Doesn't explain what regulations Visa pushed for and got which helped it maintain its monopoly. Would be helpful to have some concrete examples of what it did and what OpenAI is trying to do.
The point of the article sounds plausible, but doesn't really present any evidence to support it.
Also OpenAI in no way has a monopoly of the kind that Visa/MC has.
> Also OpenAI in no way has a monopoly of the kind that Visa/MC has.
I think this is misreading how literal the comparison is meant to be; Sherwood's running a bunch of "OpenAI is X" articles today. This is not about the massive duopoly which has been catastrophic for US payments, but about the way companies entrench themselves.
> Doesn't explain what regulations Visa pushed for and got which helped it maintain its monopoly.
> but doesn't really present any evidence to support it.
The main points of concern are mentioned; OpenAI is pushing for "AI regulation" that focusses on the nebulous "doomsday"/skynet scenarios, rather than any of the material harms of AI. The subtext of that is a straightforward "you should ban anyone else building AI because only we can do it safely".
Similarly, OpenAI demanding it's investors not fund competitors is pretty ridiculous and explicitly trying to establish a monopoly.
That's actually a nice way to write. Nobody knows for real what is going to happen. It's so frustrating to see a writer chase down one narrow narrative and cherry pick anecdotes etc. Understanding what just happened is often more complex. And the future is even more open.
The duopoly isn’t really as problematic as the concept itself. Credit cards, where customers are bribed to insert a middleman into all transactions and suppliers are largely powerless to refuse it; are a plague. The switching costs of a consumer to a different credit card are small. The switching cost of a business saying they no longer allow certain payment types is potentially very painful.
Credit cards are probably the most consumer friendly innovation ever — a product of the time they were developed. It was an era when the federal government functioned and the credit card operations were so problematic a heavy hand was required.
Every supposedly better alternative adds margin for the supplier, increases the risk of fraud, and leaves the user with poor recourse due to the lack govnerment regulation.
Adding a 3% overhead is cheap for the value. Let the suppliers be squeezed - it’s tiny for big merchants and the little ones are bitching because they’d rather lose sales than pay taxes.
If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them?
I completely agree that credit (and just as much, if not more, debit) cards are an incredibly useful invention and great accelerator for online commerce. I don't know of any other way of paying a merchant I know next to nothing of that will allow me to get my money back if they do not deliver on their side of the contract.
But at the same time, the price discovery mechanisms for what exact value they provide (and who, i.e. the networks or the issuing banks, and to whom!) are next to nonexistent. In an efficient market, credit card cashback would not be a thing, for example.
You could argue that that doesn't matter, that the status quo is good enough, but that's what people used to say about incumbent phone companies as well. The EU just demonstrated that an alternative is very possible (at least on the interchange side, which is the bulk of what merchants pay).
>> If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them?
The clue to this is in the question. Banks offer cash-backs (and other rewards) not Visa or MC. They do so because credit cards are a commodity and they need to differentiate their product from all the other card providers.
In effect some of the fee paid by suppliers is routed back to the customers. To suppliers the cost is part of doing business, and built into the price.
As a supplier I much prefer customers to use cards over cash. Cash is very expensive to deal with in any volume. And is far more vulnerable to theft (by external people, but also staff.)
The rationale of the banks is clear. The problem is that these are perverse incentives.
The costs hit all customers, not just the ones who use credit cards. And the benefits accrue largely to the cardholders of premium cards, which are wealthy people. It’s a tax on being poor to subsidize the wealthy and the middlemen.
Cards should be forced into being a true commodity with perfect competition. The incentive rewards games are harmful to society.
> And the benefits accrue largely to the cardholders of premium cards, which are wealthy people.
To have competition you do need a way to differentiate, and it's going to be funded by some combination of those fees, interest/charges, kickbacks etc. Some interchange fee is simply necessary, iirc the EU attempts to prevent the egregious regressive aspects of that by capping the interchange fees of all cards. Thereby eliminating the "Amex Premia" as it were.
You do not need differentiation for competition. It’s called perfect competition and it’s a race to the bottom for price, which is the ideal outcome here.
Remember when mobile carriers were competing via "differentiation"? Practically, that meant waiting on firmware updates for months or years, having to deal with preloaded and non-removable crapware on mobile OSes etc.
