Visa, Plaid, networks, and jobs(stratechery.com)
stratechery.com
Visa, Plaid, networks, and jobs
https://stratechery.com/2020/visa-plaid-networks-and-jobs/
109 comments
I was born in 1980, and do remember our family having a credit account at the local grocery store. This was in Helsinki, Finland.
I think our account number was 14? Simple enough for a child to remember.
Around age 9 I was using the account on my own to buy food after school. I'd state the account number, and the cashier would write the credit down with a pen into a special notepad they kept under the cash register.
I think our account number was 14? Simple enough for a child to remember.
Around age 9 I was using the account on my own to buy food after school. I'd state the account number, and the cashier would write the credit down with a pen into a special notepad they kept under the cash register.
Still common in largely Jewish-centric grocery stores in NYC. While you are waiting your turn at the checkout isle, you can hear little kids buying food after school and the primary phone number is the account ID.
A recent observation:
Shop to a little girl: What's your Numbra?
Little Girl: 718-.....
Owner comes by: That's Sharon and Jacob's account. You are not his daughter.
Little girls freezes.
Owner continues: Unless you are their niece from Upstate who has come for Christmas.
Little girl visibly relaxes and the grocer bags her items.
A recent observation:
Shop to a little girl: What's your Numbra?
Little Girl: 718-.....
Owner comes by: That's Sharon and Jacob's account. You are not his daughter.
Little girls freezes.
Owner continues: Unless you are their niece from Upstate who has come for Christmas.
Little girl visibly relaxes and the grocer bags her items.
We also had a similar system in Turkey too, with local grocery shops. The owner would have two notebooks per customer, one would stay at the store and one would be given to customer. Whenever you needed to buy something but you wanted to pay later, the merchant would put the transaction on his notebook with a copy on your notebook, so at the end of the month you would simply bring your notebook and cross reference the transactions and pay your debt.
Maybe it’s a Turkish thing? Because the owner of the copy shop I mentioned [0] is a Turkish immigrant ;)
[0]: https://news.ycombinator.com/item?id=22047151
[0]: https://news.ycombinator.com/item?id=22047151
It definitely could be!
This is still very common in Tunisia too
I’m having something like this for a copy-shop in a pop 200k city. In 2020. Not an account number, and essentially a manual debit account. The owner has a book with balances of people who pre-paid, when you print something, he looks you up in his book, edits in the new balance and then edits the balance on a piece of paper I have :)
Mailboxes, Etc. used to do something similar. They had a card to pre-pay for 100 discounted copies that you could then use at your leisure. The clerk punched a hole for every copy you made.
I saw a smiliar but totally different scenario in a Stockholm suburb a couple of years ago (I guess the practice is still there):
An old lady was in front of me in the line at the grocery store and paid with her card, and the clerk took out his notebook and entered the pin code. It was like the two keys to a vault. Neither of them could do the transaction without the other. I hope the notebook didn't keep the code together with an identifier, but I found it really cute.
With contactless today I guess you can solve it with just one person, but I really liked the two-factor.
And the community service, of course.
With contactless today I guess you can solve it with just one person, but I really liked the two-factor.
And the community service, of course.
> I never got why credit cards were such a big deal for consumers...
For me, it's always been about that buffer between my actual money and the merchant. Sure, credit card rewards programs have been great, but having a middleman who is more or less on my side in all financial transactions is a game changer.
If I use my debit card, the money is out of my possession; it's possible to get it back, but it's not certain, and while I'm waiting for that to happen, I don't have access to that money. (And if I use cash, I pretty much just have to accept that the money is gone the second it leaves my hands.)
If I use a credit card, I still have the money, and can dispute the charge. Even if I don't notice the problem until after I pay my credit card bill, I still have a single entity (who, again, is more or less on my side) who will refund my money if I have a valid complaint, even if the merchant isn't playing ball or is a fraudster.
For me, it's always been about that buffer between my actual money and the merchant. Sure, credit card rewards programs have been great, but having a middleman who is more or less on my side in all financial transactions is a game changer.
If I use my debit card, the money is out of my possession; it's possible to get it back, but it's not certain, and while I'm waiting for that to happen, I don't have access to that money. (And if I use cash, I pretty much just have to accept that the money is gone the second it leaves my hands.)
If I use a credit card, I still have the money, and can dispute the charge. Even if I don't notice the problem until after I pay my credit card bill, I still have a single entity (who, again, is more or less on my side) who will refund my money if I have a valid complaint, even if the merchant isn't playing ball or is a fraudster.
My problem is that I'm effectively paying 2-3% in fees on every transaction for this privilege. If there was a way to pay (not cash) that removed this fee, and let me keep the savings, I'd do it for most transactions, even if it removed my ability to charge back transactions.
My problem is that I'm effectively paying 2-3% in fees on every transaction for this privilege.
If you pay your credit card bill off in full every month, you're not paying anything extra unless the merchant charges a premium for credit card transactions. If you carry a balance, you're paying on that, sure, but nothing requires you to do so.
(Also, of course, you might be actually getting 1% or more back on credit card transactions, if they have cash back programs.)
If you pay your credit card bill off in full every month, you're not paying anything extra unless the merchant charges a premium for credit card transactions. If you carry a balance, you're paying on that, sure, but nothing requires you to do so.
