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Is Visa taking 2% out of all my transactions?

15 points by TekMol ↗ HN
Today I got an email from Upwork telling me that I now have to pay a 5% fee on top of the payments to freelancers.

What cought my eye is that I can reduce that 5% to 3% if I pay via bank account billing instead of credit card.

Is that because Visa is charging 2% for every transaction?

Isn't that insanely hight? Do they provide anything in return? Or is it just because they have somewhat of a monopoly?

Upwork is processing about $1B of payments per year. While still not making any money on it.

Meanwhile, Visa is taking $20M out of that?

51 comments

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andymoe
Typical credit card transactions fees range from 1.5-3.5 percent so the 2 percent is not a terrible deal and businesses usually just eat it in retail and work it into the prices.

Usually there is language in the contract with the processor agreement that prevents businesses from charging different prices for credit card vs non credit card buyers.

amscanne
I’ve been told that for brick and mortar retail, credit cards are sometimes more desirable because you might have more than their fees in shrinkage with cash. Even if it’s not more, it might make those fees easier to eat. I think it depends a lot on the specifics of the business.
lotsofpulp
Debit cards can do the same job for basically no fee.

Credit card users, however, are likelier to spend more money, and that is why many retailers are hesitant to charge credit card users more than debit card users.

Edit: note that Target does give a 5% discount on everything you buy if you pay with your bank account tied to their debit Red Card, so some retailers do seem to be changing ways.

amscanne
I’m not sure which debit cards you’re referring to (e.g. Interac vs VISA debit) but AFAIK they all have fees, with possibly different structures, e.g. a fixed charge + lower percentage.
Per_Bothner
"Usually there is language in the contract with the processor agreement that prevents businesses from charging different prices for credit card vs non credit card buyers."

I don't believe that is the case. However, they usually prohibit a surcharge for using a credit card - but they don't (can't?) prohibit a discount for cash. To get around that you'll sometimes see "listed price reflects cash discount - add X% if using a credit card".

lotsofpulp
I think Supreme Court came down against those prohibitions in 2017, although I am not sure if that only pertains to state laws and not business agreements.

https://en.wikipedia.org/wiki/Expressions_Hair_Design_v._Sch...

Either way, due to wanting to avoid risking anti trust action and to stay out of the headlines, I think the payment card networks (PCN) are not going to want to try imposing any of those credit card surcharge terms.

lotsofpulp
> Usually there is language in the contract with the processor agreement that prevents businesses from charging different prices for credit card vs non credit card buyers.

These stipulations were voided in the US as of 2010 due to the Dodd Frank legislation.

http://www.ftc.gov/business-guidance/resources/new-rules-ele...

> A PCN cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and conspicuously. For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.

wmf
Multiple companies take a cut of each credit card transaction: the acquiring bank, the payment processor (e.g. Stripe), the network (Visa/MC/Amex), maybe the issuing bank. The fees add up to 2-3%.
dehrmann
It's worth mentioning cash transactions aren't free, either. There's a higher likelihood of employee theft, giving the wrong change, accepting counterfeit bills, and cost of transporting cash to and from the bank.
wmf
Yes, although credit card vs. ACH is what the OP was asking about.
f0e4c2f7
That is correct. Most retailers build this into the price of the item and you have to pay it anyway even if you're paying cash.

Sometimes you may notice that retailers will charge less if you pay cash, or will have a minimum for using the credit card machine. Especially at low volume places. This is because it's possible to even lose money on fee's if it's an especially small transaction.

Visa and mastercard essentially offer an $850B duopoly for payments.

Like most monopolies the quality and price of service is not actually that good.

humanistbot
> Like most monopolies the quality and price of service is not actually that good.

I can go all around the world with just a single piece of plastic for payment. Some merchants only take local physical currency, but any merchant that has an internet connection can get a device that will securely charge my account in about 5-10 seconds max, automatically converting between local currencies. It is as close to what science fiction writers in the 1950s imagined. If there is fraud, I as a consumer pay none of the costs. Say what you will about the price and cost to merchants (most of which goes back into my pocket as points/cashback), but the quality of service is fantastic.

toomuchtodo
If you want to pay 3% more for that privilege (as a transaction surcharge), I think that’s fine, but others should be able to opt out of the rake when there are suitable instant payment alternatives (which there are in 54 countries, with the US getting instant payments next year). Pushing financial specific ISO messages on a bus should cost cents, not percentages, per transaction (US instant payments will cost $0.045 for up to $500k in value transfer, for example [1]).

Otherwise, you’ve got 3% drag on your economy for the benefit of some and the middlemen facilitating extraction. It was magic 30 years ago, today it should be as boring and profitable as residential water or electric service.

[1] https://www.frbservices.org/news/press-releases/012722-fedno...

humanistbot
Sure. I wasn't saying anything about the price. I was just responding to the statement that the product is not good. The product is great. The price may not be worth it. But lets not pretend like Visa/MC is a substandard product.
trompetenaccoun
How is the product great? It's exactly the same as any other such service. If I didn't look and randomly picked a cc from my wallet I wouldn't even know which card I paid with until I look at the bill.

The fact that Visa and Mastercard have these great margins is entirely down to their duopoly. In a competitive market the fees would be massively lower because it's not actually that expensive running the network. 2%, think about that! With the amount of transactions they do they're printing money. You're paying for this, it's your money and that of every other person, even those who do not use the companies, because the vendors pay the fee. That's the genius part of their model and since most people don't care about finance they don't understand how they're being ripped off.

humanistbot
I don't know why people think I'm interested in talking about the fees. I'm responding to the quote that "Like most monopolies the quality and price of service is not actually that good." The price may be a ripoff, but the quality of the service is good. The reason you can pick a random CC from your wallet without thinking and it just works is because of the oligopoly. Credit cards 'just work' virtually everywhere, and that is a huge part of what it means for a payment system to be high-quality.