Now they're largely "dumb pipes" competing on price and quality of service, and as a consumer I couldn't be happier. (Of course, there are now different gatekeepers on our phones, but that's a different discussion.)
I think you're missing the point here a little bit.
To break this down more simply:
Credit cards: Merchants pay 3% and pass the cost on to the customer, IRS gets the vast majority of business taxes paid (no way to under-report taxable income), average person gets all the benefits of a fully funded government plus 1-2% of their purchase back in credit card rewards. Average person also gets a revolving credit line with okay-ish interest rates considering how no collateral is needed and approval is instant.
Cash: Merchants broadly and easily commit tax fraud and under-report earnings, average person then has to pay a higher tax rate to overcome the tax fraud rates and get the same government services in return, merchant still pays something similar to or higher than 3% in transaction costs to handle cash (shrinkage (employees stealing, miscounting, lost cash), physical storage, movement, and processing, armored truck service, etc) and passes those costs on to the customer. Customers have no access to revolving credit which is totally fine but before credit cards people would resort to much more poorly regulated/higher interest/illegal sources of short term loans.
I would also point out that debit card swipe fees are already regulated to under 1% and have many of the same benefits as credit cards.
With your last sentence, you supply your own counterexample demonstrating that "tax-evasion-enabling cash or credit cards costing the merchant 2-3%, pick one" is a false dichotomy.
As I've mentioned, another counterexample is that Visa and Mastercard credit cards very much continue to exist in the EU, even after consumer credit card interchange rates have been capped to 0.3%.
I'm shocked, shocked, to discover that in the land of the "free market" the market optimizes for corporate profit not low prices.
This is not news. In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities. Those politicians run with corporate money and favor corporations.
Other places (like the EU) have people who vote differently and have more appetite for reigning in the "free market" while serving consumers as the priority.
It's not impossible for people to change, just unlikely. We tend to assume the pond we live in has the best water.
> In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities.
People vote for those politicians because that's what they want. But is the problem with what they want, or what they get?
Regulatory capture that puts up barriers to anyone trying to compete with the incumbents is neither "low regulation" nor what people want, but it's the status quo in the US.
> IRS gets the vast majority of business taxes paid (no way to under-report taxable income)
I guess we should dispel this one if it's really why people think financial mass surveillance is a good thing.
Cash is not even close to the only way for someone inclined to do it to under-report taxable income.
Business income is revenue minus expenses. Anything that lowers revenue or increases expenses reduces taxable income. Businesses can deduct things that are personal rather than business expenses, overpay for deductible expenses to anyone giving a kickback under the table, sell at a discount to anyone giving a kickback under the table, do barter transactions and then deduct the traded merchandise as shrinkage, etc. Most businesses legitimately have single-digit profit margins, which doesn't take much to zero it out.
Then if they get caught they go to jail, which is the same thing that happens if they get caught not reporting cash sales.
And we haven't even scratched the surface of what large businesses do to avoid taxes. Spoiler: It's the same overall thing -- reduce revenue or increase deductible expenses -- but they generally have better lawyers and rarely go to jail even when they get caught.
You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor. You can so much more easily fudge numbers if you take in primarily cash.
In both cash and credit scenarios the business owner can increase on-paper expenses to lower tax burden, but there's only so much you can do with that without doing things like spending money on unnecessary costs or risking obvious audit discrepancies.
If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself.
The guy running the cash bar down the street can buy half his liquor from Costco with cash that he never reports receiving, and just pretends like half the bar's sales don't exist. That person would then only report the revenue to the portion of drink sales that go to a legitimate distributor.
In this scenario both the distributor and the bar's receipts all line up and look legit, so the IRS would literally have to come down to the bar and count customers to prove anything was amiss.
We can call this "financial mass surveillance" to make it sound bad and scary, but what's more scary to me as an average taxpayer is businesses evading taxes so that all the things I depend on like Medicare and Social Security get underfunded. As a W2 individual, I have no way to avoid taxes in a similar way.
> You literally can't reduce revenue on paper when your business revenue is credit card payments. The payments get reported directly to the IRS by the card processor.
The revenue isn't on the credit card.
