Do we need to pay billions in fees to Stripe, Block, PayPal and Visa/MC?

Stripe, Block, and PayPal each solved a massive pain point.

PayPal provided a way to pay people and vendors without giving away your credit card number.

Square made it easy to accept payment in person on a phone, without an extensive upfront underwriting experience and without expensive fixed monthly fees.

Stripe did the same as Square, but for accepting online payments.

Fraud and Risk come in many forms, and these providers, even with their UX innovations, sit on top of those same rails to reduce fraud. Without those rails, buyers can’t trust sellers and sellers can’t trust buyers.

In my opinion, you need to find a way to solve that problem before you can eliminate the fees being captured by these providers.

Just imagine how different the Internet would look like today if receiving payments would’ve been as easy as receiving email from the beginning.

That it is not trivial for a single person on the Internet to receive payments without a third-party involved, in my mind, leads directly to an Internet that is based on ads and on monopolies:

You can’t make a living posting stuff online on your own private website. Because since you cannot receive money, any value that you add online can never be translated into value offline. So you need to post on someone else’s site, which then acts as a publisher, and has the economies of scale necessary to make taking payments viable. Or otherwise, you need to monetize your content by placing ads, again, using some middleman, who is big enough to be able to afford access to payments.

This is why I was excited about Libra (later renamed to Diem.) which was Meta's feeless digital currency that was scrapped. It could have been a Western WeChat Pay, which charges no fees up to 200 RMB ~= 20 GBP.

I don't see why they should get to shave a slice off of every transaction. It takes relatively little upkeep and they rake in huge profits.

The fees nudge businesses to use cash (well, to avoid tax too, sometimes.) or set a minimum transaction amount, which can mean fewer customers through the door.

I think a new, public infrastructure competitor could be healthy for economies worldwide.

Not at all. There are other solutions around the world that bypass the payment gateways and credit card acquirers. In Holland they have iDEAL, in Thailand they have QR Codes, in Australia they have BPAY and in China they have WeChat Pay. There are tons more around the world. As a merchant, it can be very expensive integrating directly with all the different options, which is where these companies help - for a fee. If you want to maximise sales and minimise abandoned baskets, you’d better make it easy for your customers to pay using the method they prefer!

It’s the ultimate two sided marketplace and super hard to bootstrap.

But if you find a way to debit peoples bank account with 0 fees and 0 default risk and <5s latency, I believe you could potentially establish a reasonable super-low-fee payment provider and have a clear value proposition for merchants.

The problem is: Getting merchants and customers on board.

I’m personally super interested in this topic. If anyone what’s to chat about this: mail@konstantinschubert.com

Unless you've worked for a payment processing company, or for a major retailer that does a lot of payment processing, you have no idea how much fraud or attempted fraud happens in transactions (you can even see it as a small retailer if you are getting sales online and say you'll ship international).

You're naming these companies that facilitate money moving in specific ways, but you could also zoom out and include a lot of banking which either serves to move money between parties or across space or time.

So I guess one question is: as credit unions are to banks, what missing organization type needs to exist as a counterpoint to payment services, which could return excess to owner-users?

This was something that was supposed to be solved by the original internet they just never got around to it. You are not wrong though... the issue as many people pointed out is that you are focusing on the transactions. The problem these companies solve isn't just the transaction network - their values is primarily how they deal with fraud, governance, currency conversions, etc.

In Poland there is a bank-to-bank payment system called BLIK. It works incredibly well and avoids the payment processing providers entirely.

https://en.wikipedia.org/wiki/Blik

Basically it works like this: when you go to pay online, open the bank app on your phone, pick “pay by Blik”, copy the temporary 6 digit code, and paste it on to the online store’s website. You then also have to confirm the transaction on your phone.

It takes 5 seconds and is significantly easier than paying with a credit/debit card. It’s a shame this isn’t a thing in the US.

Central Bank Digital Currency takes away some (but not all) of the purpose for credit cards and other digital payment services. https://www.federalreserve.gov/central-bank-digital-currency...

You know what I find odd? The fact that we don't seem to have nice payout services that I'm aware of, that would let me payout some money to a service provider from a platform accout, like "Hey, here is my bank account, here's their account and here's how much I want to transfer to their bank, give me an API to handle it without me needing to think about PSD2."

PayPal requires the other person to either also have a PayPal or a Venmo account: https://www.paypal.com/us/business/operations/mass-payments

Stripe requires the person to also have a Stripe account: https://docs.stripe.com/connect/add-and-pay-out-guide?dashbo...

