It was a bit buried, but calls out an interesting fact I wish more people knew about business: cash has processing fees too.
If you deal with commercially relevant quantities of cash, in addition to your own labor costs associated with it, your bank will assess a fee for depositing it. Larger retailers will negotiate their own bespoke rates, but the right ballpark for small businesses above a nominal amount is 3 bps, or $3 per $10,000 transacted.
Yeah and a supermarket has to pay electricity and fridge repairs, but you don't see line items for these on your grocery receipt. Banks are massively profitable businesses and we still accept them externalising more and more costs to consumers over time.
First of all, you do not “lend money” money to banks either, banks created most of this money out of thin air in the first place[1]. Here we're talking about asking banks to convert your hard-to-manage-at-scale-central-bank-paper-money to money-on-a-bank-account-that's-more-convenient-to-handle (that's why you do it in the first place). In both case you're the sole owner of the money as, contrary to popular beliefs, banks do not lend your bank account's money to others.
Then, regarding supermarkets you'd be surprised as their business model isn't what you think it is. Since they pay their suppliers quite some time after being shipped (60 days in my country, it varies with the country but AFAIK there's always a delay) while they sell their stock much more quickly, which means the majority of what you buy from them, they haven't actually paid it, but borrowed
with an interest rate of zero. When interest rates are high, they can make significant revenues from managing this cash flow alone.
I've seen the blazing fast robotic cash counting machines, but when I was a kid in Nigeria in the 80s and 90s, it was mesmerizing to watch bankers hold the bills in such a way that they could count way faster than I'd ever imagine being able to! Due to the exchange rate, you'd literally show up with large sums of cash for significant purchases (literally multiple bags of money for a purchase as large as a car).
Yep, so real question is if it is fine that cash using companies are subsidized by non-cash using companies. If you do not cover the banks' cost of handling the cash in cash fees, then you need to cover it in net interest margin.
The reserve requirement is likely the least important restriction on loan to deposit ratio in banking. The reserve lifted the limit because US banks weren’t loaning out _enough_. At the time of the lifting of the limit the loan to deposit ratio was sitting somewhere around 60%. Since it was lifted that ratio has gone up to 62% (during a corresponding increased interest rate environment).
The fed, fdic and occ all maintain a variety of a&l rules that outline what categories of loans can be approved that range the gamut from in state/out state to subsidized loans/market rate loans. Thats before taking into account all the consumer protection frameworks.
All that is to say, if a bank gets to a loan/deposit ratio above .9 they are likely considered insolvent depending on the framework in question. The reserve requirement is no brake on their ability to loan out deposits, but there are lots of other ones that apply.
I couldn’t find the Fred report on this (I’m sure I’ve seen it before) so couldn’t get a real distribution but generally you’ll see most banks between 70-90%. Prior to 2008 90% was considered about the top end before people freaked out. That number is now closer to 80. You will also see a few outliers at >100 (probably in very bad financial straits) and some in the 40s (probably don’t actually do much consumer lending and the deposits are for some niche usage).
I think the thing that actually moved the fed to remove the reserve requirement was the big banks sitting in the 50-70 range (and of course the covid liquidity crunch). The monopoly we grant banks is in part so they will finance economic activity, if they aren’t doing that we’ve got a structural problem.
>In a non-fractional reserve system the banks would compete for deposits so they can earn money from loaning that back out.
I understand these words but not how you’re putting them together. If banks are lending deposits, then definitionally, they only have a fraction of those deposits left as reserves.
What am I missing about your hypothetical? What does this non-fractional reserve system look like if lending still exists?
They are making billions where I live and they are setting profit records on a regular basis. They make about $1200 per head of population. I’m in New Zealand.
Currency counting is all done by machine. Sure I guess a teller has to load the machine and push the button, but it takes seconds to count huge numbers of bills.
Someone has to bring the cash from the business to the machine, put it in, take it away from there again, and bring fresh cash to the store. That's not free at all.
None of that is handled by the bank apart from counting the currency and processing the deposit, which is part of a bank employee's normal duties and is covered under their hourly wage.
Depending on the type of business, cash drops are handled directly by employees on company time, or else handled by a cash transport service such as Brinks.
The thing is, a business is already paying for (example from my bank):
- bank account fee
- online and mobile banking fees
- card "membership" fee
- individual payment fees
- ATM fees
- incoming card payment fees
- [probably more]
And the bank is already making money by lending out my money to others and charging interest. I'm not saying none of those fees are justified, but at some point you have to ask: have they not taken enough??