(Also, of course, you might be actually getting 1% or more back on credit card transactions, if they have cash back programs.)
> If you pay your credit card bill off in full every month, you're not paying anything extra unless the merchant charges a premium for credit card transactions.
The merchant is paying extra, and that cost is hidden in the price I pay.
The merchant is paying extra, and that cost is hidden in the price I pay.
That hidden cost is subsidized by the other customers charged the same price but that pay cash, or via debit card rather than credit card, or even with a credit card with lower rewards than yours.
As a merchant that accepts credit cards, I can say that the vast majority of the money comes in via credit cards themselves, and costs 3% in fees. It absolutely comes out of the customer's pocket at the end of the day.
Okay, when you originally you wrote you were effectively paying 2–3% in fees on every transaction for this privilege [the buffer between your actual money and the merchant, quoting the post you were replying to], I took it to implicitly mean every credit card transaction.
If what you really meant is that the cost of the credit card transaction is implicitly in the price everyone is being charged, then sure, I see your point -- except that I think it actually strengthens the original poster's argument for using credit cards! If you pay $25 for a widget in cash and I pay $25 for the same widget on my credit card, then we're literally both paying the same price, but I'm getting the ostensible benefit of using the credit card and you're not. (I would actually argue, unlike the OP, that this is mostly true for debit cards as well, in that you still have a bank fighting to get your money back in a way that isn't true with cash.)
If what you really meant is that the cost of the credit card transaction is implicitly in the price everyone is being charged, then sure, I see your point -- except that I think it actually strengthens the original poster's argument for using credit cards! If you pay $25 for a widget in cash and I pay $25 for the same widget on my credit card, then we're literally both paying the same price, but I'm getting the ostensible benefit of using the credit card and you're not. (I would actually argue, unlike the OP, that this is mostly true for debit cards as well, in that you still have a bank fighting to get your money back in a way that isn't true with cash.)
In Australia now, the restriction that Visa/MC used to enforce (same price for cash or CC) has been changed by the Reserve Bank (AU equiv of the Fed) so that surcharges etc are visible. So these days most merchants apply a ~1% surcharge for CC transactions.
We also have an "EFTPOS" network that is independent of Visa/MC. It's a debit account network owned by the banks that give you access to savings or cheque accounts. It's charges are much lower than Visa/MC, so merchants like when you use it and don't apply a surcharge.
We also have an "EFTPOS" network that is independent of Visa/MC. It's a debit account network owned by the banks that give you access to savings or cheque accounts. It's charges are much lower than Visa/MC, so merchants like when you use it and don't apply a surcharge.
But the top poster clearly demonstrates that there are significant costs in setting up such as system, much less that everybody has on their wallets or phones.
Even cash likely has a higher fee, if not from simple counting mistakes on many small transactions, then complexities like the safe, the risk to employees (insurance), the controller effectively managing the cash each day, the security of a bank truck, and more.
Even cash likely has a higher fee, if not from simple counting mistakes on many small transactions, then complexities like the safe, the risk to employees (insurance), the controller effectively managing the cash each day, the security of a bank truck, and more.
Isn’t it crazy to think that so many stores used to run their own credit books and have to do all that accounting and servicing by themselves? Every pharmacy, hardware store, grocery store... anywhere that wanted to accept credit had to do it all.
What was the reason to “accept credit” in the first place, in an era when anyone with stable employment could have applied for a line of credit (i.e. a personal long-term loan) from their local bank, such that they could then pay these services with cash?
I can understand credit as a natural extension of “running a tab” at a hotel or restaurant—you order now, and settle your account later, for various definitions of “later.” But why would a retailer be interested in offering private/internal credit that they had to manage and settle? Sounds negative-ROI to me.
I can understand credit as a natural extension of “running a tab” at a hotel or restaurant—you order now, and settle your account later, for various definitions of “later.” But why would a retailer be interested in offering private/internal credit that they had to manage and settle? Sounds negative-ROI to me.
So people didn't have to carry cash around.
People would set up accounts at their local stores so all their common daily and weekly errands could be done without cash. Then once a month (after payday) they would take cash around to all the local stores paying their accounts. (Or write a check, I guess)
Stores supported this because it was a form of lock-in, and because it reduced friction. Faster than exchanging cash too, or writing a check.
When working correctly (the customer comes in and pays without prompting) it's super low effort. Especially for stores with only one location and checkout counter. Only really costs time and money when a customer requires chasing up.
People would set up accounts at their local stores so all their common daily and weekly errands could be done without cash. Then once a month (after payday) they would take cash around to all the local stores paying their accounts. (Or write a check, I guess)
Stores supported this because it was a form of lock-in, and because it reduced friction. Faster than exchanging cash too, or writing a check.
When working correctly (the customer comes in and pays without prompting) it's super low effort. Especially for stores with only one location and checkout counter. Only really costs time and money when a customer requires chasing up.
Well, for one it reduces friction, which increases the likelihood of making a sale. If a customer comes in to a store, but has to leave to go to their bank, there is a chance they won't return to make the purchase. Even if it is something they need, a competitor might lure them in between the point they get money from their bank and they get back to your store. The value, of course, depends on how many additional sales the reduced friction generates, versus the cost of maintaining credit books.
