is typically big enough to automatically deduct from your account, but there aren't really commonly available systems to do stuff like that with a private landlord. If you're renting from a big company they may have an electronic rent payment system and it probably charges you a fee to use it.
I currently pay my rent via wire transfer, which is I guess better than a check because it's electronic but is also worse because there's a fee. When I first moved away from home for a job I had to pay rent with cashier's checks (which meant going to the bank and paying a fee first to get the check).
>For things like electric bills the provider is typically big enough to automatically deduct from your account,
While Virginia Natural Gas is large enough, they handle their credit card payments via Western Union and the customer pays a fee to do it. It's the only check I write every month.
Most major banks in the US participate in Zelle, which enables free money transfers between consumer bank accounts. You can even setup unique Zelle users for your accounts at different financial institutions, so you can transfer your own funds between accounts at different financial institutions instantly and at no cost.
For transactions over those limits, you can break the payments up over several days. Wires are infrequent enough to disregard the fee (real estate transactions or similar).
I don’t know many folks moving more than $3k/day to be honest. I don’t disagree though that Fed ACH modernization efforts need to pick up the pace, as Zelle is a shim until federal payment infra is up to par with Europe.
Revolut also has a vested interest in making you spend whatever you receive using their prepaid card (that's how they earn money).
If you receive money from another user and transfer it out to your bank account, Revolut might lose some money from using the third-party that provides the bank transfer service. (I have no details on what their arrangement is.)
Revolut has been known to warn and suspend users that use their transfer feature too much.