They could increase the bank account fee and waive the cash handling fee. That would make no difference to them, but that means every business customer is now paying for part of the cash handling, even if they don't deal in cash themselves.
As a regular consumer you can deposit cash without additional fees.
If you're running even a modest business, keeping large amounts of cash on-hand for any length of time is a business risk. Some vendors may not want to be paid in cash, particularly for larger payments.
Depositing it is the only way to deal with a lot of things.
it's not like you can drop off a bag full of cash with a note that says "we swears it is $10,000" without some human employee counting it. even with counting machines, they still have to sort it (unless I'm so out of the cash counting game that the counters can sort for you).
besides, you just wouldn't respect them in the morning if they did NOT take some money from you, would you?
I'm pretty sure my bank has a machine that counts and checks for counterfeits. I haven't seen anyone do a manual check in years, about as long as they've had the new machines. Of course there's still work involved, but it's mainly just feeding the machines and typing into a computer.
My bank has ATMs where you drop all your coins in a hole and the notes go on a stacker. It does all that stuff automatically
If there’s a damaged or counterfeit note it spits it back out. This is certainly 100% automated and it tells you exactly how much you deposited afterwards.
There are lots of extra security effort/measures that are required when a bank has LOTs of cash on hand. Yes, there is added cost in counting, but it's the security that really costs the bank.
Thats purely the banking fee. Cash handling costs (everything from security to transport to audit) adds up to. Depending on the size of the business and their transaction mix it is extremely common for retailers to prefer credit cards to cash as they require less costs.
It's not really a natural decision. Card processors historically went to a lot of trouble to prohibit retailers from offering different prices for cash and credit (excepting gas stations.) Even today, after a Federal law prohibited the practice, card networks still make this challenging. https://www.pymnts.com/visa/2018/non-compliant-cash-discount...
I don’t think that’s responsive to what I’m saying.
There are merchants where the all in costs of cash is more expensive than their equivalent card costs. Those merchants wouldn’t want to give a cash discount, quite the opposite they’d want to give a card discount or prohibit cash transactions (though most would rather have the sale vs not so that is more rare).
I don't disagree with you that there are such merchants. I'm just wondering whether that case would be as common in a world where card networks hadn't put their thumb on the scale. Merchant cash handling costs will be (proportionally) higher when cash payments are rare. And that situation is more likely in a world where card networks have conspired to ensure that customers receive little benefit from paying in cash, and just don't carry it anymore.
100x less than Amex, others should be much cheaper (don't know about the US but flat monthly fees are common in Europe). Also the fee does not include the time and risk of bringing cash to the bank.
> don't know about the US but flat monthly fees are common in Europe
It's definitely still percentages, not a flat fee, and it's not limited to 0.3 percent which is applicable to you, it's much, much higher even in a debit transaction. This is why some small shops only accepts cash.
For big businesses, PSPs are well under 1% for both debit and credit cards, as long as said cards are issued in the EEA.
With interchange capped at 0.2/0.3 respectively and scheme fees a little over 0.1, PSPs are can be profitable at 0.6~0.7%, a fraction of the situation in other regions, especially the US.
If you're a regular business, regardless of if you're using Zettle, SumUp, Sparkasse or Deutsche Bank for payment handling, you'll pay 0.125% for girocard, 0.2% for cash, and 0.9 to 1.9% for a mix of debit and credit cards.
It's absolutely ridiculous, and MasterCard's attempt to destroy girocard by forcing banks to choose one or the other is an obvious cash grab to destroy competition.
SumUp and Zettle are typically used by small businesses, not big ones, and even in this space, there's competition. [1]
I don't believe MasterCard and Visa are forcing anyone's hand, but they obviously give better deals to card issuers that don't co-brand their card with the domestic payment network. The scheme fee is the smallest part of the overall transaction fee, in the end it's mostly banks that profit from ditching Girocard and the like. These networks cannot survive on their own since people need a payment card that works in neighboring countries.
The EU should really push EPI [2] but I belive the initiative has stalled. Empsa [3] is also promising, but in practice the transaction fees aren't cheaper than using a MasterCard or Visa debit card, at least for now.
> I don't believe MasterCard and Visa are forcing anyone's hand, but they obviously give better deals to card issuers that don't co-brand their card with the domestic payment network.
