<story><title>Visa and Mastercard agree to lower average credit card interchange fee below 1%</title><url>https://ca.news.yahoo.com/visa-mastercard-agree-lower-average-193615680.html</url></story><parent_chain><item><author>ivan_gammel</author><text>You won’t sell this idea in Europe. Here the price tag for anything is the full amount you pay - including all commissions and taxes. People use debit cards, the paid amount is immediately deducted from bank account. If customers are forced to calculate how much they actually will spend on each transaction, they will instantly switch back to cash.</text></item><item><author>mdasen</author><text>&amp;gt; I&amp;#x27;m weary of government intervention in capping prices, but I&amp;#x27;m not sure what&amp;#x27;s the alternative here&lt;p&gt;Instead of capping prices, you could simply require any fees to be paid by the cardholder. Combine that with a standard for payment processing so that lots of companies could compete for payment processing and fees would drop really fast.&lt;p&gt;If someone is using a POS terminal like Toast or Square, it should be trivial for them to support lots of new payment companies if they&amp;#x27;re all adhering to a standard. If consumers have to pay the fee, they&amp;#x27;re going to shop around for the lowest-fee card (just as many shop around for the highest-reward card now). You wouldn&amp;#x27;t need government caps.&lt;p&gt;You could tell stores &amp;quot;once you accept payments with the new system, the consumer is responsible for the fees.&amp;quot; This would drop fees really fast - even for stores that didn&amp;#x27;t upgrade their credit card machines. If Walmart, Target, CVS, etc. all update their machines quickly, I&amp;#x27;m going to find a card with a low fee. Then when I use that card at a non-upgraded shop, they have to pay the fee, but it&amp;#x27;s a much lower fee since I had shopped around for a low fee.&lt;p&gt;The issue right now is that the person choosing the card doesn&amp;#x27;t feel any of the pain. As the article notes, Visa (Canada) charges 1.25% for a regular consumer card or 2.08% for a premium card. I will pay with a premium card since it will give me nice rewards and I don&amp;#x27;t feel the additional 0.83% that the store has to pay. If I did have to feel it, I would make different decisions.&lt;p&gt;If you&amp;#x27;re looking to change behavior, align people&amp;#x27;s incentives. Another commenter said that they&amp;#x27;re capped at 0.3% in Europe. Consumers might hate the idea of paying 0.3% additional, but I think credit card companies would drop below that cap if consumers had to pay it. I think they&amp;#x27;d look to make it up on interest or other things. As you note, credit cards can come with 2% rewards so they&amp;#x27;re essentially giving you the whole interchange fee back already. Make consumers shop around for the lowest fee cards.&lt;p&gt;The problem is that stores need to take the cards that consumers have with little option to forgo the fees. If Bank of America had a no-fee card while Chase charged 1.5%, consumers would move to BofA if they felt the fee.</text></item><item><author>e63f67dd-065b</author><text>These numbers are not public, but the grapevine is that visa&amp;#x2F;mastercard keeps about a third of all interchange.&lt;p&gt;Credit card rewards are a regressive tax on the poor -- literally, only those like us here on HN with good credit can get 2% cashback on everything, the rest who pay with debit&amp;#x2F;cash effectively subsidise our 2% discount. I enjoy my 2% cashback, but really would rather see a world where, like the EU, interchange got slashed to 30bps and it all went away.&lt;p&gt;Take a look around the rest of the world -- Alipay in China is 55bps, TNG is Malaysia is 50, Pix in Brazil (I can&amp;#x27;t find concrete numbers, but seems to be around 22bps), etc. 2-300 bps is outrageous, we should demand better.&lt;p&gt;I don&amp;#x27;t know what&amp;#x27;s the solution here. I&amp;#x27;m weary of government intervention in capping prices, but I&amp;#x27;m not sure what&amp;#x27;s the alternative here -- force each card to be available over multiple networks and for them to bid the interchange per transaction? Durbin amendment style caps? I don&amp;#x27;t know. But I do know that the status quo cannot stand.