Even local solutions here in EU that allow paying with an internet bank integration, still don't give you the ability to do fully automated payouts, like Klix: https://developers.klix.app/api/ (though they have bulk payments through the portal)

Banks earn revenue from interchange fees on debit and credit card transactions.

Consumers don’t have any incentive to leave behind their current rewards programs.

Merchants want to accept any payments they can and/or don't have leverage to fight the fees that partially fund networks using rewards to compete for customers.

Perhaps something will arise from FedNow like efforts but as consumers don't see the inflated prices from those rewards programs I don't see any incentives to change.

I can tell you it isn't difficult to build something like they have. The issue is more likely to get banks onboard to issue cards/payment instruments for your unknown payment network which has no terminals, the barrier to entry is very high.

No we don’t need to pay billions. There are moves afoot in the UK to do direct bank to bank payments with Open Banking. HMRC (the UK tax authority) has been doing this for years. When I pay my tax bill, I select my bank, scan a QR code with my phone, that launches my banking app, I authorise the payment and off it goes in just a few seconds. Instant and a few pence, even for thousands of pounds. This particular implementation is provided by Ecospend but there are a few other companies offering this same service now in the UK.

I agree with the OP, Visa and MC charging so much is just insane when you think about it. It’s more expensive AND settlement times are days, not seconds. The only barrier is consumer awareness and detrimental UK legislation forbidding card fees to be added to bills which while well intentioned completely ruins any competition on payment methods.

You've lumped together companies that do very different things. I would just google "payment card network" and you can spend days going down rabbit holes to understand how complex the system is. And yes it is all totally necessary: https://www.spreedly.com/blog/card-processing-network

"Visa, Mastercard, Discover, and AmEx also form the PCI Security Standards Council (SSC) alongside Japan’s JCB International. The PCI SSC acts as an authority in the payments industry, regulating and enforcing the PCI Data Security Standard (DSS) to protect cardholder information. The rules set by this consortium are not guidelines, but the ground-rules participants must abide by in order to participate in card-payments."

> In total these companies have profit in double digit billions

If you think about it.

Stripe, Block, PayPal only exist because of credit card networks (Visa, Mastercard, American Express, JCB, Discover) and issuing banks (JPM, WF, BoA, foreign banks). Those last two groups of entities have such terrible integrations/interfaces and fail to improve due to their oligopoly on the entire process of facilitating buyer and seller payment processing.

Stripe, Block, PayPal are just mere parasites living off of other parasites (the 3-7% transaction/network/issuing bank fees).

A “rival” is a complete dissolution of these parasitic entities. Cash used to be a good alternative, but comes with its own set of setbacks that do not meet our modern era (ie, can’t pay for items with cash in e-commerce, pains of handling high amounts of cash IRL)

Consumers have an easy solution: pay with cash or check. Sadly, cash buyers will still pay the fees indirectly through price increases.

The government could do some easy deregulation here and force vendors to expose the transaction fees to the consumer. Similar to gas stations : pay 3% more for Visa than cash. This will have a big impact on big ticket items like appliances.

Truth is: businesses and government agencies like the cards. 3% of sales is less than what is stolen from the register. State & federal agencies like CC because the records can be subpoenaed.

So consumers, payment cards, vendors, governments all like these cards -- there's very little to discourage their use.

In the Netherlands people use a system called iDeal. It was a masterstroke worthy of Sun Tzu by the banks at the onset of e-commerce to keep the American credit card companies out of the loop.

You know in Europe the card merchants are limited to about 1.3%. And the US could regulate this as well. In Australia you can add the card commission on top of the purchase easily. (Much easier than Stripe for instance).

To save payment fees there are probably easier sections of the payment process to focus on. For instance why do so many merchant banks insist on mandatory FX into 1 currency. This limitation means if I use Stripe I end up paying 9% commissions.

I wanted to share some thoughts on the significant fees we currently pay to companies like Stripe, PayPal, and Visa/Mastercard, which run into billions annually.

These fees are largely due to the complex infrastructure and intermediaries involved in traditional payment processing. However, the Bitcoin Lightning Network offers a promising alternative.

The Lightning Network is a decentralized, second-layer solution built on top of Bitcoin, allowing for near-instant transactions at a fraction of the cost.

It eliminates many of the intermediaries that drive up costs in traditional systems, potentially saving businesses billions in fees.