MasterCard has banned any and all co-branding with domestic payment networks, starting 2023-01-01. Which is why many banks are now forced to abandon Girocard, or are switching to Visa.
If that's actually the case, that would be great, but from what other media, including Zeit report, this change actually leads to bank phasing out Girocard entirely, instead of co-branding with Mastercard debit.
> It's absolutely ridiculous, and MasterCard's attempt to destroy girocard by forcing banks to choose one or the other is an obvious cash grab to destroy competition.
I think there’s a similar situation happening in Canada where multiple big banks are adding Visa Debit to their cards (in addition to Interac) and boiling the frog on phasing out the Interac System.
Sorry, I've meant the US' interchange rate, not EU's. There are no flat rates (or sometimes it's a floor - you'll be charged a flat $XX even if you processed <XXX transactions (or even not have a transaction) weekly).
Physicists like to call this kind of sum “finite”, to make it sound closer to infinity, which sounds better than “nonzero”, which makes it sound too close to zero.
I wish that was towards the top of the article. It makes the whole "mystical paper" terminology make more sense. Cash becomes a burden to anyone moving lots of volume of money. That's what the article means by "useful money" not being paper money.
> Although many readers may not remember this, bank ATMs used to be free as a matter of policy, through approximately the 1990s.
This isn't clear to me. Is it for interbank transactions or is this includes intrabank transactions? It's confusing for me since that nearly all banks here have free intra- and interbank withdrawal*. Are US banks really that greedy?
* It may be indirectly charged by lower interest rates, I'm not sure, but there's no direct fees collected.
Edit: wow, US banks are greedy. This is the first time that I've heard about domestic own-bank fees (separate from ATM operators' fees) for inquiring (not even withdrawing) your account. Silver lining is that intrabank transactions are still free, which is okay I guess but but definitely weird for me.
In Japan same-bank transactions routinely have ATM fees outside of banking hours, though this is finally starting to change. Banks will also routinely charge you for same-bank bank transfers, often at a discount to interbank account transfers, including when they’re made at the same bank’s ATMs during banking hours. (For added fun, sometimes the price is different if it is same-bank same-branch versus same-bank different-branch, largely to lessen impact of fees on interfamily transfers and entrepreneurs moving money into and out of closely held companies.)
In the U.S. withdrawing at another bank will frequently incur a few twice, once from your institution and once from the disbursing one, unless you are on a product which specifically makes a selling point out of reimbursing you for ATM fees.
This is not simply a matter of “greed”; it is also a policy choice made by society as to who pays for bank services and where. Different equilibria prevail in different places, partly anchored on historical practice and partly in response to the usual factors which shape public policy.
> This is not simply a matter of “greed”; it is also a policy choice made by society as to who pays for bank services and where. Different equilibria prevail in different places, partly anchored on historical practice and partly in response to the usual factors which shape public policy.
Fair enough, but I was still shocked by it. I know Japan's "checkerboard" ATM schedule, but (except for normal fees charged for withdrawing money from your savings account) I didn't really expect banks to double-charge you for domestic transactions.
In Spain (IDK about other European countries), same bank transactions are always free (wether is a SEPA transfer, or a withdrawal on the bank's ATM). These days, transfers to different banks than yours are usually free (and many banks also offer free transfers to other Euro banks, I think it's got to do with SEPA stuff).
However ATM withdrawals on a bank different than yours usually has some kind of fee (depending on the bank, I usually pay between €0,60 to €1,50, for debit withdrawals, credit has bank fees for ATM use and a fee for using credit). Usually if you withdraw €200 or more it's free, but that's entirely dependent on your bank.
In my network, the first 3 withdrawal a month at an out-of-network ATMS are free, then it's like 1€ (i'm not sure anymore, i never had to pay this fee in my life)
FWIW, I've never had a fee to use the ATM physically at one of my (US) credit union branches. That's three separate credit unions in two states, starting around 20 years ago. Also, there are typically no fees at branches of other credit unions either (with some exceptions: A+ and UFCU in Austin always charge fees to me as a non-member, no idea if they charge their members too). Transactions at standalone ATMs (7-11s, etc.) typically cost, as do transactions at regular banks (not credit unions).