&lt;p&gt;Edit: see the classic Boston Fed paper &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.bostonfed.org&amp;#x2F;publications&amp;#x2F;public-policy-discussion-paper&amp;#x2F;2010&amp;#x2F;who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.aspx&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.bostonfed.org&amp;#x2F;publications&amp;#x2F;public-policy-discuss...&lt;/a&gt; for a more through explanation of my point</text></item><item><author>arcticbull</author><text>Visa and Mastercard don&amp;#x27;t keep much of interchange at all and never have.&lt;p&gt;The vast majority is paid to issuing banks to pay for loan origination, fraud and, most significantly, to return in the form of cash back or points.&lt;p&gt;These networks charge 0.2% for debit and 0.3% for credit in Europe as per regulation, you just don&amp;#x27;t get rewards there.&lt;p&gt;Kinda sounds like they&amp;#x27;re just going to squeeze issuing banks. Cash back and points cards in Canada (already pretty weak offerings compared to the US) are going to get further watered down. I&amp;#x27;ve no real opinion on this, tbh.&lt;p&gt;Some napkin math that may not be right: Visa processed 11.6T in payment volume last year. Net revenue was $29B. Opex was $9.3B. Net income was $16B. That means their net revenue is about 0.25% and their net income is like 0.137% of transaction volume. This passes the smell test given their EU-mandated numbers. [1]&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;annualreport.visa.com&amp;#x2F;financials&amp;#x2F;default.aspx&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;annualreport.visa.com&amp;#x2F;financials&amp;#x2F;default.aspx&lt;/a&gt;</text></item></parent_chain><comment><author>jkaplowitz</author><text>The price tag in Europe already has at least one exception in some countries like Germany: bottles and cans subject to the deposit system usually have the deposit added on top of the listed price. Of course, one can recover the deposit by returning the bottle or can to a suitable store, but at the point of sale it is usually added on top of the listed. (The price listing often acknowledges this addition explicitly, with text like &amp;quot;zzgl. 0,25€ Pfand&amp;quot;.)&lt;p&gt;But yeah, I guess that doesn&amp;#x27;t differ by payment method, so it wouldn&amp;#x27;t affect the choice of payment method. And it&amp;#x27;s not a percentage, so it&amp;#x27;s easier mental math.</text></comment>
<story><title>Visa and Mastercard agree to lower average credit card interchange fee below 1%</title><url>https://ca.news.yahoo.com/visa-mastercard-agree-lower-average-193615680.html</url></story><parent_chain><item><author>ivan_gammel</author><text>You won’t sell this idea in Europe. Here the price tag for anything is the full amount you pay - including all commissions and taxes. People use debit cards, the paid amount is immediately deducted from bank account. If customers are forced to calculate how much they actually will spend on each transaction, they will instantly switch back to cash.</text></item><item><author>mdasen</author><text>&amp;gt; I&amp;#x27;m weary of government intervention in capping prices, but I&amp;#x27;m not sure what&amp;#x27;s the alternative here&lt;p&gt;Instead of capping prices, you could simply require any fees to be paid by the cardholder. Combine that with a standard for payment processing so that lots of companies could compete for payment processing and fees would drop really fast.&lt;p&gt;If someone is using a POS terminal like Toast or Square, it should be trivial for them to support lots of new payment companies if they&amp;#x27;re all adhering to a standard. If consumers have to pay the fee, they&amp;#x27;re going to shop around for the lowest-fee card (just as many shop around for the highest-reward card now). You wouldn&amp;#x27;t need government caps.&lt;p&gt;You could tell stores &amp;quot;once you accept payments with the new system, the consumer is responsible for the fees.&amp;quot; This would drop fees really fast - even for stores that didn&amp;#x27;t upgrade their credit card machines. If Walmart, Target, CVS, etc. all update their machines quickly, I&amp;#x27;m going to find a card with a low fee. Then when I use that card at a non-upgraded shop, they have to pay the fee, but it&amp;#x27;s a much lower fee since I had shopped around for a low fee.