In most cases they were just running a tab. Unless you make the customer pay a deposit up front, any gap between the purchase and the invoice being paid is an extension of credit.
Because it is the norm.
You're probably coming from the opposite frame, that requiring cash up front for all transactions was the norm. It wasn't. We've been extending credit and taking on debts for millennia. It's just how money works.
You're probably coming from the opposite frame, that requiring cash up front for all transactions was the norm. It wasn't. We've been extending credit and taking on debts for millennia. It's just how money works.
It for some weird reason is not the norm in a large part of the world (the individual credit lines for every little store thing, not the debt-based finance system in general) where it has been totally the norm to bring cash into stores for those everyday purchases. You had cash on you anyway, because people have always owned wallets, and it's not that much of a burden to carry a wallet with you.
It seems to me that this store credit thing has been very much a US thing, and it probably is the reason why credit-based electronic payment systems took over the US while at the same time debit-based systems accomplishing the exact same goal became dominant in many European countries.
Funny thing: when it comes to gasoline, the roles are reversed. In the US, you get no gas if you don't first go into that store and prepay or provide a credit card that guarantees a payment. In most of Europe, you just drive up to the gas pump and fill up, and then you go into that little store in order to pay.
It seems to me that this store credit thing has been very much a US thing, and it probably is the reason why credit-based electronic payment systems took over the US while at the same time debit-based systems accomplishing the exact same goal became dominant in many European countries.
Funny thing: when it comes to gasoline, the roles are reversed. In the US, you get no gas if you don't first go into that store and prepay or provide a credit card that guarantees a payment. In most of Europe, you just drive up to the gas pump and fill up, and then you go into that little store in order to pay.
That's a nice theory, but having credit at stores etc was a thing in Europe too.
It's for scenarios like "I'd like to buy those $40 steaks, but I've only got $30 with me."
One reason is that in the old days people would run out of money before the next payday. The other is as an alternative to giving your kid cash to go buy something for dinner.
When I first read this several hours ago, I was surprised and in agreement with the conclusion of that quote, that this would "drag down" the business. As those numbers seem very low for the costs associated with getting payment.
But it should be pointed out that those numbers are in the context of a quote from ~1958. Back then, postage was $0.04. Also, $4.58 and $12.82 (as examples) would be worth $40.52 and $113.41 today. So I'm not actually sure if a 6% charge on sales would be worth it here. I don't know what the cost of labor would have been back then (assume minimum wage in that area in 1958 maybe). Anyway, the point is the numbers don't seem as alarming and obvious to me after looking up postage and inflation at the time.
But it should be pointed out that those numbers are in the context of a quote from ~1958. Back then, postage was $0.04. Also, $4.58 and $12.82 (as examples) would be worth $40.52 and $113.41 today. So I'm not actually sure if a 6% charge on sales would be worth it here. I don't know what the cost of labor would have been back then (assume minimum wage in that area in 1958 maybe). Anyway, the point is the numbers don't seem as alarming and obvious to me after looking up postage and inflation at the time.
Good grief! Why didn't she send a $1 first to make sure she had the right person!?
Why do people make mistakes at all? Everything would be much easier if people would just be less fallable.
Anyone who's ever set up direct deposit knows how this works. It's almost common sense.
I imagine most people have not done that (I've mostly seen that when linking accounts like brokerage accounts online), and I don't think it's common sense.
For setting up direct deposit at most workplaces (in the US, at least), you just give HR your bank routing and account numbers when you start and that's it. I've never gone through any kind of verification process.
For setting up direct deposit at most workplaces (in the US, at least), you just give HR your bank routing and account numbers when you start and that's it. I've never gone through any kind of verification process.
I don't know, but I know I've never thought of that.
Pocketing this technique for future use!
Pocketing this technique for future use!
Huh. And all this time, as a person who uses credit cards heavily, but never paid a penny on interest for years, but used all my card benefits, I thought I was cheating the banks. This is the first time I learned that they make money on each transaction regardless of interest or late payment fees. That’s a revelation.
That 3% is also baked into the price of goods at this point, so youre paying it even when using cash.
However, some people think the credit card companies are inflating the price of goods with rewards, without taking into account how expensive cash is to deal with. To count, to detect counterfeiting, to lock up, to trust employees, to move. Processing cash isnt cheap, and can involve considerable risk, including increased IRS scrutiny.
Handling money is a cost, like rent and electricity, built into everything we do. Credit card networks are much more efficient than existing alternatives.
However, some people think the credit card companies are inflating the price of goods with rewards, without taking into account how expensive cash is to deal with. To count, to detect counterfeiting, to lock up, to trust employees, to move. Processing cash isnt cheap, and can involve considerable risk, including increased IRS scrutiny.
Handling money is a cost, like rent and electricity, built into everything we do. Credit card networks are much more efficient than existing alternatives.
> That 3% is also baked into the price of goods at this point, so youre paying it even when using cash.
Every once in a while, I'll run into places that do a cash discount, usually smaller businesses. It's super common at gas stations - even big chains.
Every once in a while, I'll run into places that do a cash discount, usually smaller businesses. It's super common at gas stations - even big chains.