Where I am, we don't pay anything for balance enquiry/withdrawals from own-bank ATMs and also from ATMs within their network (subject to some conditions like max no. of transactions etc). We also don't pay for transfer across own-bank accounts AND local interbank (unless it is a very big amount in which case it can go through other means which depending on their nature may or may not incur fees).
Interbank withdrawals incur fees in Germany as well. Of course, a) there are groups that count each other as intrabank, and b) Some banks have limited withdrawals (My N26 account has 5 per month, new accounts only get 3) where they pay all fees for you.
Interesting that they say the number of tellers is up because the amount of branches is up, because where I live (New Zealand) it's practically impossible to find a bank branch now days, they've all been shut and replaced with internet banking and ATMs. I can't remember the last time I used a cheque, for instance, probably 20 years, so the requirement to physically go into banks is low, but when you do need one they're not around.
A friend (in France) recently had to walk into a branch to declare a stolen check book (couldn't do it online). While the branch was open, it was physically closed and you could only get in with an appointment. He had to negotiate and explain his situation before they let him in and processed his case.
Here in Germany, most traditional banks still have branches (assuming you are in a city). Not many, but still quite some (and it depends on the bank, some have more than others). FinTech banks like N26 never had any.
That's a good idea, one of the tough things about banks closing - espeacially in small towns where there isn't any around for miles, is the elderly struggle with technology.
My employer (in a ~40k town on the border of a metro region) rents out space to the local Sparkasse, who have 3 or 4 banking buses and a small non-public office there. I can see these buses come and go every day.
That said, last time I visited an actual bank branch was like 10 years ago to terminate my account with Sparkasse, have used an online-only one ever since.
Same here in Australian country towns. Here the post office (which is often now actually an agency within a general store or the like) are setup to do the normal cheque, passbook and cash transactions that people previously expected a bank branch to fulfil.
We've even lost our post offices, I couldn't tell you where a post office is in the city I live in, they've been slowly disappearing for the last ten years or so. But small businesses like service stations and convenience stores often are post agents.
Here in England, it seems, after coronavirus many shops on high street closed and were replaced by bank branches. But there's a tight competition with gambling parlours and Poundlands.
Here in France I'm still using cheques to pay for my electricity bills (which not the usual way, I'd wager most people just pay by internet), but I never have to go to the bank for the checkbook, I order it online and receive it by mail within a fortnight.
I was under the impression that selecting debit when paying at the cashier means a direct debit of your account happens (as this article seems to imply). Which isn't subject to laws protecting consumers which apply to credit cards.
However selecting credit by the cashier - while using eg a MasterCard branded debit card still gives you the consumer protections (eg when disputing charges the onus is on the bank etc)
Am I completely wrong about this? Is the only difference the payment rail that gets used - and that has no affect on whick consumer protection laws you fall under?
Reg E is Reg E regardless of whether you’re on credit or debit rails, and most other regulations/laws are similar, but feel free to ask an extremely specialized lawyer for the specifics in your state.
The thing that is materially different are brand rules, because Visa/Mastercard/etc are effectively their own legal systems. They can, and do, require issuers to do certainly things vis customers and dispute resolution that go above what the law strictly requires. Those requirements may be more customer-friendly than what the debit network saddled the bank with, as debit networks have less of a brand to protect and less power over issuers.
(Speaking strictly for myself and on the basis of things I have believed for a long time: unless you need cash back, customers should choose credit ~every time.)
The slightly tricky part is that the brand rules may still apply even if it transaction on debit rails, since the brand is printed on the card and Visa/MC doesn't want to deal with consumer complaints because the merchant routed it to debit rails despite Visa's "zero fraud guarantee" (the primary exception for this is pin debit transactions are excluded since those primarily go through debit networks). The challenge then becomes the issuer needs to take a loss as some of the debit networks don't have the chargeback infrastructure that the larger networks have, but you are often still protected by Visa rules just because the card has Visa printed on it.
Thank you for explaining how brand rules might affect the decision which payment rails to choose. But does this also apply to payment cards that were issued by banks outside the US?
When you transact with a foreign credit/debit card at a POS or ATM in the US, you are also routinely asked if you want to proceed as a credit or debit transaction. I never know what to choose and if it actually makes a difference.
If your foreign card is a Visa or MasterCard you should have to choose credit for your transaction to go through. In this case you still have the same chargeback rights as you would have for a transaction at home, but that might not be any (nb: even if chargebacks aren't a thing in your home country the brand rules on them still apply. Some banks will do one if you ask them nicely.)