Example: You go to the mechanic to have your brake master cylinder replaced. The part is $100 so they charge you $100 for the part and the credit card company says they have $100 in revenue, which gets deducted because they paid it to the parts company. But what you've actually given them is $100 and your old master cylinder, which can be rebuilt and put into another car and is worth $50. So they've reported $100 in revenue for the part, deducted the labor it took to rebuild the old part in addition to replacing yours (which also negates their profit on the labor), and now they have no profit on the books and a $50 profit off the books in the form of a serviceable part.
Example: Someone frequents a local restaurant, eats there every day, doesn't pay for it. The restaurant is making a tax loss on this, incurring deductible expenses with no reported revenue. But the person eating the food is the landlord for the restaurant owner's personal apartment and is giving a discount on the rent.
> If you take cash you can just lie and know that if you ever get audited there is no paper trail apart from the one you have created for yourself.
This is also a myth. When you take payment in cash, the buyer gets a receipt. All the IRS has to do is go to your establishment, make an anonymous cash purchase to get a receipt (or get one from any other buyer(s)) and then when they audit you the revenue from that transaction had better be in your records or you're caught.
> all the things I depend on like Medicare and Social Security get underfunded
Note that corporate income taxes don't actually fund Medicare and Social Security at all. Both programs are funded by separate taxes that apply only to wages -- and have an income cap. It's one of the dumbest things in the tax system, but as it stands there is no money going from ordinary net profit-based income taxes to either of those programs regardless of what kind of payment system is in use.
> As a W2 individual, I have no way to avoid taxes in a similar way.
It's not because you file a W2, it's because you're not committing tax fraud. W2 workers who commit tax fraud will e.g. have the company expense a personal laptop and then bring it home without reporting it as income. I would hazard a guess that the majority of W2 workers have at various points used company equipment for personal use without declaring the value as income, and in the more brazen instances of this it makes up the majority of their de facto compensation.
But some of those people also get caught, just like some of the people who don't report payments made in cash.
Your mechanic example essentially requires a very specific business scenario to execute. The landlord example is also one that requires a very specific business scenario. E.g., I run a video game studio that is spending the next 3 years working on a game, how is that landlord going to pull off that scam? Are they going to sleep in my conference room at night and deduct it from my rent? In your example the landlord eats at the restaurant every day, but they can't really barter in this way with all their tenants.
The main point is that you with cash you can commit the fraud in the first place, not that you're going to necessarily survive an audit. The IRS from what I can tell audits a fraction of a percent of taxpayers every year and dedictate most of their resources to higher earners. The IRS going to your establishment requires that they dedicate resources to you in the first place.
But there's a really simple mechanism for defeating this cash bar audit example: only commit tax fraud with transactions from the regulars. The IRS agent walks into the bar, is a stranger, and by default their transaction is one of the legit ones. You only run the scam with customers you recognize coming in multiple times over a span of months or years.
I'll give you that Medicare and Social Security aren't paid for by business income...however, a business committing social security tax fraud with paid wages can do so much more easily using cash, so really the argument is similar – in that case it just involving checks and direct deposit instead of cash. An employee insisting on a check or direct deposit is helping ensure tax fraud doesn't happen. I imagine it's even easier to lie about hours than it is to lie about receipts, or exchange a mix of goods and money for labor. Heck, with cash, the employee doesn't even have to exist as an employee. How is the IRS going to know that you actually have two dishwashers and not one? Pay the undocumented dishwasher's salary from the cash transactions from the regulars.
As a W2 employee I have no way to avoid taxes because I have no money flowing that isn't reported to the IRS. And this idea that a large amount of W2 employees are using company assets for personal use is pretty silly, most probably don't even have any assets from the company. And, no, going on Amazon on your company laptop to buy socks doesn't qualify as significant enough personal use to equate to tax fraud.
The study starts with the questionable premise that broadband deployment is associated with digital payments and ATMs per capita are associated with cash payments, but ecommerce sites are some of the least bandwidth-intensive and fully usable on ancient networks, and ATMs per capita is going to have all kinds of arbitrary confounders like population density, average income or number of local banking institutions that make it a poor proxy for cash use.
They then proceed to exclude the types of tax fraud that don't use cash. Of course, this invalidates the result: If Alice and Bob are both cheating on their taxes and Alice accepts credit cards and does the cheating through cross-border transfer pricing and Bob does it through not reporting cash payments then you're going to find that red cars are associated with crashes involving red cars, but that doesn't even imply that most crashes involve red cars, nor does it imply that you can reduce overall crashes by banning red cars.
