To everyone saying "my credit card pays me 2% to use it", no, your credit card charges the merchant 2.3%+ to use it, that gets bundled into the price, and they give you 2% of that as a kickback.
The merchants would be the ones choosing the latter. As you mentioned, a lot of stores are interested in accessing the broader market of people who pay with credit cards/digital payment systems, but are forced to pay the 2.3% credit card fees. Bitcoin offers them the ability to remove this transaction cost but keep the convenience of cashless digital payments, in which case the savings can then be rolled into lower costs, benefiting the customer.
This is still contingent on using a Lightning network to reduce fees on smaller day-to-day transactions, which I agree are too high with Bitcoin proper.
The original Bitcoin whitepaper actually outlines this as one of the main problems it aims to solve, and I'll let the paper do the talking:
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions,and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need.A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof instead of trust,allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.
Some merchants do pass the savings on to the user for using Bitcoin vs credit cards, and there are ways to pay with Bitcoin (lightning) that involve negligible fees.
So the merchant sets the price of a bag of chips at $2.00. I want to buy it. I could:
* Pay $2.00 with my credit card and get $.04 back = $1.96
* Pay $2.00 with cash and get $0 back = $2.00
* Pay $2.00 with btc and get $-x satoshis back because I have to pay transaction fees + fees to convert to fiat = $2.00 + some amount of fees that change daily
I'm not sure how that's different? When a merchant accepts cash, they have to pay for physical security and pickup, it's prone to theft or miscounting, etc. So cash isn't free. Accepting card payments is also not free. Merchant pays visa for convenience (to both merchant and customer); visa kicks some back to customer.
I've seen this said a lot, but in my experience whenever a merchant has different prices for cash and credit card, the cash price is always lower. So whatever the merchant is paying to Visa and/or MasterCard, it's more than it costs to handle cash.
Traditionally the discount for cash in many professions is due to avoiding tax.
i.e. a plumber will do a job for cheaper if they are paid in cash as they won't be declaring that work in their accounts - avoiding the ~20% tax that would be due otherwise.
While true, I know of many small businesses that give cash discounts because the credit card fees ruin the profit margin on small purchases. Sometimes they even lose money on transactions. For instance if you buy a scone for a $1.05, the credit card fees alone might come out to 38¢ for the merchant. This is why you often see "minimum card purchase $5" at coffee shops and small businesses.
Yes, the fee is usually fixed cost plus percentage, which makes small transactions very expensive.
The small transaction problem is vastly worse with Bitcoin, though. The catch is that the transaction fee is paid by the buyer, so that $1.05 scone costs the consumer $8.05.
$1.05 goes to the consumer
$8 transaction fee goes to the miner
Some fraction (eventually most) of that $8 transaction fee goes to the energy company supplying the miners with electricity.
Now your $1.05 scone transaction includes the cost of charging a Tesla battery 3 times over, because that's how much energy went into the transaction on the blockchain.
Absolutely true. I'm not advocating for crypto to replace credit card transactions, as that would be insanely impractical and wasteful. I wanted to draw some attention to how badly merchants are treated when they accept card payments.
Losing money to credit card transaction fees is actually a huge problem the average person does not know about. The problem is that these credit card companies charge a percentage based on each transaction which screws over the merchant in two ways. One, it is inflation resistant. Two, Visa/Mastercard do not pass savings and efficiencies onto the client, they pocket the difference.
Just as an illustration, if a merchant's profit margin on an item is 10% and the cc fees are 3%, they've lost a third of their profit on that sale.
You're correct, but it is different. There is no free way to accept payments. I personally pay with a 2% cash back card myself. I just hope people have a full picture of the costs and benefits of each approach. Crypto transaction fees are expensive but there are also a lot of hidden costs of the credit system.
I lived in Taipei for a year and almost all transactions there are cash, debit, or bank transfer. You can do a bank transfer to anyone instantly for pennies. Really puts the ACH system to shame. Some things are better than getting 2% back.
> Here in the EU, credit card transaction fees are capped at 0,3%. So no shenanigans
This isn’t true. Interchange fees are capped at that rate, but that’s only one portion of the total transactional fee charged to merchants for processing card payments.
Something I've always been confused about, maybe you know the answer -
Don't merchant's already charge the amount that causes (number of units sold) * (profit per unit) to be as high as possible? If visa suddenly dropped the transaction fee to 1%, I don't think stores would pass the 2% savings on to the customer
If free markets existed, that is how they would operate. Sellers would be small, independent, have perfect knowledge of the market and would always seek to maximise profit.
But free markets don't exist. There are many reasons why merchants might not always aim to maximise profit. They might instead seek the security of a loyal customer base, for example. In many markets, sellers ruthlessly compete on price, often at the cost of short term profit. Supermarkets in the UK is a good example. If transaction costs for supermarkets were reduced that would absolutely be seen by the customers.
Consumers do not care about anything other than the net price they pay.
Stores that take Bitcoin payments flip this around, passing the transaction cost to consumers.
If I'm ordering a $50 thing online and the store takes Bitcoin, I have two options:
1) Pay with my credit card, for a net cost of $49 to me and a guarantee that if they don't deliver I can reverse the charges.
2) Pay with Bitcoin, for a net cost of $58 with the current $8 transaction fee, and zero recourse if the vendor fails to deliver.
$49 and money-back guarantee versus $58 and zero recourse. Why would anyone choose the latter?