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?
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.
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.
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.
> 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.
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.
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.
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
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.
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..
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
> 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.
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).
> 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.
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.
> 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.
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.
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.
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.
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.
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.
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.
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.
> 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.
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.
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?
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.
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?
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.
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.
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
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.
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.
> 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.
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
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.
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!
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
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.
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?
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
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.
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.
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.
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.
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).
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?
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?
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.
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.
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.
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.
Paypal etc basically exist to deal with the backward underinvested USA payment systems.
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.
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.
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.
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
Sweden thought going cashless would reduce crime. Nope, crime increased.
Visa or MC could do the same, without additional parties. But no.
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..
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.
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.
Fraud is an industrial level enterprise. You absolutely need fraud detection if you're accepting payment that isn't cash.
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.
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.
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.
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.
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.
And there fees are 1/10 of that of credit cards, as a result of giving up these benefits.
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.
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.
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.
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.
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.
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.
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Because you paid with a VISA card instead of paying by cash. Hint: it says Visa on the card.
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.
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.
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?
There are many counterexamples to this.
Credit cards were also a PITA when they first came out.
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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.
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...
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...
Not only do you have to pay to deposit, you have to store it, count it, secure it and transport it.
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
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
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.
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.
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.
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?
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?
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