[jval]

If card companies are paying it all back to consumers, then what are their shareholders ending up with?

I agree with you that not all the $500Bn is going directly into the pockets of shareholders, but the reality is that there is a huge transaction cost in taking a clip and then passing part of it back to a consumer. However much is lost in the process, it might not be $500Bn but it is definitely a lot of money, and it is unnecessary.

There are a lot of arguments as to why merchants won't adopt Bitcoin for payments, the main one being that they actually need most of the features of modern finance that these companies charge for. The fees though are definitely an argument for Bitcoin, and not against.

[saalweachter]

Actually, where are all of these numbers coming from in the first place? I know I've heard a lot about the "credit card tax", but I can't seem to pull the numbers off the public data on these companies.

Visa has $10.4 billion in revenue off of processing $4.4 trillion in transactions; that seems to make the credit card tax a mere 0.2%, which is off by an order of magnitude from the conventional-wisdom "credit card tax". Where does this mis-match come from? Is the revenue hidden, and Visa is taking in a few hundred billion in revenue? Or is the revenue potential just much smaller than conventional wisdom says? (eg, the 2-3% and $X trillion come from different classes of transactions, and shouldn't be combined.)

[patio11]

Visa is not the only party receiving money on the transaction: the processor/merchant bank and issuing bank also both receive cuts which dwarf Visa's.

[saalweachter]

Hmmm, that is definitely a part of the mystery.

According to their annual reports, Chase, Bank of America, Citicorp, and Wells Fargo had a combined $15.3 billion in card services revenue/card fees.

If you add that to the $7.4 billion in revenue from Mastercard, $10.4 billion in revenue from Visa, and $27 billion in non-interest revenue from American Express (of which $17 billion was "discount fees", which I think means cash-back), you're up to $60 billion dollars.

I feel comfortable going from $60 billion to $100 billion just extrapolating from the top companies to the rest of the industry.

Any guesses on where the extra $400 billion is going?

[abalone]

It's not about whether merchants will adopt bitcoin. They'd be happy to take digital cash, or any method that pays out less to consumers.

The question is whether consumers will adopt it.. for more than the cases where anonymity is paramount. As it stands cards offer much better protections and benefits than cash, which is where most of the high fees go.

Not 100% of it -- networks and banks still do make money on the system. But the opportunity is much smaller than the gross processing fee would suggest. Between one and two orders of magnitude smaller. And when compared with the adoption and rollout costs of a new system, it's far less of a compelling case than cd's essay might suggest.