Additionally, it supports micropayments and offers enhanced security and privacy, making it a viable option for reducing our reliance on traditional payment processors.While there are challenges in adoption and regulation, the Lightning Network could become a strong competitor to these established players within the next decade, offering a more efficient and cost-effective solution for processing payments.

Yes we do. Why? Because the old people running our country have not figured out that digital money is money even though most spending is done using digital money.

Because they love corporate profits more than citizen wallets, they restrict the US Mint to paper money instead of implementing a Federal payment system to support citizen use of digital money.

Consequently, those companies effectively implement a regressive sales tax of around 3-4%.

We should all have a federal debit card with zero processing fees that attaches to our bank accounts and the banks should be mandated to charge zero for federal debit card withdrawals.

Alternately, a law should be passed that mandates these big companies to charge no processing fee for debit cards. If they can't make profits that are sufficiently obscene on credit card fees, tough luck. While at it, make a federal card processing function that is entirely funded by tax, just like paper money.

It's an insane part of our government that it is impossible to modernize anything that touches the constitutional responsibilities.

Depends on whether you want to use their services? If you live somewhere where it's easy to just instantly transfer funds form one bank to another for free (e.g. you live in the Netherlands), then no: none of those companies need to exist in your world.

If you live anywhere else, all these companies are offering services that banks don't, or charge much more for. Or these days, don't even offer themselves, they literally outsource it (e.g. sending money from one bank to another is now a built-in-third-party-service in the form of agreements with Interac to handle low value EFTs).

So can you rival them? Probably. Will you fail? More likely than not. Is there lack of real competition? Depends on where you live, but yeah the whole reason they got this big is because they found a real problem and solved it, charging just enough for people to go "well that's still worth it for me".

In Norway most in store purchases go through a system run by the Norwegian banks which have much lower transaction costs: Bank Axept https://bankaxept.no/hjelp/priser-for-bankaxept

The fee is 0.135 %

Most of these fees go to the banks for using their cards, with the exception of PayPal. As a merchant I fucking hate PayPal, but you need to accept it since users are accustomed to it. They own the distribution channels which is convenience and habit from the consumer. Fraud doesn’t impact them and most have minimal to no real preventative methods in place, again this is the card company not the merchant processor filing disputes. Venmo already did this getting the furthest and still couldn’t overthrow the empire. The amount of funding you would need without a revenue model would force you into this model anyway so you would end up with the same business model. So no. Probably not.

The total annual digital payments volume is estimated to be $11.5 trillion. Given that context a few billion dollars in profit off the top to add ease of use, security, fraud prevention etc. into the system doesn't seem all that absurd.

Platforms are where the money is at. Big SaaS companies built something large and complicated (their moat) that's difficult for a competitor to replicate or support.

It takes thousands of people who know what they are doing to get a big SaaS platform in any industry to work -- and to keep it working through endless regulatory changes, hacks, user demands, tech limitations, and bugs.

Once you have built something of this scale you're likely to charge as much as competition or perhaps even more -- not only to recoup your enormous costs but to return the expected profits to your capital backers.

You mean like UPI? For a nascent industry such as India I imagine you could: but for a legacy infrastructure such as that of the US - very advanced a few decades ago but now showing its age - the momentum is too hard to deprecate and start over. Just like how fast the developing world had pretty good mobile networks in a short amount of time.

There are still a lot of lessons to learn from the Indian model but I guess the US incumbents would artificially add road blocks via legal or subtle measures to maintain the status quo and instead offer band aid solutions.

I was wondering this myself. If we are paying fees why is it necessary to pay a % of each sale instead of paying a standard subscription? Sure it means more money for them, but is this really necessary?

Visa and Mastercard both have net profit margins of around 50%. So unless you think they’re taking on vast commercial risk, which I don’t, then there’s no reason we should be paying so much in fees.

Thanks to modern payment companies we are already living in the good place. Before Paypal you almost couldn't get paid on the internet at all. If you wanted to accept credit card payments it was a whole ordeal and banks didn't understand why anybody even wanted to sell things on the internet.

Payment processing also got much cheaper. It's arguably still more expensive than it should be, but giving up a few percentage points in revenue in exchange for frictionless payments is a really good deal.

We have real time payments in the EU that at least should replace PayPal in theory. But it fails due to friction, as most older banks (not neo banks or fintechs) have no easy way to present someone your IBAN. I'd also be wary to just present my IBAN to strangers, as it's enough to create a direct debit (I believe it's called). I'd miss the abstraction layer of protection. But then again I got cheated and neither PayPal nor my neobank provider helped me.

