[petesergeant]

> premium cards [are] commercial, corporate, or business cards issued by Visa and Mastercard [and attract more expensive fees, even compared to Amex]

Does anyone know more about that? Why are they more expensive? Is there a different underlying cost structure, or simply price discrimination by some intermediary?

There's more information on "premium cards" here[0], but it doesn't explain the price difference or why a separate category is needed.

0: https://support.stripe.com/questions/what-s-the-difference-b...

[RC_ITR]

First some background:

About 85% of payment fees are taken by the bank that issues the credit cards (this portion is called interchange). The remaining 15% is split between the card network and the merchant acquirer (in this case Stripe).

Stripe collects some amount of of money from their merchant customers for each transaction. They could set their take rate to be whatever they’d like it to be, this is and unregulated part of the market and is the reason you hear about crazy 10%+ fees for porn, gambling, etc. websites.

Stripe then sends a subset of that fee (interchange plus a network fee) to Visa. Visa has a public ratebook saying exactly how much Stripe needs to send them for a ton of different kinds of transactions.

Visa keeps their fee and passes the interchange to the issuing bank and the transaction is settled.

Issuing banks feel like they “earn” interchange by acquiring customers and taking on their credit risk.

Now it’s important to remember that until very recently, Visa was wholly owned by the banks. This is because Visa is basically a “don’t shoot the messenger” actor who acts on the behalf of banks while taking a relatively small part of the pie for themselves.

Now, on to premium cards. One of the things banks have started to do recently is say “Hey, we acquire really good customers and we give them airline miles so they use their cards way more than they would otherwise. We should be compensated for that!”

The same thing happens for corporate cards, except worse since most regulations on interchange target consumer cards.

What that looks like in practice is new classes of Visa cards (Google: Visa Infinite) that have higher interchange rates (because the banks do all the hard work of having rich customers). Because Visa is a “neutral party,” they can get away with “if you want to accept any Visa cards, you have to accept them all.”

Therefore, cash/debit consumers continue to subsidize lavish vacations and corporate spend for the wealthy, because of course they do.

[thiscatis]

Because they give more benefits (insurance, lounge access, cashback etc...) and someone has to pay for this (i.e. the merchants).

For example R̶e̶v̶o̶l̶u̶t̶ ̶M̶e̶t̶a̶l̶ premium cards and corporate cards which offers benefits such as lounge access to pay-to-use lounges, travel insurance, cashback etc.. are mostly designed by the schemes in parternship with the issuing banks.

Also note that mostly in the US and Europe AMEX works in another way than Visa and MasterCard. Where V and MC are in a 4 party model (Issuing Bank that gets interchange, Processor (like Stripe) that processes the payment and gets a cut, Merchant that pays the merchant discount rate (or processing fee) and the customer that got their card from their issuing bank getting some benefits) Amex mostly cuts out the issuing bank and issues the cards to the customers directly.

Hence because they don't have to share the interchange with the banks they offer way better benefits on their cards (airmiles, centurion lounges, travel benefits, extensive insurance) but also at a high cost for the merchant because these are really premium cards.

Some consumer banks do issue AMEX cards so they will get their interchange.

In Asia there's also Amex Debit cards, I think definitely less popular in the rest of the world.

Something to note, also a lot of people in Europe think Visa or MasterCard == a Credit Card, this is not true. A credit card is an actual revolving credit instrument issued to the consumer by a credit institution such as a bank that then uses Visa or MasterCard rails.

A card that you get from Lloyds or HSBC when you open an account in the UK might say Visa or MasterCard but it's on a prepaid or debit programme with the scheme but using Visa and MasterCard payment rails. The interchange on these (pre-brexit) and still in Europe is capped by law.

Furthermore a lot of EU, Latam and Asian countries have their local payment rails which run at way lower costs than Visa and MasterCard to the merchants (Wechat, Alipay, Giropay, Payconiq etc.. to name a few).

One last thing, I do think Open Banking in the UK and Europe, especially when Variable Recurring Payments are coming will be a game changer. The banks have been lobbying to delay most of the UX improvements for the users because they just make too much money as an issuer to get interchange.

[avianlyric]

> The banks have been lobbying to delay most of the UX improvements for the users because they just make too much money as an issuer to get interchange.

To quote Hanlon’s razor “never attribute to malice that which is adequately explained by stupidity."

Having been involved in these conversations, I can tell you with some confidence, that banks are far more worried about being unable to deliver the technical work on time, than they’re worrying about interchange.

There will be fees to pay for OpenBanking Variable Recurring Payments, it’s not going to be free for merchants to use. Which makes sense, contrary to popular opinion, running a bank account, and transacting, costs quite a bit of money. Every Faster Payment you send costs your bank a couple of pennies, not much on an individual level, but it sure adds up.

