[doctorpangloss]

I don’t know. You could just as well say, “A 3% merchant fee can easily be [… ruinous to a bunch of companies]”, and I’d be talking about Stripe, a Y Combinator company. In Europe they manage to cap interchange fees at 10x less, and there’s no less “payments innovation” or more “fraud” or whatever some nice red headed LISP brothers or some insightful patio furniture guy will say is eating into the 3% merchant fees.

People struggle with this: Stripe and Apple do the same thing wrt to the fees. They get all into a knot trying to explain how 3% of all revenue, successfully capped at 0.3% in Europe, is somehow different than Apple taking 30% of App Store IAP. We already live in the world where nice, red headed LISP brothers and insightful patio furniture guy is wrong. You don’t even need to talk about it or file a brief.

The reason the Epic case is tough is because the fee doesn’t matter. Like what is the right fee? Say a number. Clearly it doesn’t make sense to take a fee at all! Apple is doing something valuable - they are concentrating wealthy, good customers who overwhelming choose iPhones instead of Android phones - and instead of making iPhones more expensive they take from app developers. But if you did the sensible thing - force the platforms to charge the cut they are taking from the end user up front, when they buy the phone - nobody is going to do that.

It’s exactly the same problem as Europe saying Facebook has to be ads free. Nobody chose to pay for a Facebook subscription. The truth is the regulators are in between a rock and a hard place if they try to make changes to one number in the midst of the status quo. In the past, regulators took more drastic steps, they split up the monopolies, and once you understand how weak these regulations that people are litigating are, suddenly you will be much more sympathetic to the idea that the App Store and the iPhone have to be different businesses, or that private digital payments companies shouldn’t exist at all.

[ensignavenger]

If you think 3% is too much, there are plenty of other payment processors... the thing is, most of that 3% is not set by the processor (or kept by them) but is set by the card networks. It is the card networks that should be targeted by antitrust laws.

If there anyone could make an App Store, then we would have a better idea of what the market rate for app stores should be.

[dijit]

> If you think 3% is too much, there are plenty of other payment processors...

The things is, there's really not.

There's two: Visa and Mastercard.

In the US there's also American Express and Discover (afaik), but those aren't accepted everywhere (to the point that it was a joke in Futurama).

But We’ve actually seen this happen in the United States before. The Durbin Amendment put a cap on debit card transactions of 21 cents plus 0.05% (although an additional 1¢ can be added to the cap if certain security requirements are met). After this Amendment was put into practice we saw two things:

1) Rewards earning debit cards were almost entirely phased out.

2) Prices did not drop as a result.

The reason the EU even capped payment processing fee's was because of this duopoly that was strangling the market. Quite poignant.

And it's 0.2% on debit cards. :)

[wmf]

Note that Stripe isn't really the problem with payments. AFAIK Stripe pays ~2.5% (mostly to banks) and they charge ~3%.

[chupchap]

I don't understand why transaction fee is a percentage as it takes the cost of transferring money is the same irrespective of the amount. There should be a reasonable cap. For example 2% for any transaction less than $2, and $0.2 for any larger transactions. Why do we still have this charade of collecting money and then giving some pittance back to the customer in the form of credit card points?

[athrun]

It's about provisioning for credit losses.

Roughly speaking, when a transaction needs to be unwound, if the merchant cannot cover the reversal (for example, because it has defaulted), then the payment processor needs to pony up instead. Note that this isn't an edge case, this is something that happens every day.

If the payment processor defaults (gasp!), then the processor's sponsor bank needs to cover it. This is why a sponsor bank will have a lot to say about what a processor can and cannot do.

If the sponsor bank is unable to meet its obligations (argh!), then it's the card Network itself that is on the hook. This is why card networks have a lot to say about what a sponsor bank can and cannot do ;)

The key to understanding payment processing is to realise that the risk is very asymmetrical. The processing party collects only a small fraction of the transaction amount as fees, but is effectively on the hook for the full amount if things go pear shaped.

That is why the cost is typically proportional to the value of the payment.

You'll see fixed/capped fees mostly on payment methods that don't allow reversals (ie: not very consumer friendly), or that take place between highly trusted parties where credit risk can be handled through other ways.

[doctorpangloss]

Okay, why does this all work basically the same in Europe, but interchange fees are capped at 0.3% by law? The reason has nothing to do with fraud or technology.

[athrun]

1. Even in regulated markets like Europe, you’ll note that it’s still a percentage of the transaction value, not a fixed cost.

2. In EU, while Interchange is regulated, Scheme fees, Acquirer fees, and Processor fees are not. These are usually also expressed as percentage of the transaction value.

3. Because of the more limited avenues to offset risk, access to credit in EU is more difficult than in more dynamic markets like the US (not saying it’s good or bad, just highlighting that there are downstream impacts).

[kelnos]

I wonder if US issuers/merchants/customers are subsidizing their European counterparts. Maybe the "right" number is for everyone to pay 1.2% or something like that.

Of course, without price controls, most businesses will charge whatever they can get away with that doesn't cause them to lose too many customers, so...

[frollogaston]

I wish there were a "the customer is always wrong" way of paying digitally, so that there's almost no fee. Right now the only way is cash.

[JumpCrisscross]

> wish there were a "the customer is always wrong" way of paying digitally

People always manage to make it the processor’s fault. See the hysteria over people being scammed through Zelle.

[frollogaston]

Yeah, the root of that is Zelle being required (by law?) to reverse charges the payer didn't authorize, like if their account was hacked. This is sometimes used for scams, but even scams aside, any kind of charge reversal is a problem.

[internetter]

crypto?

[frollogaston]

For a few things, yeah that works. Except the fee is high without lightning, and lightning confuses me