If it's a Maestro card you should probably try credit first, but I'm not sure.
If it's a VPay card you're relying on pure luck anyway.
Yes, the rails used should not affect the consumer protections you do or do not receive. If it's a debit card, it's a debit card regardless of if it's processed over a credit network.
Exactly how long the transaction takes to _clear_ your account may vary depending on the semantics of the network and integration used, but processing a debit card over a credit network doesn't mean you get to hold onto your money for any longer than you would otherwise. The auth will put a hold on the funds in your account instantly and you will effectively have that much less money in your account.
The terminology makes this so much harder to distinguish. My bank does have different consumer protections for different cards issued through them (debit cards require you to report fraud within 7 days, credit cards require you to report within 30). I didn't realize that the payment network used was not coupled to these mechanisms.
I wonder if financial marketing understands this? Associating credit with less risk, less requirements, in naming of the networks themselves? Even though settlement can occur on each network
There are consumer protection laws in place wrt to your liability based upon discovering fraud. It's something like no liability w/i 48 hours, $50 in liability with 1 week, full liability after that. I may be getting the specifics wrong, but the gist is correct.
It sounds like your bank has made the decision to eat the small liability as a customer value add.
One of the reasons why people are often wrong about CC being safer than debit is because many banks will also make you whole the next day after reporting fraud rather than waiting for it to process before returning the funds. They're not legally required to do this, but neither are credit card companies, both are doing it to gain customers.
The payment processing space, like basically anything when you look close enough, has a fractal-like complexity to it. And in my opinion the industry as a whole does a pretty poor job of abstracting away that complexity, often leaking it through, such as with the "debit or credit?" question.
But turns out it's pretty difficult to hide the complexity, and many businesses are built around hiding it as a service. It usually involves taking on risks others aren't willing to or having an Apple-like resolve to piss off some customers by deciding what's best for them without asking or, rarely, the power and/or innovation to actually change how things are done.
False. Charging back a debit transaction can be massively more difficult - the network rules are very different between Amex etc and debit. The minimums are the same but as Zelle folks are finding out - payment rails matter in terms of protection
Depends...
... on your geo: in the US credit/debit terms used like that often refer to the network it'll travel over. As others have noted the rails don't impact the consumer protection you receive. Outside the US things credit/debit don't have this overloaded meaning.
... on who's asking: sometimes the retailer wants or has to offer you a choice of networks. Sometimes your multi-app chip card is asking you to choose which app to use.
Being asked whether you want to pay with credit or debit when you are trying to pay with a debit card is one of those culture shock moments every time I visit the USA and I ask myself "how could it not know?"
> If you’ve ever used a debit card to purchase something in the U.S. you may have been asked “Debit or credit?” and wondered “Hmm, can’t they tell from looking at it that it is a debit card? Or isn’t it, I don’t know, in the card number or the magnetic stripe or somewhere?”
I don't know if it's a cultural difference, but at least here in Brazil, it's common to have the same physical card work as debit, credit, and as an ATM card. AFAIK, they are different applications running in the same chip on the card, selected by a command from the terminal. So they really have to ask "debit or credit", since the same card can be used for both.
I'm from Europe and I have separate cards for credit and debit, but the ATMs in the US still ask me. I've always wanted to try pressing debit on the credit card but then never could be bothered. Would it just do credit because that's the only thing the card can do, or reject it altogether?
>I'm from Europe and I have separate cards for credit and debit, but the ATMs in the US still ask me.
This is true in the US as well, but most US debit cards have a Visa/Mastercard logo on them. Those cards can run the transaction either through the debit system or the credit system. It's not actually a combined credit/debit card (at least I've never heard of such a thing), just that your debit card can pretend to be a credit card.
Brazil has a unique thing "combo cards" in which a single card number can be tied to different accounts. So selecting credit draws from a line of credit while selecting debit draws from a bank account (checking or savings) holding cash.
In the US, though, both options draw from the same bank/checking account.
For an interesting look at one of the early ATM networks, see Gifford and Spector’s article, “Case Study: The CIRRUS Banking Network,” Communications of the ACM, August 1985. It’s posted here as an exhibit in a patent case:
Fair warning: The "infrastructure" here is a metaphor, and this is all about how the business of operating ATMs works. There is no talk at all about the physical infrastructure of the machines themselves, how they are installed securely, the network they use, how cash is physically stocked in the machines, etc.