In countries with modern banking, this has been solved for many/most transactions.

Maybe fednow can do that in a few years. I’d build on that rather than reinvent the wheel.

Instant bank payments are already a thing and will be mandatory, across EU, by the end of next year. They will spread into other parts of the world if they don't have them already. So actually the payment cards will be on life support in next couple of years and might even go extinct if banks figure out terminals at the stores to not need cards issued and networks operated by foreign companies.

The payment processors are, at the core, specialist insurance businesses. They know how to underwrite transaction risk and counterparty risk and FX risk very well, better than generalist insurers, in part thanks to their scale. So these "billions" are actually a tiny fraction of the volume they process; counterparties are happily sharing a cut in exchange for peace of mind.

Yes - if you're want to further enrich PayPal Mafia et. al. and other bunch of golden billion elites [1], otherwise - No.

[1] https://en.wikipedia.org/wiki/PayPal_Mafia

[2] https://en.wikipedia.org/wiki/Golden_billion

look up Red ocean vs blue ocean.

Even if it was, there are better uses for a "decade with enough funding" unless you have some competitive advantage, like you're the CEO of Chase Bank or something. If you want to know how possible it is, consider that Bitcoin was released in 2009 and cryptocurrency's success at being used for payments - in the history of the world - it has been used for payments between people for something other than crimes, but adoption is way behind visa. Like, that alternative system exists (albeit not for free either) and there's no adoption. So the "billions" aren't exactly a market inefficiency. They make billions, but out of your life, how much do you pay to them. And then, do they perform a valuable service and charge money for that? Would you rather go to a bank and get cash and drive it to Amazon's local office, or mail them a cheque? For a fee, there are companies out there that will make it easier and faster and more convenient than that.

Sure it would be possible with "enough" funding, almost by definition. If you can't, then the amount of funding clearly wasn't enough. I doubt you (or anyone btw) could get "enough" funding though. The amount of money you'd need just to get all their existing customers to switch would be monumental.

Of course, how else could you have them dictate where you can spend your money and where not? The Visa/MasterCard monopoly is pretty invisible, I feel. Few cases where they have enforced their power to forbid payments towards someone, but there are out there, at least in the past 5-6 years.

You need 2 things: users with your app/terminal, and a way to interoperate with the international banking system. If you can do that, it's technically feasible to create a vertically integrated replacement of the whole stack. It's going to be a huge investment though.

I wonder what EU will come up with in the future, some kind of digital cash? Private transactions that must work instantly with all banks doing business in the EU? Several countries here have their own solution, but none of them are compatible with each other. (Please correct me)

Replace "billions" with 3%

The amount of money you make generally correlates to the amount of value you bring. With some exceptions and caveats, but it is the most fundamental role of money.

Go and make something at least 1% as valueable and I'm sure you'll find your 1% of the market share.

I wonder if the government could make a new type of physical cash with digital characteristics to solve this.

If we know the grid was at risk of collapse during conflict or a solar event, it might make sense to mandate cash* below some dollar value as an anti fragile move.

It would be interesting to listen to an interview with the Dwolla founder and see why they pivoted from their original idea of replacing card networks / ach and building a new payment network from scratch.

You could do things the old way. Just accept cash or checks (probably via the mail) and then either mail the product back to the address on the envelope or just send back a piece of paper with a key on it.

See UPI, FedNow, PromptPay, Osko/PayID/PayTo, iDeal etc etc.

Newer players have a hard time in taking over the incumbents.

I wish more companies used Zaprite https://zaprite.com/

Yes. Because they actually provide value both for the consumer and the seller for on-line commerce.

"They make a lot of money!" is not a valid argument against.

It’s clear that more and more companies are inserting a fee on a transaction that would happen with or without them, rather than making the pie bigger.

The fees are bad, but I think the attack surface is worse. The easiest way to shut any business down is to go after its ability to collect payments.

At least in Mexico the central bank provides APIs to integrate payments into your apps. This are COMPLETELY free, not even a cent of comission.

I think the question you are really asking is if payment rails should be a public utility or publicly owned (government run) service.

At least 3 of those companies came into existence in relative recent history. If you think you have something to offer, then do it.

It can be premature optimization to save the credit card fees before learning to make the other 97.1% of each dollar.

I like to look at things from first principles. Karma if you will. What u plant is what grows.