I have to feel its misguided in some cases. Credit card transaction fees hit the hardest on small purchases, as they take a larger percent. A business thats lots of tiny transactions might come out slightly ahead with cash, but now youre losing customers, and maybe not book keeping accurately enough to be legally compliant.
I have noticed gas stations are more prone to this (along with very small business), although it happens on occasion at restaurants as well. I figure, with 3% restaurant rewards, I break even at 3% restaurant charge and or using cash.
I have noticed gas stations are more prone to this (along with very small business), although it happens on occasion at restaurants as well. I figure, with 3% restaurant rewards, I break even at 3% restaurant charge and or using cash.
Actually a lot of cash only businesses are probably dodging taxes.
Keep in mind that accepting cash isn't zero-cost. You need drop safes, daily pickups by secure courier, and you're at risk of robbery (especially for places open at night, like gas stations.) Depending on circumstances, it can cost more than 3%.
those are all things I put in my first comment above.
The real savings are in not reporting the income for taxes, and even payroll taxes / insurance if you get to pay someone with cash with the cash you're given, and worth much more than saving a few % off credit card fees.
> A business thats lots of tiny transactions might come out slightly ahead with cash, but now youre losing customers
Why would businesses that offers a cash discount (which means they also accept credit/debit) lose customers?
Why would businesses that offers a cash discount (which means they also accept credit/debit) lose customers?
Because card paying members may choose to shop the store where they don't feel like they're losing.
Ie; gas station 1 has a 3c cash discount. Gas station 2 has no discount, but you don't feel like you're not getting the discount. Gas station 3 can even compete by having a 1c credit discount.
Ie; gas station 1 has a 3c cash discount. Gas station 2 has no discount, but you don't feel like you're not getting the discount. Gas station 3 can even compete by having a 1c credit discount.
I think they meant a business that only takes cash.
For me, even when buying things like new computers, it will cost 3%-5% more if I use a card.
The dominance of cards is mostly American or, at the very least, location-dependent.
The dominance of cards is mostly American or, at the very least, location-dependent.
where as I feel I pay 2-5% less when using a card. Target and Amazon are both 5% off using the right card, vs 2% on a generic cash back card. Gas is 4% off on the costco card.
At gas stations, the cash price is shown on the signage to lure in customers. They can advertise a lower price (the cash price) than the actual price they charge (as people almost always pay by card, especially when they pay at the pump).
I don't think they expect or want customers to pay by cash.
I don't think they expect or want customers to pay by cash.
That's a US thing. In a lot of countries, CC transactions have a surcharge. They also have independent debit networks (not Visa Debit or Cirrus, which uses the Visa/MC Networks) that offer substantially lower merchant fees (often a fixed fee per transaction of equivalent of 0.1-0.5%).
> Every once in a while, I'll run into places that do a cash discount, usually smaller businesses. It's super common at gas stations - even big chains.
That's generally prohibited by the credit card merchant agreement. Gas stations are one of the rare exceptions.
That's generally prohibited by the credit card merchant agreement. Gas stations are one of the rare exceptions.
> That's generally prohibited by the credit card merchant agreement.
That is not true.
> Cash Discount programs are legal in all 50 states per the Durbin Amendment (part of the 2010 Dodd-Frank Law), which states that businesses are permitted to offer a discount to customers as an incentive for paying with cash.
https://www.quantumelectronicpayments.com/implement-legal-an...
That is not true.
> Cash Discount programs are legal in all 50 states per the Durbin Amendment (part of the 2010 Dodd-Frank Law), which states that businesses are permitted to offer a discount to customers as an incentive for paying with cash.
https://www.quantumelectronicpayments.com/implement-legal-an...
You are missing the point. The credit cards companies have mandated that the "regular" (that is the main advertised) price is the one you pay by credit card. They don't object to having cash-discount prices, but they want to make sure that people do not perceive that credit card purchases are more expensive. It is all about perception.
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Cash discounting is fine in all states. Surcharges are typically prohibited. Gas stations may be exceptional in that some will publicly advertise the dual pricing where allowable.
Surcharges were prohibited by merchant agreements until the big card networks settled a class action lawsuit. As of 2013 anybody can add a surcharge, provided they follow the card network rules. State laws prohibiting surcharges were struck down by the US Supreme Court in 2017.
https://usa.visa.com/dam/VCOM/download/merchants/surcharging...
https://www.mastercard.us/en-us/merchants/get-support/mercha...
https://www.clearent.com/insight/surcharging/
https://usa.visa.com/dam/VCOM/download/merchants/surcharging...
https://www.mastercard.us/en-us/merchants/get-support/mercha...
https://www.clearent.com/insight/surcharging/
They aren't allowed to charge minimum checkout amounts for cards either. I reported a few businesses before when it was more widespread. Some of them (usually gas stations) put up $10 minimum credit card purchases. If they try to pull that on me I usually just say "you know that's against the terms of your merchant agreement" and they'll sometimes run it.
If you had to carry cash for small purchases that would remove the convenience of cards.
If you had to carry cash for small purchases that would remove the convenience of cards.
The minimums are annoying but understandable. You pay a flat transaction fee (15-30 cents) plus a percentage of the sale (roughly 1-4% depending on the card type). If you’re doing a lot of small transactions, that 15-30 cents is a huge hit to your margins.