Because unlike in an ATM withdrawal where you take money out from your bank, you just paid the merchant a bunch of money, and the merchant is giving some of that payment back to you as cash.
In Australia, a retailer will only hand you cash if you pay using EFTPOS (analagous to debit in USA parlance, but is a domestic bank network) which has a very low fixed fee per transaction. That is, if the transaction is happening anyway, an additional "cash out" component has zero bank fees and thus zero cost to the retailer; it may even be desirable if it lowers their cost/risk involved with banking cash.
ATM's are the OG distributed system. If you ever get a online banking notice about your bank doing maintenance over the weekend usually they ATM's will go into standby mode. When this happens it is really interesting, and a fun source of chaos. The ATM's in standby mode allow you to withdraw on credit, the limit of your card. Even if you have no money. It all starts to get reconciled over the next week and you have to pay it all back. But it's a 2am bear trap for drunk people at casinos.
1. My bank ditched physical locations (for the most part) and now just covers the cost of using other banks' ATMs.
2. The overhead these banks have for just talking to eachother is understandable when you read about the intricacies of why it exists, but something that really shouldn't exist today.
I think the costs involved in financial services are often more nuanced than given credit for. The nature of the services provided aren't simply a communications protocol, not that banks treat communication protocols as rounding to free. (Chase can call up Bank of America at any time and frequently will do so, up and down the banks' operations, every banking day of the year. Those calls aren't free, even if the direct cost of the call time rounds to zero. There is a substantial human and technological overhead to permit the calls to go through and be useful to both sides.)
With ATMs as a concrete example, you don't just need a rest API connecting the ATM to the issuing bank. The transaction also involves multiple risk transfers, mandated-by-regulation accountability if something goes wrong (including SLAs for resolution with effectively mechanical penalties for breach, in many cases), 24/7 staffed customer support that answers questions like "I am in New Orleans and a machine just ate my card heeeeeeeeelp!", etc.
Now we, as a society, could decide "You know I like a US- or Japan-style penetration of ATMs in society placed by a combination of banks and independent entrepreneurs, but I hate that they actually cost money to end consumers. We should shift the cost of them to... OK I care about the specific payer far less, actually. Let's write a law to do that." Some societies have chosen that.
Do the fees imposed for “credit” or “debit” differ for the consumer? The article seemed to imply that it did, otherwise, regulations being the same, why would it matter?
It’s fun to know what the actual difference is though. I had always just assumed that if I select credit when using a debit card the transaction would just fail “silly customer we know, you told us to check the wrong vault”.
You can think of payments networks as secure messaging infrastructure where the operator says “you can trust us that this payment is legit” to varying degrees of certainty and with varying degrees of fraud protection.
Debit networks (oversimplification) are basically ATM networks where your bank gets a note saying “user” supplied their card and pin to authorize a withdrawal of $X. This is why you can also pull out extra cash on these transactions. Banks ofc want to be reimbursed for the onerous task of giving you your own money, so they usually charge a consumer-facing fee for these transactions.
Credit (really Visa/Mastercard) transactions tell the bank “user” gave us their card and a signature, our fraud algorithms tell us this is probably fine, and we’ll settle this payment in bulk with the rest of your users’ purchases in 1-3 days. Banks, again wanting their cut, are paid via merchant-facing fees (interchange and merchant discount rate).
Stores keep the debit option up because some people like to draw extra cash and they get the benefit of not paying the fee even though their prices already incorporate the cost of credit card processing.
That is also why all the “financial advice” sites say to run things as credit, but honestly I’m not sure how current the above is given recent regulations.
> even though their prices already incorporate the cost of credit card processing.
That's not yet the case everywhere. In Germany, girocard (a federated debit system, run by merchants and banks together, with basically no fees) is so common that prices do not include credit card fees.
Now MasterCard is forcing banks to stop issuing girocards or MasterCard will stop working with those banks, in turn trying to destroy girocard. But this means prices for everything will jump another 1-2% to account for the new fees which are added by switching to the MasterCard network.
Would you be surprised to learn that in the US, banks capture 85%+ of the fee you're talking about (in their roles as card issuers and merchant bankers).
I'm serious, you can even do the math from Visa's disclosures - they make $30bn of revenue on $10tn of transactions (i.e. 0.3%).
