[MSD1976]

Don't under-appreciate the benefits of having a portable, globally-ubiquitous, safe, instant method of consumer credit that is accepted by millions of merchants.

Imagine it's 1920 and you want to buy a sewing machine, which is 3 months salary. You could save up for years, during which time you're not able to sew any clothes. After you've finally saved enough, you walk over to the merchant with a wad of cash. On the way, you get robbed or lose the cash. Tough luck; no sewing machine, no money. And as for the merchant, they lose out on the sale until the time the customer has enough cash.

But maybe the merchant is willing to let you spread the cost over time. Great, now you can afford the sewing machine earlier and the merchant can book the sale sooner. But now the merchant has to hire staff to process bills and collect payment, they have to asses how likely each customer is to repay, they have to physically mail invoices and then drop payment off at the bank, etc. And every time the customer wants to make a purchase, they have to go through the long approval process with each individual merchant they shop at. No one likes waiting in lines.

Fast forward to Visa/Mastercard...customer walks into practically any store in the world, hands over a piece of plastic (or taps their phone), and walks out with any item. They get an instant, no-questions-asked personal loan.

1. Great for merchants because they reap all the benefits of extending credit (e.g., higher sales) without any of the credit risk/back-office headaches; 2. Great for customers because they can buy anything, anywhere, instantly, regardless of whether they have enough money in their account at that particular moment.

And neither party has to worry much about fraud, losing money/getting mugged, getting ripped off, etc.

This enables literally trillions of dollars of spend and economic growth. I think that's worth the ~$10b profit Visa makes.

[wffurr]

The service is incredibly useful.

The profits returned as dividends are pure rent extraction and essentially a tax on global economic growth.

That's why it should have a different structure. The mystery is why the member banks allowed it to become a for-profit entity and why governments continue to allow it to suck profits from their economies.

[MSD1976]

I'm sorry but why is what Visa does considered "pure rent extraction" versus any other for-profit business?

Merchants may often gripe about the fees they're paying per transaction, but this ignores the tremendous benefits they receive. Yes, a huge retailer like Wal-Mart or Costco has the resources to extend credit, develop POS software, establish relationships with thousands of banks, etc. But do you think the corner bodega does? Or a restaurant that has 1% margins? It may sound simple: "eliminate cc fees and the merchant's margins go from 1% to 3%". But then you're hunting down customers for payment, mailing invoices, extending credit for 30-60 days. There's a real benefit to working capital to getting paid as soon as you swipe that card.

As for why this is the structure...well, it used to non-profit and co-owned by all banks and it worked okay for a bit, but it's harder to balance incentives. And, banks were strapped for cash in 2008 (time of IPO).

- https://money.cnn.com/2008/03/21/news/companies/visabanks/ - https://economix.blogs.nytimes.com/2008/02/25/visa-bailing-o...

I would also disagree with your assessment that it "sucks profits from their economies". These networks truly create far more economic value than they themselves keep. And what they do keep isn't going up into outer space or getting incinerated....

[kalleboo]

Other places like Europe, Australia have capped interchange rates through regulation. Many countries have domestic cards with much lower (or even flat yearly rather than per transaction) fees.

The fees don’t have to be as high as they are.

Costs to chance delinquent debt should be included in the interest calculation

[wffurr]

You said it yourself. Their capex is flat (in real terms?) and their marginal cost per transaction is zero. What happens to the per-transaction fee? It looks like it almost all goes to shareholders as dividends.

That's funneling money from the entire global economy into the accounts of a few wealthy shareholders and institutions in the west. That's pure rent going to capitalists just because they have the dominant payment platform.

No doubt that it creates economic value, that's why people use it! But a non-profit that charged fees just enough to cover operating costs would do just as well and leave money in the local economies where the payments are made instead of contributing to global inequality.