&lt;p&gt;The issue right now is that the person choosing the card doesn&amp;#x27;t feel any of the pain. As the article notes, Visa (Canada) charges 1.25% for a regular consumer card or 2.08% for a premium card. I will pay with a premium card since it will give me nice rewards and I don&amp;#x27;t feel the additional 0.83% that the store has to pay. If I did have to feel it, I would make different decisions.&lt;p&gt;If you&amp;#x27;re looking to change behavior, align people&amp;#x27;s incentives. Another commenter said that they&amp;#x27;re capped at 0.3% in Europe. Consumers might hate the idea of paying 0.3% additional, but I think credit card companies would drop below that cap if consumers had to pay it. I think they&amp;#x27;d look to make it up on interest or other things. As you note, credit cards can come with 2% rewards so they&amp;#x27;re essentially giving you the whole interchange fee back already. Make consumers shop around for the lowest fee cards.&lt;p&gt;The problem is that stores need to take the cards that consumers have with little option to forgo the fees. If Bank of America had a no-fee card while Chase charged 1.5%, consumers would move to BofA if they felt the fee.</text></item><item><author>e63f67dd-065b</author><text>These numbers are not public, but the grapevine is that visa&amp;#x2F;mastercard keeps about a third of all interchange.&lt;p&gt;Credit card rewards are a regressive tax on the poor -- literally, only those like us here on HN with good credit can get 2% cashback on everything, the rest who pay with debit&amp;#x2F;cash effectively subsidise our 2% discount. I enjoy my 2% cashback, but really would rather see a world where, like the EU, interchange got slashed to 30bps and it all went away.&lt;p&gt;Take a look around the rest of the world -- Alipay in China is 55bps, TNG is Malaysia is 50, Pix in Brazil (I can&amp;#x27;t find concrete numbers, but seems to be around 22bps), etc. 2-300 bps is outrageous, we should demand better.&lt;p&gt;I don&amp;#x27;t know what&amp;#x27;s the solution here. I&amp;#x27;m weary of government intervention in capping prices, but I&amp;#x27;m not sure what&amp;#x27;s the alternative here -- force each card to be available over multiple networks and for them to bid the interchange per transaction? Durbin amendment style caps? I don&amp;#x27;t know. But I do know that the status quo cannot stand.&lt;p&gt;Edit: see the classic Boston Fed paper &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.bostonfed.org&amp;#x2F;publications&amp;#x2F;public-policy-discussion-paper&amp;#x2F;2010&amp;#x2F;who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.aspx&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.bostonfed.org&amp;#x2F;publications&amp;#x2F;public-policy-discuss...&lt;/a&gt; for a more through explanation of my point</text></item><item><author>arcticbull</author><text>Visa and Mastercard don&amp;#x27;t keep much of interchange at all and never have.&lt;p&gt;The vast majority is paid to issuing banks to pay for loan origination, fraud and, most significantly, to return in the form of cash back or points.&lt;p&gt;These networks charge 0.2% for debit and 0.3% for credit in Europe as per regulation, you just don&amp;#x27;t get rewards there.&lt;p&gt;Kinda sounds like they&amp;#x27;re just going to squeeze issuing banks. Cash back and points cards in Canada (already pretty weak offerings compared to the US) are going to get further watered down. I&amp;#x27;ve no real opinion on this, tbh.&lt;p&gt;Some napkin math that may not be right: Visa processed 11.6T in payment volume last year. Net revenue was $29B. Opex was $9.3B. Net income was $16B. That means their net revenue is about 0.25% and their net income is like 0.137% of transaction volume. This passes the smell test given their EU-mandated numbers. [1]&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;annualreport.visa.com&amp;#x2F;financials&amp;#x2F;default.aspx&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;annualreport.visa.com&amp;#x2F;financials&amp;#x2F;default.aspx&lt;/a&gt;</text></item></parent_chain><comment><author>Osiris</author><text>That’s not the case on the US (tax is added after the fact) and there hasn’t been a massive switch to cash. Convenience is a powerful thing.</text></comment>