The reason Mastercard and Visa exist (I'm serious, both used to be wholly owned by the banks) is to have a fall guy so that banks can blame someone else when they want more of the transaction settlement pie.
Do not assume German banks are somehow "the good guys" unless interchange and merchant discount rates don't go up, because there's nothing about Visa or Mastercard that forces them to take the interchange (in fact, one of the weirdest parts of the US is that wealthy customers just get that interchange given back to them).
I’m aware. You can even look in my comment history for many big discussions on why we should use a similar system in the US! Not every transaction needs the fraud protection that card networks charge for!
But the lions share of fees you talk about would go to those same banks, so I’m just saying Mastercard maybe isn’t the villain you think they are (I feel like I’m just restating my earlier comment?)
In Australia quite a lot of stores place an additional fee for using any kind of card (but they must be capped to actual fee, though some smaller vendors will add a minimum 50c fee).
In general yes. I'm a Canadian but I think this is very similar to the US.
Debit cards often have per-transaction fees. However it is becoming quite common to have a very generous free allowance or even be completely free to the consumer.
Credit cards almost never have a per-transaction fee but may have monthly fees. That also usually have some sort of rewards program that give 1-3% of purchases back to the card holder.
So in general debit cards are low cost and becoming more universally free while credit cards pay you to use them.
This is definitely not my experience (or the experience of anyone I know) in the US. Debit cards don't ever involve a fee charged by your bank here. Businesses may charge a fixed fee for debit transactions, but that hasn't been common for probably a decade or more in my experience.
Free credit cards a bountiful and my estimation is that the vast majority of people using a credit card with a (usually annual) fee are doing so because they have done at least some math to convince themselves that the benefits (usually cashback or airline miles) will outweigh the fee for their specific usage.
In some localities, it is common for businesses to charge a fee for using plastic, but these days it's pretty much never tied to debit/credit anymore.
Came in expecting a tale about the actual infrastructure, i.e. hardware and software and probably something about OS/2. Came out with a lot more info about payment "rails" and fees and stuff that makes me glad I'm in software development and not finance.
It's more rumour than proof. But, it's said a bank worked out that an X25 call reject response had enough data space to pass a transaction payload and coded their ATM to use incomplete calls to pass the higher protocol messages. Because X25 was modelling phone networks it only charged for completed connections: it was a free call.
The protocol got a new minimal, mini-call model which didn't expect more than one packet each way to take account of it.
I came for the article, stayed for the wonderful writing on what I thought would be a boring subject.
I was wrong, I just spent three hours reading this blog and learned so much about so many things.
My take on this is that it's absolutely obsolete. There is a type of technology that can bring this stuff up to date but I can't write it on Hacker News without being buried.
I feel like a few things were skipped in between network and operators (for US at least.) There are a lot of middlemen in the distribution of off-premise ATMs. The banks, networks, processors, sponsor banks, ISO's, distributors, operators, merchants, etc. It's actually much more complicated because it gets kind of like an MLM scheme when distributors can have infinitely nested "sub"-distributors so, as an operator, you may be many more steps away from things than you realize.
Generally, ISO have bank sponsors. They can operate ATMs. More often, they service distributors. Distributors are typically local businesses serving a market; they may operate ATMs. They also can just sell the ATM and the merchant can operate it. The ISO and sponsor banks typically is where the processing agreement/negotiations is actually happening. The ISO is typically the highest level anyone will ever interact with on the downstream side (it's the top of the pyramid in the MLM example). Everyone down stream gets a payment portal specific to their function. An operator can be anyone, they service the machine and keep it stocked with inventory (cash) and typically keep the surcharge (less than 100% is a bad deal, renegotiate.)
What's interesting is the ISO gets its hands on some interchange. Then it gets passed around as negotiated. Most people in the industry don't talk about this, but it's usually their revenue since the operator is getting the surcharge. But, even as an operator of a single ATM, you can ask for a cut of the interchange pie. Like all things, it varies but with volume you have leverage to negotiate a bigger slice.
It's similar to how as a consumer there are no line items for you to see, but there is interchange when you make a credit transactions. You bank is being paid by the merchant's bank to facilitate the transaction. If your card/bank chooses, they can share that interchange with you. It's purely marketing as to whether they will or not (it's a product feature).