Buying a single pack of gum on a rewards credit card might lose the merchant money. They’ll make up for it in aggregate, but that transaction has a negative return. I understand the desire to limit how frequently they sell at a loss.
Credit card agreements used to require parity with cash and no minimums (as Visa and MasterCard had to create new buying habits). But recent laws have placed restrictions on those restrictions.
Buying a single pack of gum on a rewards credit card might lose the merchant money. They’ll make up for it in aggregate, but that transaction has a negative return. I understand the desire to limit how frequently they sell at a loss.
Credit card agreements used to require parity with cash and no minimums (as Visa and MasterCard had to create new buying habits). But recent laws have placed restrictions on those restrictions.
I get that but sometimes u transact outside and then you decide to go inside and spend a few bucks but then they hit you with a minimum. It's annoying. That 30 cents isn't going to lose money unless you bought something for like 60 cents. Margins are big inside, even if you only spend a few bucks it covers the fee versus no sale. They're just trying to boost basket sizes for more profit.
Minimums are legal.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 permits businesses to impose a minimum purchase amount of up to $10 for credit card use, but the minimum must be the same for all credit card issuers and payment card networks.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 permits businesses to impose a minimum purchase amount of up to $10 for credit card use, but the minimum must be the same for all credit card issuers and payment card networks.
> Credit card networks are much more efficient than existing alternatives.
That, plus user transaction data is hugely valuable as its own product: tracking users and their spending habits and selling the signal. Cash takes away from that revenue stream.
That, plus user transaction data is hugely valuable as its own product: tracking users and their spending habits and selling the signal. Cash takes away from that revenue stream.
There is also chargeback fraud and merchant equipment and maintenance. The owner of a chain of gas stations in Florida sued Visa for refusing to certify his new chip installation when chip transfers were coming around. Without being able to take chip cards he would be liable for every fraudulent card swipe where as liability for chip transactions are with Visa under their new rules.
But otherwise you are right. Plus register employees need cash bonds I believe for insurance.
But otherwise you are right. Plus register employees need cash bonds I believe for insurance.
Basically, the credit card networks are bribing customers to become complicit in extorting a sales tax from merchants.
If their processing service is cheaper and better than cash services (Brinks etc), then the 2% cash back is more like paying customers for the aggregate data collection. Visa gets paid to replace cash processing, and pays out for consumers providing shopping data.
It also has the effect of forcing accurate payment of taxes due to an an indisputable record being created of sales:
https://www.youtube.com/watch?v=_Gsz7Gu6agA
https://www.youtube.com/watch?v=_Gsz7Gu6agA
Or sharing kickbacks to consumers to increase their buying power, which isn't extortion or illegal.
The reason why some places don't accept AMEX is because their transaction fees are higher. I haven't paid a cent in interest in probably over a decade but AMEX incentivizes me to use my card for everything with rewards and make money off the fees.
This isn't necessarily true anymore. AMEX has lowered rates over the last few years, and also only charges one rate for all of their cards (from no annual fee up to Platinum & Centurion cards). Visa on the other hand charges different fees depending on the tier of card (Platinum, Signature, Infinite), with the higher tier fees being higher than AMEX IIRC. In fact, some retailers (Hello, Kroger) have gone to bat with Visa over the high fees and stopped accepting their cards (even if temporarily) recently.
It's also the reason why credit card benefits are worse in Europe, as I believe there are restrictions on what the card companies can charge for transaction fees.
Here's a typical case:
https://ec.europa.eu/commission/presscorner/detail/en/IP_19_...
In this example the fees capped were for outsiders who are buying things in the EEA. e.g. an American buying something from an Italian vineyard or an Australian buying some authentic British tableware (for now).
The EU also forbids hidden fees for most types of transaction. It wants the advertised price to match the price paid by consumers‡. If I have 25 EUR in my pocket and you advertise a product for 25 EUR I should be able to get that product. Whereas in the US if you see a product advertised for $25 you know they'll want maybe $30 or more as they add fees, taxes and charges on top of the supposed price. As a consequence this means the fee for a card ends up built in to most online prices in Europe, even if you actually transact in some other way that reduces or eliminates the fee for the seller. So ensuring the fee is low makes good sense here too.
‡ British supermarkets (used to?) use a trick to reduce taxes here - they charge you a fee for their backend card processing, but they subtract that fee from your checkout price. The cost to you doesn't change, and you'd never notice unless you read the small print, but they've successfully argued that this service fee should be taxed differently than your purchases, saving them money. Since it doesn't affect the headline price versus price paid the EU doesn't care.
https://ec.europa.eu/commission/presscorner/detail/en/IP_19_...
In this example the fees capped were for outsiders who are buying things in the EEA. e.g. an American buying something from an Italian vineyard or an Australian buying some authentic British tableware (for now).
The EU also forbids hidden fees for most types of transaction. It wants the advertised price to match the price paid by consumers‡. If I have 25 EUR in my pocket and you advertise a product for 25 EUR I should be able to get that product. Whereas in the US if you see a product advertised for $25 you know they'll want maybe $30 or more as they add fees, taxes and charges on top of the supposed price. As a consequence this means the fee for a card ends up built in to most online prices in Europe, even if you actually transact in some other way that reduces or eliminates the fee for the seller. So ensuring the fee is low makes good sense here too.