Then it gets even worse. They try to compare it to data on tax evasion, but such data is by definition speculation because tax evaders don't disclose that they're doing it and you only know about the ones that get caught. So then you have a study implying that the tax evaders who use cash are more likely to get caught, which leads to a different conclusion than the one they're advocating.
> Your mechanic example essentially requires a very specific business scenario to execute.
Not really. The general business model of "you hire someone for a job that results in scrap and they dispose of the scrap" is extremely common in everything from equipment repairs to construction to trash hauling.
> The landlord example is also one that requires a very specific business scenario.
It isn't required that every type of business use the same method; various businesses would use a method tailored to their business.
> E.g., I run a video game studio that is spending the next 3 years working on a game, how is that landlord going to pull off that scam?
E.g. landlord gets shares in the company at a discount in exchange for the owner getting a discount on their personal rent.
> In your example the landlord eats at the restaurant every day, but they can't really barter in this way with all their tenants.
They don't have to barter with all their tenants. Unless you're talking about a huge skyscraper, the rent on one unit will be of approximately the right magnitude to erase the net profit on the whole building.
> The main point is that you with cash you can commit the fraud in the first place, not that you're going to necessarily survive an audit. The IRS from what I can tell audits a fraction of a percent of taxpayers every year and dedictate most of their resources to higher earners. The IRS going to your establishment requires that they dedicate resources to you in the first place.
That's the same as any other type of tax fraud. If you make up and deduct entirely fictional business expenses, someone has to ask for the receipts before you get caught.
> But there's a really simple mechanism for defeating this cash bar audit example: only commit tax fraud with transactions from the regulars. The IRS agent walks into the bar, is a stranger, and by default their transaction is one of the legit ones. You only run the scam with customers you recognize coming in multiple times over a span of months or years.
By which point you've much limited the number of transactions that could go unreported, and you still have the possibility to get caught if you have a dispute with any of the regulars and they turn you in, or the government puts in the work to do a long-term investigation.
Also, how is this anything specifically to do with cash? If the landlord is charging lower rent because they get to eat in the restaurant, how is that any easier for the IRS to detect unless they turn on each other?
> however, a business committing social security tax fraud with paid wages can do so much more easily using cash, so really the argument is similar – in that case it just involving checks and direct deposit instead of cash.
Except that employee wages are business expenses and they'd be losing more by failing to claim the deduction than they'd be paying in FICA.
> or exchange a mix of goods and money for labor.
Which is exactly what happens with electronic payments. The employee is nominally paid $1000 but is actually paid $1000 and an undisclosed amount of goods, with only the $1000 showing up in the bank transfer.
> And this idea that a large amount of W2 employees are using company assets for personal use is pretty silly, most probably don't even have any assets from the company.
Historically it was extremely common to have things like company cars and comped meals. The current rules generally now require that stuff to be counted as employee income and taxed, so it has largely disappeared from large corporate employers that don't openly engage in tax fraud, but you can guess what happens in a lot of small businesses where the family has a vehicle registered to the business and deducted as a business expense etc., or places where employees have access to company vehicles or other equipment and managers DGAF.
> Merchants pay 3% and pass the cost on to the customer, […] average person gets all the benefits of a fully funded government plus 1-2% of their purchase back in credit card rewards.
And if you're below-average (i.e., poor or otherwise 'unwanted') and don't have a credit card then you are paying higher prices without any benefit:
I totally agree, but we also can’t pretend that handling cash costs zero dollars.
That’s only really the case for the tiniest businesses with zero employees.
I think the phenomenon of the poor subsidizing the rich is just sort of how all of life works. The more affluent in society always get the better deal on everything.
They don’t just pass it on, they gain margin through more sales.
I was on a private school board and helped revamp their fundraising. The previous leadership team was cheap and focused on avoiding things like transaction fees. Well, they lost dollars chasing pennies. We boosted sales 25-30% just by adding card and contactless payment.
Not at all. Back in the 90s, I had an American Express Gold Card, probably the premier travel card at the time. It was expensive, but for my specific situation, the travel benefits were basically making me $500 a year, alot of money for me.
People with good credit have access to better cards. It’s about people who pay their shit on time, not wealth.
