[avianlyric]

The EU introduced price caps on interchange in 2015 capping interchange on credit cards at 0.3% and debit cards at 0.2%.

That’s almost an order-of-magnitude lower than interchange fees in the US, which are usually around the 1%-2% level.

This is big part of the reason you don’t see high value reward cards or cashback program in the EU. There simply isn’t the interchange revenue to fund them, which is good thing, because high interchange + cashback creates a nasty regressive tax that transfers vast amounts on wealth from those with poor credit ratings (usually the least well off society) to those with high credit ratings (usually the most well off in society).

[rgbrenner]

"because high interchange + cashback creates a nasty regressive tax"

There's an interchange surcharge for rewards cards. Stripe bundles this all together to make the pricing simpler.. but most merchants use traditional merchant accounts, and they are charged based on the type of card used.

Edit: For example, here's visa's interchange fees: https://usa.visa.com/content/dam/VCOM/download/merchants/vis...

[avianlyric]

Doesn’t really change anything. VISA and Mastercard rules also prevent merchants from discriminating based on card type, either you except all VISA/Mastercard cards, or you except none.

So the exact manner in which they’re billed to merchants is kinda irrelevant, the cost ends up being spread over all consumers, regardless of their ability to recover the money via cashback or rewards.

[rgbrenner]

Prices aren't set based on costs. Prices are set at the maximum the market will bear. If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue

Consumers dont care if you can pay for the inputs to your product. They obtain a certain value from your product and have a certain expectation of what the price should be, and if your costs are above that, consumers are happy to watch you go out of business. In fact, inability to increase prices over time while inflation increases the cost of inputs, is one of the ways the economy pushes marginal business out of the market.

[avianlyric]

> If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue

If your market is completely elastic, then sure. But only hypothetical markets (and perhaps some fungible goods) are completely elastic. Most markets don’t have a perfect linear correlation between price and demand.

The other things you’ve completely ignored, is the fact that interchange impacts all sellers equally. So as a consumer you can’t avoid the interchange tax by shopping around, which in turn will increase a consumer’s willingness to pay higher prices.

This may come as a surprise to you, but consumers don’t have a perfect way to calculating the value of something. Ironically, the perceived value of a product is highly influenced by both its price, and the price of its competitors (with Veblen goods being the extreme). So if you introduce a flat 2% price increase across all sellers, then it’s reasonable to expect consumers value perception to increase by a similar amount.

[rgbrenner]

"But only hypothetical markets (and perhaps some fungible goods) are completely elastic."

That's exactly my point.. You can't change the price without changing the volume.. and that's why you cant pass on costs. The item is already priced at the optimal point in the price-demand curve. Moving the price based on cost increases, only results in lost revenue. The only companies that are able to do that are the ones that haven't priced their goods correctly to being with.

"then it’s reasonable to expect consumers value perception to increase by a similar amount."

You seriously think consumers know when the prices of the inputs for an item change? And then they adjust their perceptions of the item based on their detailed knowledge of how the product is made? The average consumer doesn't know how anything is made or what any of the costs of an item are. Go ask some random people what they think a credit card costs merchants... nearly guaranteed you only get wrong answers.

[avianlyric]

> That's exactly my point.. You can't change the price without changing the volume.. and that's why you cant pass on costs.

In an elastic market. This is not true in non-elastic markets. Obvious example is the price of ERs in the US. Pricing doesn’t impact volume in a meaningful way, because people don’t decide get injured based on how much an ER costs.

> The item is already priced at the optimal point in the price-demand curve.

This is a bold claim. You’re gonna have to provide some evidence that every item in world is somehow priced at the optimal optimal point on the price-demand curve.

> The only companies that are able to do that are the ones that haven't priced their goods correctly to being with.

You are correct. But pricing at the optimal points is the rare exception. Most items aren’t priced at the optimal point, because discoing the optimal point is incredibly difficult, and not a requirement for a profitable business.

> You seriously think consumers know when the prices of the inputs for an item change?

No, that’s quite obviously not what I wrote. I think consumers perception of value increases as prices increase.

You seem to have a great deal of difficulty identifying the differences between theoretical perfect behaviour, and reality. Very few things in the real world closely match their theoretically perfect behaviour, so theirs inefficient and market gaps everywhere. Something things like interchange can capitalise on. If you’re gonna come back with another response about how this doesn’t work in a perfect market, then I recommend you don’t waste your time, I’m not interested in debating if reality and theory match.

[tluyben2]

> either you except all VISA/Mastercard cards, or you except none.

There are many companies discriminating on card type; not accepting debit cards, not accepting business cards (which have higher fees for the merchant), not accepting credit cards, not accepting foreign cards, not accepting certain BIN ranges.

[avianlyric]

This breaks the Visa Mastercard rule. For which merchants can and will be fined.

Obviously smaller merchants can get away with it, because nobody cares enough. But get big enough, and an issuer is going get upset and start demanding the Visa/Mastercard enforce their rules.

[julianwachholz]

Except when companies outright openly discriminate any form of payment other than cash with a surcharge that directly benefits the card networks because those players are huge and they don't want to miss out on this free money.