‡ British supermarkets (used to?) use a trick to reduce taxes here - they charge you a fee for their backend card processing, but they subtract that fee from your checkout price. The cost to you doesn't change, and you'd never notice unless you read the small print, but they've successfully argued that this service fee should be taxed differently than your purchases, saving them money. Since it doesn't affect the headline price versus price paid the EU doesn't care.
How would the supermarket save money by charging a separate service fee? Many of the items sold in supermarkets (e.g. bread and milk) aren't subject to VAT, whereas (almost) all services attract VAT at 20%
I'm guessing it has something to do with claiming the VAT on processing fees as input tax: https://www.gov.uk/guidance/vat-guide-notice-700#section4
That's not true. The restrictions only came into force a few years ago. The benefits were never there (or at least much shittier - some banks even charge for credit cards!) in the first place.
They do. some places in United states and India you have to do a minimum amount of purchase for them to accept any kind of card
IIRC Visa (at least) has a rule stating that a business can’t charge more for Visa card transactions than cash transactions, nor can they have a minimum purchase for Visa card transactions (unless they also have the same minimum purchase for cash transactions.) If they find out a business is doing these things, they’ll stop allowing the business to accept Visa (even through intermediaries like payment processors).
This is no longer true as of ~2013.
See rules on surcharging: https://usa.visa.com/dam/VCOM/global/support-legal/documents...
And minimum transaction amounts (minimum can't exceed $10): https://usa.visa.com/dam/VCOM/download/merchants/minimum-tra...
See rules on surcharging: https://usa.visa.com/dam/VCOM/global/support-legal/documents...
And minimum transaction amounts (minimum can't exceed $10): https://usa.visa.com/dam/VCOM/download/merchants/minimum-tra...
It may be against Visa's ToS, but it's still a very common practice, especially among small businesses, probably because of enforcement challenges.
I've reported a few businesses and it was an easy process. I don't think it's an enforcement issue; more of consumers not being informed that the merchants shouldn't be forcing them to increase their basket size to a min amount and not knowing that it's easy to report.
Different cards have different business models. For example, high end premium credit cards (think Amex Platinum, Chase Sapphire Reserve, Citi Prestige, etc.) tend to make most of their money from betting that cardholders won't make back more than they pay annually in annual fees (which is possible considering the annual fees on high end premium cards can easily exceed $500).
"At first glance, open banking might seem to be a problem for Plaid, but ... developers will still prefer to use one well-built API that abstracts away thousands of financial institutions"
This type of centralisation makes me sad, but it's probably true for most startups. By using Plaid or an Open Banking service from another party (e.g. Experian) you'll pay fees to get information you can get for free if you integrate directly with the banks.
Even though the open banking APIs are uniform, any company wishing to use them still has to register with each and every bank, and test the integration works with each one. Until you've done it once, it's hard to know whether it will be easy (you write the code once, and it works flawlessly for all banks) or you have edge cases (e.g. some banks have funny timeout issues). So if you're a developer on a deadline, you will likely prefer to use a single API.
This type of centralisation makes me sad, but it's probably true for most startups. By using Plaid or an Open Banking service from another party (e.g. Experian) you'll pay fees to get information you can get for free if you integrate directly with the banks.
Even though the open banking APIs are uniform, any company wishing to use them still has to register with each and every bank, and test the integration works with each one. Until you've done it once, it's hard to know whether it will be easy (you write the code once, and it works flawlessly for all banks) or you have edge cases (e.g. some banks have funny timeout issues). So if you're a developer on a deadline, you will likely prefer to use a single API.
>you'll pay fees to get information you can get for free if you integrate directly with the banks
For the data Plaid was providing, this isn't really true at all in the US. Last I checked, the big banks were very guarded in their API access and you either had to have (1) a large payment (2) a high minimum balance and (3) pay for an audit from their auditor of choice.
I think Europe is different in this regard but the US players really had no incentive to do anything Plaid offered.
For the data Plaid was providing, this isn't really true at all in the US. Last I checked, the big banks were very guarded in their API access and you either had to have (1) a large payment (2) a high minimum balance and (3) pay for an audit from their auditor of choice.
I think Europe is different in this regard but the US players really had no incentive to do anything Plaid offered.
"For the data Plaid was providing, this isn't really true at all in the US."
Right, I'm talking specifically about open banking, which isn't a thing in the US.
Right, I'm talking specifically about open banking, which isn't a thing in the US.
If you want to truly use most bank API's you have to be audited heavily by them first.
I’d rather each bank purchases an API provider who has the appropriate security certifications to integrate with the bank’s backoffice systems, than have each bank attempt to implement OAuth themselves and fail in all the usual catastrophic ways. Their specialty is banking, not OAuth, and they already pay vendors for many other services that aren’t their specialty.
This also hints that a not-Visa competitor will appear in the credit union space, since credit unions often have a shared provider for banking websites (and bill pay, and etc.) and would presumably set up their own competitive API provider on top of that.
This also hints that a not-Visa competitor will appear in the credit union space, since credit unions often have a shared provider for banking websites (and bill pay, and etc.) and would presumably set up their own competitive API provider on top of that.