Debit card interchange fee in America is so low!

Credit card interchange fee is so high.

I think it’s because u are making a “deal with the devil” when u do credit. Buying stuff with other peoples money.

So naturally the “devil” charges a high price for his service.

If you want to do business with people buying on credit, you have to pay more. I think the universe is telling us we should quit with all the credit cards!

I'm not ashamed to say I could never justify those kind of things even before they cost billions ;)

India’s UPI system is an example that allows for low cost payments without additional fees

The system is too complicated because it's built off static card numbers and there is too much fraud.

X will disrupt this. They already have ID verification, money transfer licenses, and banking licenses. Just have a bank account with them and pay businesses (who are already on X) directly and skip Visa/MC altogether.

Use stable coins instead

Yes someone can disrupt this, but only really banks and Apple can do this in the US. All you need is stakes to lose besides money, like credit scores or even like Internet access, and robust, compulsory authentication.

You'd have to break into the POS market.

I think the state should provide an alternative, or states jointly. Everyone needs to pay under capitalism.

If you think building a Stripe or Visa replacement is easy, go ahead and try.

It comes from enshittification: https://pluralistic.net/2024/08/17/hack-the-planet/

wow, no mentions of blockchain.

Nor do we needntobpay billions to healthcare managers orninsurance companies.

But we do, because capitalism both needs flexibility in separation of concerns and people need jobs and greed is its own fiefdom genersting maxhine.

Think of it like evolution and social diversity. Studies in squirrels have shown that larger social groups create a need for greater phenotypical visual diversity, if only for identificTion

Just use Bitcoin! lol

Pretty much, yeah

1. Moving stuff in a ledger from A to B (sending money around in general) is all fairly trivial from a technology standpoint, but only a minuscule part of what financial institutions are doing. They spend a lot of money and effort on combatting fraud and making sure rules and regulations (KYC, AML, CTF, sanctions, etc.) are being followed.

(The crypto bros (and some FinTechs) solve a tiny part of the puzzle with a new technology (not even good/efficient tech in case of crypto), and then think that they alone have solved it, and that the rest is easy, and that they are now in a position to take over finance. Not so.)

2. Costs vary tremendously by jurisdiction and industry structure. In Europe, bank transfers within the SEPA region are basically free (instantaneous transfers might cost 35 cents or so). Bank transfers, direct debit, and standing orders have been ubiquitous and cheap for a long time, and checks and credit cards are rarely used (on the continent; the UK is closer to the US system). There was no need for PayPal, as it was fairly trivial to pay bills. (Only when Ebay bought PayPal and made it the default payment method did PayPal get any traction in Europe, I think.)

Similarly, credit card interchange fees are capped at 0.5% in the EU. That means fewer card rewards (which arguably benefit mostly the rich), and less credit card marketing.

The banking system in the US is quite crap, but that's not due to stupidity, but a mix of a) well intended regulation that intends to support small regional banks, b) misguided business-friendly regulation with insufficient consumer protection.

2.b. I think Visa/MC/Amex are ridiculously expensive in many jurisdictions, and that they basically skim off some 2% or so of the entire retail revenue is ridiculous. They should be treated as cheap infrastructure. But this requires sensible regulation. It's not a technological issue.

3. There are lots of somewhat successful neo-banks, neo-brokers, etc. in many jurisdictions. I don't think many of them have extraordinary profits. And that's because, no, it's not "all coming from inefficiency and lack of real competition". Sure, the sector is so heavily regulated (like aviation) that you can't just walk in and compete willy-nilly. That has some downsides, but it also has advantages.

4. A bank that makes insufficient profits and tethers on the brink of insolvency invites bank runs. That's one reason regulators are not pushing too hard for more competition. (Replacing the current fractional banking system with private credit + narrow banking might be an option, but that's a huge and complicated topic...)

For deep insight, I recommend Bits about Money by Patrick McKenzie (patio 11 on HN).

https://www.bitsaboutmoney.com

https://news.ycombinator.com/user?id=patio11

Put your efforts where your mouth is and go build your own "real competition" if you think its that easy.

No we don’t, and I’m working on solving this problem. There’s no reason for a pure SaaS company to pay these middlemen if the only thing they buy and sell is software. Software vendors can settle accounts directly like banks do, we just need something like an ACH for SaaS. And I’ve been thinking a lot about how to do this while having the equivalent of a petrodollar to create underlying value based on a commodity. For example a meta currency for compute credits that is cloud agnostic.