I'm mostly referencing Just Eat Takeaway dot com which have increased their online payment fees to 3% now (at least in CH) which is ridiculous because there's no way such a large player has such high fees with any acquirer.

[traceroute66]

> nasty regressive tax that transfers vast amounts on wealth from

As long as you're not a well off person with an AMEX card that regularly makes purchases outside of your AMEX card currency.

AMEX is nuts in that all non-home currency transactions go via USD.

So, for example, if you have a EUR AMEX and you make a GBP purchase, your conversion will go GBP -> USD -> EUR with AMEX taking a cut at each step along the way.

[simfree]

American Express is a US-centric company, their rest of world market penetratiom and acceptance rates are much lower than in the USA.

Your use case isn't large enough to be a priority to American Express.

[dkjaudyeqooe]

> This is big part of the reason you don’t see high value reward cards or cashback program in the EU.

Interestingly my US 1.5%-3% (regular, also 5% special) cashback cards keep paying out on transactions here in the EU. I've always wondered who is losing out in that equation.

[triceratops]

You probably pay for it with the exchange rate spread. Your card may say no foreign transaction fees but they're already taking a 3% profit margin on the currency conversion.

[lotsofpulp]

I expected this, but I have tested this theory many times, and my credit card issuing bank or even debit card issuing bank offer exchange rates extremely close to the spot rate.

For credit card, I have tried this with Bank of America, Chase, and AmEx. For debit card, I tried with Schwab. And in all cases, I checked the currency exchange rate, and it was very close to the spot rate.

Where you do get hammered is by international merchants, who ask if you want to pay in local currency or USD (if you are American I guess). You should always choose to pay in local currency (meaning the merchant requests the payment in local currency from your card), because your credit card issuing bank will give you a much better currency conversion rate than the merchant will.

If you say you want to pay in USD, then the merchant will calculate a USD price that is much higher than the local currency price.

[pembrook]

This. There's so much funny business that goes on with FX rates that it makes me almost pro-crypto.

Even the people who claim to offer raw spot market rates (ie. Interactive Brokers), in fact do not offer that. I would not be surprised in Visa & Mastercard do the same--although they claim otherwise.

[triceratops]

Come to think of it, would Visa/MC be doing the conversion? I believe that's the issuing bank's job. But they offer the rewards, not Visa/MC, so it doesn't change the original answer much.

[dkjaudyeqooe]

Visa/MC are doing the conversion, and that does makes sense to me given their central position in the transactions. There are (basically crooked) originating (I think that's the right word) banks/payment processors that convert it for you, with a 3% plus spread. Paypal is the most egregious in this category.

The rewards are funded by the banks via interest income. 3% cashback cannot be covered by interchange fees, for instance.

[avianlyric]

Visa/MC do the conversion, but it’s not unusual for banks to tack on extra fees. Additionally banks can choose to settle in multiple currencies, and handle the FX themselves.

VISA/MC do offer the spot rate. But the idea of a spot rate is a little iffy anyway, as it assumes that there’s a counterparty willing to sell/buy at that price, and at the volume you want to transact at. When you’re operating at MC/VISA scale, that isn’t a given, and neither of them are interested in taking on FX risk. So their spot prices will be close, but likely not identical to spot prices you might find at other FX providers. Over the long term though, I would expect any delta to balance out.

[Denatonium]

When I took my Schwab debit card to Europe, the exchange rates that I got were identical to the ones posted on Visa's website, suggesting that it's Visa doing the ForEx conversions.

A lot of banks do charge a percentage fee on top of Visa/MC's exchange rate, but my bank does not.

[Cyph0n]

Schwab and Fidelity debit cards are the only ones that do this AFAIK. In addition, you get unlimited ATM fee rebates, even outside the US. I’ve stopped taking cash home and instead withdraw from my Schwab account :)

[dkjaudyeqooe]

I definitely don't. Visa/MC takes about 0.5% and the bank takes nothing. I've checked many times.

[ar0]

The answer is in the original Stripe article: The merchant pays much higher fees when you pay with your US credit card than when you pay with a EEA credit card because the interchange limits only apply to purchases within the EEA made with a "standard" EEA credit card (corporate cards are also exempt, which is why Stripe is charging higher fees for them as well).

[mytailorisrich]

The EU cap only applies if both payer and payee are local. If you have an US card and uses it in the EU then the cap does not apply.

[khuey]

Debit card fees in the US have been capped at $0.22 + 0.05% for more than a decade.

[MarkSweep]

Only for large banks. Search “ durbin exempt interchange”.

[khuey]

Last I looked at the numbers most transactions were covered by the Durbin Amendment. Interchange fees for exempt single message (PIN) transactions had also fallen to basically the cap. It was really only exempt double message (signature) transactions that were still expensive.

[dagw]

Which is still over 1% for purchase under $20

[mardifoufs]

But still less than the EU's 0.2% cap for any serious purchase. (Over ~120$, so I'm sure it evens out)

[woobar]

Why do merchants in Germany have minimum transaction amounts for card purchases then?