[thiscatis]

Having been in some of the same conversations, although I'm a big believer in Hanlon's razor, if someone suggests that for an OpenBanking payment the "authentication" should be the bank calling the user and having them listend to a 45 second message to then key in a confirmation code it's no longer stupidity, it's creating artificial barriers. The same bank can perfectly do quicker ACS with OTP or tap to confirm using a push notification but for OB PISP it requires a phone call...

[avianlyric]

You should see some of the fraud cases that happen via open banking and faster payments.

It’s an extremely difficult problem to deal with because there is no dispute mechanism in the faster payment flow, and Faster Payments are not interested in adding one. As a consequence, once the payment is authorise, the moneys gone, and getting back is almost impossible.

Fraudsters have been taking huge advantage of this, and regulators are demanding that banks protect customers from these scams, or eat the cost of reimbursement.

Having worked on this specific problem, I can say that calling the customer for authentication is one of the most effective ways to prevent these scams. The call normally forces the customer to hang up on the scammer, which is incredibly powerful because it removes the primary source of pressure on the customer, and gives them space to think. Most customers then realise they’re being scammed, and stop there.

You may say that there’s other ways of warning customers, like in app notifications etc. Well I’ve tired all that, they’re not effective, regardless of how big, scary and red you make them. Even when tuned so the false positive rate is almost zero, so most customers only every see them when they’re actually about to be scammed, they still don’t work. Reason why they’re not effective, customer mentions what they see to the scammer on the phone, scammer explains it away and pressures the customer to continue.

This isn’t to say there isn’t some better balance, or that the banks aren’t being lazy. But the fraud question is serious one, and a very difficult one to answer. Simply ignoring it when discussing Open Banking is either naive, or intellectually dishonest (I’m not claiming that you’re intellectually dishonest, but there are plenty of people who like to gloss over the fraud issues, or just victim blame).

[thiscatis]

I'm very happy that the banks take fraud seriously, even if it delays innovation because the current chargeback flow is horribly broken for everyone involved except the schemes.

[BasedInfra]

>premium cards [are] commercial, corporate, or business cards issued by Visa and Mastercard

Revolut Metal (personal) is not one of these cards.

Commercial cards (business banking, business credit etc) are what these cards are and they have less regulation in the EU.

For instance no cap on interchange fees and they can show prices excluding the card fee and add that on at checkout for business card users.

[thiscatis]

I'm not saying Revolut Metal is one of these, I'm just saying the card schemes create different segments for cards that have their own benefits, for these benefits the cost is actually mostly going to either the user paying a membership fee or the MDR paid by the merchant to cover the cost. The benefits are not just a freebie given by the issuer or scheme, it's a marketint cost that someone has to pay for.

[throwaway67743]

re Open Banking, it's still a system where everyone but the actual customer gets useful access to financial services (ie; I can't get an API from a bank as the account holder, but I can give API access to a third party) - unfortunately that isn't mandated as part of the system and for me makes it completely useless.

[Benjamin_Dobell]

Where are these fees documented?

Corporate cards, or cards with more "features" (lounge access, insurance etc.) tend to have yearly fees associated with them, at least in Australia. I was under the impression the customer covers the cost of these extras, not merchants.

[petesergeant]

> example the Revolut Metal card

Right but that’s not a premium card and neither is Amex, so this doesn’t follow

[thiscatis]

The Revolut Metal (personal, not revolut business) example might not be the best one (see also my other reply) however the reason I mention is still the same, someone has to pay for the benefits these premium cards offer, the interchange on these is higher.

[petesergeant]

This appears to not be true, because this is specifically commercial cards, and not consumer cards. The correct answer seems to be this one:

https://news.ycombinator.com/item?id=34691714

[thiscatis]

It literally says the same, the interchange in these is higher.

[petesergeant]

You attribute it to perks, which is not correct, or Amex and Diners Club would be more expensive. It's because interchange isn't regulated for commercial cards.

[GordonS]

> Because they give more benefits (insurance, lounge access, cashback etc...) and someone has to pay for this

The company (or cardholder) pays for this - corporate cards and the like aren't free, they come with an annual fee. So it's not all on the merchant.

[thiscatis]

These fees are usually waived based on spend and often just require a simple call to the issuing bank. Even 400 usd won’t cover hundreds of thousands of airmiles gained by spend.

[smca]

> it doesn't explain the price difference

Commercial interchange isn't regulated in Europe. The card networks have increased their interchange rates for commercial and business cards in many European countries.

> or why a separate category is needed

These fees have been moved into a separate category to contain increases to cards where network costs have increased significantly. (Rather than apply them more broadly.)

[Symbiote]

The EU regulation limiting card transaction fees does not apply to corporate cards or foreign cards.

https://eur-lex.europa.eu/EN/legal-content/summary/fees-for-...