And I'd be willing to wager that the ability to pay bills on time might be somewhat correlated to wealth.
What you're giving is a rationalization for why the economic landscape of credit cards looks the way it does, which is useful for understanding it, but not at all the same thing as a justification for that being desirable for society as a whole.
We have a perfectly fine mechanism for making lending cheaper for people who pay on time: Interest rates. There's no economic need for tangling all of that up with rewards/cashback rates.
> It was expensive, but for my specific situation, the travel benefits were basically making me $500 a year, alot of money for me.
While I also greatly benefit from the system myself I still consider it a massive resource sink for society at best, and borderline predatory lending behavior at worst, and would gladly see it disappear the same way it has in the EU.
1) the card is expensive in an upfront way that is difficult for poorer people to justify for playing money games
2) getting the value of the card is contingent on spending more money. A poor person with fewer expenses won’t get nearly as much benefit
3) let’s not ignore the elephant in the room which is credit cards trying everything to get you to make minimum payments to prey on the financially illiterate, which again, are heavily concentrated in the poor
I think it’s not surprising, the wealthy get better access to better everything. They can buy higher quality goods and be more discerning, they get better loan terms. Everything about life is better for those with more money.
In a market, participants woo customers with financial and other incentives to select their product.
The price discovery stuff is pretty obvious. Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account.
Or… you can use a credit card, probably get a 2% kickback, and the merchant pays like 3% unless they’re in a high risk business. If there’s a problem like fraud, the bank eats it.
The biggest whiners about fees are small businesses, especially restaurants. These are businesses where it’s super easy to launder cash and avoid tax reporting.
> Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account.
Pretty much everything except for credit cards and ACH are really using one of those two behind the scenes, whereas what you want is something that allows you to transfer money using ACH-level fees without the totally unnecessary ACH misfeature that you can't revoke merchants or predefine limits on how much they can charge.
But that's where the "Visa has captured the regulators to prevent things like that from existing" problem comes in.
> The biggest whiners about fees are small businesses
The biggest whiners about fees are small businesses because a) they have very thin margins to begin with, so 3% often means that Visa is taking more of the sale price than they keep themselves and can be the difference between a sustainable business and bankruptcy, and b) larger companies can negotiate deals and pay less than 3%, which creates another competitive advantage for big business that small businesses can't achieve, which small businesses rightfully dislike.
3% sounds like a small number until you're talking to someone with a 5% profit margin before they lose 3% of revenue to the credit card companies. Then you're telling them that they shouldn't care about losing 60% of their personal income to corrupt banking laws.
The bank doesn't eat the fraud. They charge it back to the merchant. That's why restaurants and bars don't like them, and if you fight the charge backs they raise the rates or drop you entirely.
That’s only true for online payments (and even then only if 3DS is not used).
Merchants are not liable for fraud at the POS (which includes almost all restaurants, except maybe those doing deliveries or taking down payments for reservations via the phone etc.)
> Credit cards are probably the most consumer friendly innovation ever
Depends on the consumer.
Vendors often have to raise their prices to keep their own margins, which is passed onto the consumer. If you're too poor or otherwise 'unwanted' to be given a credit card then you are paying higher prices without any benefit.
The problem is not that credit cards exist; it’s that the market dynamics do not force it to be a minimal profit service layer. We have credit cards regifting multiple percentage points off of every purchase which creates a vicious incentive that businesses are largely powerless against
Well Companies are told to show either profit or growth every 3 months. That sets up where the story goes.
So we have everyone from Starbucks to McD to AT&T to Comcast to Walmart to Amazon to Netflix to Disney etc etc all trying to pull that off even as Incomes dont grow globally other than in small pockets of the world which are over targeted and over fished. Its very hard to correct these kind of runaway processes cuz "everyone is doing it" and everyone doesnt know hpw to do anything else.
> I think this is misreading how literal the comparison is meant to be
Agreed. When articles do this they want you to directly emotionally associate the two things, without having to provide intellectual evidence. I don't think that's very defensible.
if you're trying to make a point in an article, summarize your evidence rather than link to a paywalled article that your readers may not be able to access
Yea, I don't want to defend Visa, but a lot of their dominance came from network effects. Merchants want to accept Visa because it's what people have in their wallet. Customers want Visa because it's what merchants accept. That cycle keeps reinforcing itself.