It's possible as a merchant operator your transaction economics would look like:
Cash Reimbursement + 100% Surcharge + Cut of Interchange (amount varies, but I was averaging ~$0.50 per transaction)
> Note that the settlement of these deals is necessarily much slower than the transaction itself is. The ATM network will often be paid the following business day by your bank, but the ATM operator will probably be paid several days later by the ATM network, using an ACH transfer (in the US) or similar frequently slow rails.
ATM operators should be getting the money quickly. It works next-day on the schedule of the ACH system. IIRC the cutoff is 4pm ET and it's next business day. Any operator not getting this is probably stuck on some 25+ year old agreement and probably should switch providers; renegotiate at a minimum if it's even worth the hassle.
I've actually recently got a "travel" card (Wise) even though I don't have a plan to travel. But it allows me to top it up with say $200 and present it locally and online (with attractive exchange rates) and limit risk and potential lockouts on my regular bank issued card. I can use the physical card as well as via Google Pay on my phone. (In Australia contactless payments are pretty much ubiquitous and have low fees if any)
Not sure about Australia but in many countries (at least UK, SEPA countries, Singapore), Wise is a registered bank now and the card is just a Visa debit identical to those issued by any other bank. When you "top it up" you are just transferring money into another bank account of yours. Not to say Wise isn't great (it is), just dispelling the idea that it's somehow different from a bank account + debit card.
I guess I am just impressed by the features compared to my regular bank. While I don't earn interest in Wise, having things like the way you can categorise and annotate transactions, instantly freeze and thaw the card, quickly create purposeful accounts for putting aside funds in whatever currency, quick transfers
Yeah, they are fantastic. I am forever hopeful that their feature set will inspire other banks. So far I have seen that happening in UK/Europe, but not so much elsewhere.
Wise does offer the ability to switch your balance from Cash (safeguarded, no interest) to Interest (government-backed assets) or Stocks (index fund) while still having access to spend it. This might be gated by currency or by the country of your verified address.
Funnily enough, this is very common in Japan via so called "e-money" stored value cards such as Suica[1], Pasmo, Waon, Nanaco. Those four you can even provision right now into Apple Wallet and load with money via a card if you've got an iPhone made in the last few years.
Accepting them in a sane payment system is a bit of a nightmare however.
Loading Suica with a foreign credit card was unfairly good because there was no fee and it’s coded as travel, so that’s maybe 5% back with the right card.
I say was because it’s currently broken apparently, as they switched payment providers to one that requires 3D Secure in an way Apple Pay can’t do.
-ATMs were originally introduced to banks as a cost-saving device, allowing for routine transactions such as cash withdrawals and balance inquiries to be handled by machines rather than tellers, freeing up tellers to handle more complex transactions.
-The basic transaction at an ATM can be seen as not a withdrawal, but rather a sale of paper with mystical properties (cash) in exchange for money, often with a convenience fee.
-Transactions at ATMs require real-time confirmation of availability of funds and cannot use the same "rails" as other transactions in the economy, making them vulnerable to fraud.
-Using an ATM owned by the same bank as the account being accessed is straightforward, but using a different bank's ATM requires more infrastructure and relationships to ensure smooth and secure transactions.
-"Off-premise" ATMs, owned and operated by non-bank entities, became popular in the 1990s, charging a fixed convenience fee for cash withdrawals.
-Interbank networks, such as Cirrus, were created to streamline relationships between ATM operators and multiple banks, increasing the reach of any ATM bearing the network's logo and allowing for smooth transactions between different banks.
-ATM transactions involve a series of offsetting deals between the customer's bank, the ATM operator, and the interbank network, with settlement occurring later.
-The expansion of interbank networks and increased use of off-premise ATMs led to the creation of independent ATM deployers (IADs), who manage the placement and maintenance of ATMs for a fee, rather than owning and operating the machines themselves.
-Offering cash back when using a debit card at a store allows the store to save on banking fees for depositing cash and potentially earn float.
-Big Data has been used to optimize ATM demand for cash and minimize servicing trips.
-The use of cashless transactions is on the rise, but there are still challenges to overcome such as lack of internet connectivity and cultural differences in adoption of new technology.
-The future of ATMs is uncertain, with potential competition from mobile banking and the rise of digital currencies.
If you deal with commercially relevant quantities of cash, in addition to your own labor costs associated with it, your bank will assess a fee for depositing it. Larger retailers will negotiate their own bespoke rates, but the right ballpark for small businesses above a nominal amount is 3 bps, or $3 per $10,000 transacted.