By using Plaid or an Open Banking service from another party (e.g. Experian) you'll pay fees to get information you can get for free if you integrate directly with the banks.
...which suggests you're not necessarily paying for the integration with a free service - you're paying for the integration at a grand scale. I.E. - paying to not have to do all that work yourself.
...which suggests you're not necessarily paying for the integration with a free service - you're paying for the integration at a grand scale. I.E. - paying to not have to do all that work yourself.
Banking dinosaurs brought this pressure for middle services on themselves by pretending they're not interchangeable services with limited means to tell them apart otherwise.
If they'd all support a standard API, plaid would vaporize overnight.
If they'd all support a standard API, plaid would vaporize overnight.
"If they'd all support a standard API, plaid would vaporize overnight."
In the UK, the banks already support a standard API, but it's still easier for developers to use an intermediary to access those APIs. Because using Plaid or Experian they don't need per-bank credentials and tests.
In the UK, the banks already support a standard API, but it's still easier for developers to use an intermediary to access those APIs. Because using Plaid or Experian they don't need per-bank credentials and tests.
>Because using Plaid or Experian they don't need per-bank credentials and tests.
They also push all the risk in terms of Plaid being compromised onto the User's, instead of the service provider.
This is a winning deal for Plaid, because in the event of an undiscovered breach, there is no proof in the form of say, hackers running off with Plaid's hypothetical Autonomous System's credentials and generating fraudulent activity that can be shut down by just patching the breach and changing Plaid's credentials.
Instead, banks have to scratch their heads and figure out why all these seemingly random customers are calling about fraudulent activity at right around the same time.
It's absolutely terrible in the diagnostics department, but seemingly ideal for exploiting legal grey areas for avoiding culpability if something goes wrong.
I'm not sure federated OAuth is the answer, but it's a damn sight better than what Plaid is doing.
They also push all the risk in terms of Plaid being compromised onto the User's, instead of the service provider.
This is a winning deal for Plaid, because in the event of an undiscovered breach, there is no proof in the form of say, hackers running off with Plaid's hypothetical Autonomous System's credentials and generating fraudulent activity that can be shut down by just patching the breach and changing Plaid's credentials.
Instead, banks have to scratch their heads and figure out why all these seemingly random customers are calling about fraudulent activity at right around the same time.
It's absolutely terrible in the diagnostics department, but seemingly ideal for exploiting legal grey areas for avoiding culpability if something goes wrong.
I'm not sure federated OAuth is the answer, but it's a damn sight better than what Plaid is doing.
This is the government's job - to make a working market. They should be forcing banks, through their existing bank regulation powers, to allow interoperation.
And then it all falls apart when Plaid gets hacked and millions of people's _actual bank account usernames and password_ get stolen. That is not a safe premise to start a business (or to acquire one).
And because most companies that use plaid don't even show the Plaid logo, you don't know who is directly integrated with a bank and who is using Plaid
Some companies[1] indicate their Plaid dependency in their Privacy Policy, just like it is common to do when they use Google Analytics. But yeah, it's unfortunately not a standard.
[1] https://zerodown.com/privacy
[1] https://zerodown.com/privacy
I recall a podcast a Plaid tech person did for Software Engineering Daily where it was alluded that Plaid had moved away from using screen scraping to something much better — it sounded like they had paid for connections to the bigger banks — perhaps a one off API access only for Plaid or were leveraging some other way to get around the problematic screen scraping approach.
The narrative here is internally consistent but there are a few pieces that I don't quite understand when it meets reality:
* It's suggested is that Visa will 'fix' the security concerns that Plaid introduces (the use of username & password collection), but it seems unclear how Visa would be able to change the fundamentals of the Plaid<->bank interactions?
* It's also theorized that European banks will prefer to use Plaid rather than a privately recommended solution (not referenced in the article) to achieve EU open banking compliance. Do Plaid have strong relationships with EU banks at present, and would it not be more likely that Plaid would implement against the existing EU open banking APIs (single implementation, no lobbying) than that Plaid would implement their own alternative (requiring per-institution implementation, and also lobbying to ensure their approach is accepted both by banks and EU regulators)?
* It's suggested is that Visa will 'fix' the security concerns that Plaid introduces (the use of username & password collection), but it seems unclear how Visa would be able to change the fundamentals of the Plaid<->bank interactions?
* It's also theorized that European banks will prefer to use Plaid rather than a privately recommended solution (not referenced in the article) to achieve EU open banking compliance. Do Plaid have strong relationships with EU banks at present, and would it not be more likely that Plaid would implement against the existing EU open banking APIs (single implementation, no lobbying) than that Plaid would implement their own alternative (requiring per-institution implementation, and also lobbying to ensure their approach is accepted both by banks and EU regulators)?
On #1 I assume it’s simply the fact that Visa is big enough and stable/reliable enough that banks would be willing to do the integration to them to get the benefits instead of doing hundreds of bespoke integrations for little apps/services.
The trusted, widespread brand angle does make sense there as a reason for banks to choose to integrate with Visa, agreed.
But does that then imply that users authenticate with their bank via Visa (i.e. Visa becoming an identity provider -- not totally unimaginable given their association with customer-issued cards)? Or instead that banks would implicitly offer this data to Plaid/Visa under their card issuance ToS, without user authentication required?