[adrr]

How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants? I can see low interchange rates for debit cards like the US the interchange for debit card for major banks is capped at 0.05%.

[axelthegerman]

By charging exorbitant interest for folks who don't pay off their balance in full.

Which kind of reminds me of SaaS products that offer a free tier to sell you on the premium subscriptions

[hocuspocus]

I really doubt that many credit card holders are actually using the revolving credit in Europe.

For starters in most European countries, you are probably not going to qualify unless you're rich enough to pay your bills in full every month.

[tialaramex]

You can doubt it if you want, but the Credit Reference Agencies make a big fraction of their money because this is in fact possible.

Say I'm Big Bank, and I want to launch a card I'm calling "Bonus Credit". I want to target customers who mostly will pay me, eventually, but aren't so flush that they can pay their full balance every month (e.g. they buy their summer break in January, pay it off over the next 3-4 months). I call Jumbo National Credit and I offer them £25 per sign-up if they give me customers who have no super-negative credit events in the past say, 12 months but are say 75-95% on recent payment history. Jumbo present this as a "Pre-qualified" instant Credit Card option for customers who match the profile, on their free web site. Click now, you are guaranteed to be accepted. Customers don't even realise they're reading an advert.

You may have noticed that although 30 years ago "Credit score" was something you needed to go out of your way to discover, today you can get your score on a web site - sign up today to see it instantly. Why are these companies telling you something that was once an important trade secret ? Because these sites are now effectively marketing for 3rd party credit products. AIUI Experian invented this, I worked with people who were in a small rogue group at Experian which proposed instead of fighting the government to keep it secret they should turn access into a revenue source, they were laughed at internally more or less up until the record profits rolled in and then suddenly it was champagne and bonuses.

[rootusrootus]

> I really doubt that many credit card holders are actually using the revolving credit in Europe.

Guessing you are in Germany and extrapolating?

It varies quite a bit by country. https://www.spendesk.com/blog/credit-card-statistics/

[hocuspocus]

No, not in Germany. I still believe revolving credit cards aren't something targeted at people who'll miss paying their balance in full in most of continental Europe, and issuers can't really base their profitability on that alone.

Ironically enough that's why a company like Klarna became so big over here, the whole "buy now pay later" concept is completely new to most low-income customers.

[dagw]

There is often a small annual fee connected with having a credit card (I think I pay on the order of $25 a year). Also effective interest rates are in the 15-25% range for most cards if you don't pay it off in full, which I'm sure quickly adds up.

[hocuspocus]

Zero-fee credit cards exist: https://www.advanzia.com/en-gb/customers

[hocuspocus]

0.3% over 60 days (in practice more like 15 to 45, only commercial cards have longer billing cycles) was really not that bad during a decade of near zero interest rates.

And now that banks will finally make a bit more money on mortgages and other kinds of loans, I assume they don't mind the increasing cost of their customers' credit balance.

[ar0]

There are lots of other ways credit card companies can make money: - Higher interchange fees when you purchase something outside of the EEA - Currency conversion when you buy something not in EUR - High interest payments when you do not pay off your balance in full on time

On average, it will also not be a 60 day interest free loan: the "average" transaction will happen in the middle of the billing cycle, so that gives you 15 days until the invoice is sent, and many people I know pay their invoices much earlier than after the 30 days payment term.

[sofixa]

> How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants

They don't. They're rare, only do 30 days, and are often paid (you pay monthly/yearly for the pleasure).

[adrr]

30 day billing cycle with 30 days to pay. Between 30 days and 60 days before payment.

[sofixa]

Not how they work in EU countries i know of (France and Bulgaria). You have a 30 days billing period, and then around a week to pay.

[kmlx]

> you don’t see high value reward cards or cashback program in the EU.

this seems like a false statement.

here is an article from 2021 that highlights some of the numerous cashback offers:

https://medium.com/@danminea/best-cashback-cards-with-reward...

and Amex usually has cashback cards as well.

disclaimer: i have used some of these cashback cards both in the EU and outside of it.

[TheCoelacanth]

Key part of the phrase "high value". Some US cards give back ~2% on all purchases.

The best of those appears to be 1% on purchases at six specific retailers or 0.1% on purchases in the EU/1% outside of the EU. Many of them don't even give cash back, they give their own cryptocurrency that they made up out of thin air.

[avianlyric]

From the very article you link too, about three paragraphs in:

> Why then are there so few and apart offers for cashback cards that can be used in Europe?

>

> One explanation I’ve seen is this: they’re not so common in the EU because our debit/credit card fees are regulated and very low.

[conductr]

This is the answer. In the US the business essentially funds the rewards these cards provide because they can charge whatever interchange fee that card has decided.

[hocuspocus]

> and Amex usually has cashback cards as well.

The cap applies on 4-party schemes, not Amex (nor Diners, Discovery).

[triceratops]

These are not high value rewards cards. You should see what the US has.

[mensetmanusman]

I feel bad about our high CC rewards in the US for exactly this reason. Usury was a sin in all religions for millennia, but not in the US.