What other payment system currently offers the same speed, ubiquity, reliability, and fraud protection to consumers? If I'm going to travel the world, I'm going to rely on Visa/Mastercard for a reason.

ypzhang2
It’s not a duopoly? Amex exists and so does discover. Visa and Mastercard may be large but certainly not the only game in town
TheCoelacanth
The security, at least in the US, is distinctly substandard.
peyton
The price is hidden, which is kind of uncool.
lotsofpulp
It has long been up to the merchant to display different prices for credit cards and non credit card payments. No one is stopping them.
joezydeco
Although at lot of places ban the display of higher prices for credit use. Which discourages most customers, so they settle for showing a single price and skipping the discussion of a discount. Because why would you offer people a way to pay less?
sansa
As a matter of fact, Visa and Master card are nominally not a duopoly. Atleast in India, we have a practically state sponsored card issuer, RuPay[1]

[1] https://www.rupay.co.in/

f0e4c2f7
Ah pardon me you are exactly correct. I meant in the United States. I don't know much about payments outside the US other than the very broad strokes.
BenjiWiebe
In the US, Discover is fairly common as well, and American Express is widely available now too.
humanistbot
Where do you think that 1-1.5% cashback rewards on your credit card come from? It's your cut of their cut.
disadvantage
Cashback rewards are largely worthless and so small as to be negligible IMHO. I can understand the extreme-couponing aspect for people who budget down to the penny, but for me it's basically useless.
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guiambros
> ...extreme-couponing aspect for people who budget down to the penny...

It's the opposite. 1.5% of zero is zero, but 1.5% of a large sum is something material. The cashback credit cards are worth for those who spend a lot of money for it to be worthwhile.

Back of the envelope: $6K per month is $1,000 per month of cashback (or airline miles, points, etc).

gruez
>Back of the envelope: $6K per month is $1,000 per month of cashback

Do you have a typo somewhere? $1k of cashback for $6k spend works out to 16.6%, which is very high. $1000 per year is far more reasonable.

guiambros
Sorry, I meant "... $1,000 per year". $6K × 12 months × (1.5÷100) = $1,080
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Gerito
I always thought that I want to switch to a credit card for miles.

I researched it and I believe this is just a very weird mix of USA and people spending just a lot of money.

Like I can imagine that if you still don't know what a automatic bank wire.is, you might just put everything on a credit card like utility etc.

Or there are people who are living their lives in hotels like consultant who use their cc to pay for company expenses and get rebursed later.

toast0
I get 2% off of everything that goes through my credit card and it takes me very little effort, I just have to push the deposits to my main account from time to time. 2% of my spend isn't very significant, but I wouldn't say it's negligible. Less work than haggling for a cash discount and carrying cash.
jasode
>Visa is charging 2% for every transaction? [...] Do they provide anything in return?

VISA and its member banks + payments processors/gateways provide the financial network to give sellers (like you) the ability to accept VISA credit cards.

To put the "financial network" into more concrete terms, here are some open job listings to program the mainframes in San Francisco that VISA runs to process billions of transactions: https://usa.visa.com/careers.html

E.g. Some of that 2% processing fee pays for those developer salaries. Also, pays for the datacenter, mainframe computers, etc.

toomuchtodo
Their net profit margin is 50% (2022Q1 financials). Lot of fat to trim.
blibble
still cheaper than physically handling cash
sschueller
How so? No charge backs, no fraudulent transactions, no paperwork. You have the money right then and don't have to wait for some transfer a few days later.
blibble
never handled cash in a business?

  - employee mistakes
  - dealing with the float: counting it out, counting it back in
  - having to store it securely
  - having to transport it securely
  - paying to pay it in at the bank (cash deposits are not free)
  - increases risk of getting robbed
  - actually getting robbed and having it all gone
2% is a bargain
sschueller
Visa has managed to get banks in Switzerland to give up direct debit cards in favor of visa debit cards. The cards have very high fees for vendors vs the almost non existing fees previously. Worst part is that if a business wants to accept regular visa credit cards that have "normal" fees they have to accept these new debit cards. The consumer has no clue and just pays with what is easiest which ends up being the visa debit cards.
sph
I don’t get it. I have a UK bank and my debit card has the Visa brand. When I buy something for £50, I get billed £50. Same with my Visa _credit_ card, though to be fair I never signed up to any cashback service. Am I missing something?
DenseComet
You get billed the same amount, but the transaction fees that a merchant pays on a transaction varies with the card type, brand, tier, and various other factors.
ransom1538
Yes. The consumer just tries to max the cashback rewards (some cards are 2% on all transactions). Visa tries to max merchant coverage - so all the merchant customers are using visa. The merchant (should) try to minimize card usage for tax purposes.
RicCo386
Fee is usually paid by business, so you pay £50, but the business got just £49. Most business calculate this fee to the price of the product/service, like they do with rent, electricity, gas, employee wages etc...
sph
Gotcha, but it sounds like it’s more of a tax on businesses than customers, though to be fair it’s the same thing depending on how you look at it.

It would still cost me £50 if I had paid in cash.

ransom1538
My credit card hands me 2% back on all transactions. I was told that comes out of the merchants cut.