(I'm not really asking for answers, I don't think we can really know at this point. It just leads to questions like this and I'm curious)
But does that then imply that users authenticate with their bank via Visa (i.e. Visa becoming an identity provider -- not totally unimaginable given their association with customer-issued cards)? Or instead that banks would implicitly offer this data to Plaid/Visa under their card issuance ToS, without user authentication required?
(I'm not really asking for answers, I don't think we can really know at this point. It just leads to questions like this and I'm curious)
User authentication would be handled somewhere :)
But ya, I bet they're going to push hard on "provide us openid connect" in future contract negotiations to solve the security problem.
But ya, I bet they're going to push hard on "provide us openid connect" in future contract negotiations to solve the security problem.
Ben Thompson talks a lot about networks and platforms in his blog, and it's always from the perspective of the capitalist: here's a great way to capture value and make a profit.
When he does consider the perspective of the user or consumer, it's still indirectly from the perspective of the capitalist: users/consumers will behave in X way, get Y value, etc, which is why [megacorp] should do Z.
I'd really like to see him take a broader view. Could he imagine a set of rules/regulations that would result in a better outcome for the public?
I've long been thinking about this problem:
- we all much prefer a single platform/network
- but if there's a single platform/network, then there aren't good market incentives on the side of the provider
This seems like such a fundamental problem in a space he writes so much about. Ben Thompson, please think and write about this!
When he does consider the perspective of the user or consumer, it's still indirectly from the perspective of the capitalist: users/consumers will behave in X way, get Y value, etc, which is why [megacorp] should do Z.
I'd really like to see him take a broader view. Could he imagine a set of rules/regulations that would result in a better outcome for the public?
I've long been thinking about this problem:
- we all much prefer a single platform/network
- but if there's a single platform/network, then there aren't good market incentives on the side of the provider
This seems like such a fundamental problem in a space he writes so much about. Ben Thompson, please think and write about this!
Right! Banks are already regulated by the government and this seems like an opportunity for them to improve the retail banking market by requiring interoperation. Maybe it wouldn't work but it would be interesting to hear from him on this topic - can the government make this market work better?
I had no idea how recently modern credit cards were invented until reading that first paragraph. Wild.
https://en.m.wikipedia.org/wiki/Visa_Inc.
https://en.m.wikipedia.org/wiki/Visa_Inc.
> that same Treasury report highlighted the fact that the United Kingdom and European Union have initiatives requiring API access to bank accounts, but recommended a private solution.
This is the Trump government failing us and gifting the next generation's financing needs to the next generation of rent-seekers.
This is the Trump government failing us and gifting the next generation's financing needs to the next generation of rent-seekers.
I have a mixed position on this. Considered in isolation, the UK's API regulations are a spectacular boon for customers.
Considered in the context of the rest of the UK's regulatory environment (porn filters, etc), it seems plausible that the UK gov's push for bank APIs is less about being kind to their citizens and more about undermining cash and pushing all financial activity onto infrastructure that's easily accessible to a surveillance state.
I'd like to have tech like this in America, but I don't think we have the spine on any front. We aren't willing to hardball businesses on timeline/featureset (for example: the partial and late rollout of chip/pin in the US), and we aren't willing to write legislation that protects citizens from abuse and creates punitive structures that make abuse of citizen data by companies an economically irrational act.
In light of that, I wonder if shitty APIs are the lesser of two evils.
Considered in the context of the rest of the UK's regulatory environment (porn filters, etc), it seems plausible that the UK gov's push for bank APIs is less about being kind to their citizens and more about undermining cash and pushing all financial activity onto infrastructure that's easily accessible to a surveillance state.
I'd like to have tech like this in America, but I don't think we have the spine on any front. We aren't willing to hardball businesses on timeline/featureset (for example: the partial and late rollout of chip/pin in the US), and we aren't willing to write legislation that protects citizens from abuse and creates punitive structures that make abuse of citizen data by companies an economically irrational act.
In light of that, I wonder if shitty APIs are the lesser of two evils.
Minor quibble, US has chip/signature, not chip/pin. This is because the US banking system is stupid (technical term).
Definitely not a "Trump" problem. Obama wouldn't have started it either. There is no stomach on either part of the parties to upset the banks.
They have competitors though, Yodlee and Salt Edge to name but two. Have had some 'fun' recently in the UK when the FCA introduced open banking without actually allowing foreign companies any way to particiapte. This broke the budgeting app that I use (Pocketsmith https://www.pocketsmith.com) because Yodlee, the bank feed provider they used, isn't a UK company and neither are they, thus they didn't comply with the regulations.
Pocketsmith got around this by adding feeds from Salt Edge, thankfully. I've actually become quite dependent on having proper cashflow, balance sheet and P + L statements for my personal finances.
Pocketsmith got around this by adding feeds from Salt Edge, thankfully. I've actually become quite dependent on having proper cashflow, balance sheet and P + L statements for my personal finances.
There is the Swedish company Tink in this space too.
https://tink.com/
https://tink.com/
I never got why credit cards were such a big deal for merchants, until reading this.
I never got why credit cards were such a big deal for consumers, until I heard this: https://www.npr.org/2019/06/26/736352315/episode-922-the-cos...
What a week of learning about credit cards it has been!