That's not to say that Visa hasn't worked toward favorable regulations, but the biggest problem with alternative payment networks (to Visa/MC/Discover/AMEX) is that most retailers don't take them which means most customers don't want to set them up. If most customers don't have those payment methods, there's little incentive for a merchant to setup those payment methods.
With OpenAI, there isn't the same network effect. I don't care what LLM you're using or what LLM Walmart or anyone else is using. If Anthropic or Google start offering better/cheaper LLMs, companies can simply switch over. Maybe some integrations will need to be rewritten, but that's a lot easier than getting hundreds of millions of customers to sign up for something new. Plus, companies like Google are simply implementing the OpenAI API so that integrations don't have to be rewritten.
By contrast, if another company launches a payment network, it isn't enough just to convince a company to switch. You need to convince millions of consumers to switch - which would require convincing enough companies to switch.
> Yea, I don't want to defend Visa, but a lot of their dominance came from network effects.
I think it's worth noting that VISA is also really doing a pretty good job. Like the cards work. Here in Europe they seem eager to adopt emerging technology and are willing to invest to maintain their dominance.
There's a ton of not so consumer friendly backroom deals with kickbacks for the banks and stuff, but the core product is roughly what consumers desire. A card that works almost 100% of the time without any difficulty. While simultaneously implementing and adopting whatever weird regulations get passed into law.
They aren't very vendor friendly and their fees are way too high. Little bit like Amazon. they are are consumer friendly at the expense of their vendors.
> they are are consumer friendly at the expense of their vendors.
Isn't this a winning formula because the consumer is the one spending the money? Imagine an opposite approach that was vendor-friendly at the expense of the consumer. I don't think most people would willingly use that.
Back before Amazon, WalMart did the same thing[1] by squeezing their vendors to lower prices and passing (some of) the savings onto shoppers.
Compared to Stripe which charges 2-3% roughly, Visa/Mastercard gateways charge 0.3-0.5%. Not sure where the high fees argument comes from, or I'm misconstruing something here.
Like an aforementioned comment stated above, their dominance is all about consumer convenience reinforcing vendor adoption. If you have an equally smooth payment process to compete against that, it will crumble. Case in point, India and UPI. Credit cards are largely used by the most affluent today, simply because UPI has become so prevalent for general transactions. UPI are actually a much easier way to carry out payments than credits cards are.
But of course, American banking is ages away with even FedNow not having been implemented in any strong form whatsoever.
Visa and MC are four party payment systems. In short, the fees paid on a transaction are split between the merchant acquirer cut (merchant service charge), the card network (scheme fees) and the card issuer's bank (interchange).
Stripe is a merchant acquirer and Visa/MC a card network.
The 2%-3% are the total fees imposed by a stripe, a merchant acquirer. The 0.3% is Visa's cut. After subtracting the card issuer's cut, what remains goes to Stripe.
> but the biggest problem with alternative payment networks (to Visa/MC/Discover/AMEX) is that most retailers don't take them
Who?
I thought it was just like Costco that didn't take Discover/Amex/MC due to Visa contract. Aren't all the credit card terminals pretty much from 3p vendors who support everything including Apple Pay + Square + etc?
In most of Europe and several large Asian cities I visited, AMEX and Discover acceptance is far lower than Visa/MC (which charge lower fees to merchants).
Diner's Club is equivalent to Discover card and is at least somewhat present in European countries. I don't know official numbers but I've seen it often enough and have used it once or twice.
“Amex is virtually unknown in most of Europe” doesn’t match my experience. Most major European economies have AmEx and AmEx issues many local cards to them
Fun fact: AMEX has been involved in international payments in one way or another for more than a 100 years and the AMEX card was the first international charge card, launched the same year as the original BofA Visa Card.
Plenty of places don't take American Express or Discover even now, but most will usually take VISA and Mastercard.
Costco's a weird one though because they resisted credit cards for a long time until they had their Amex contract with the dual-branded Costco Amex card, but then dropped them for a dual-branded VISA card in 2016.
Llama and Qwen are giving GPT and o# a run for their money. And you can build actual applications atop them.
Hunyuan is as good as Sora and works with ComfyUI and a robust set of open tooling and controlnets. LTX runs blindingly fast on consumer hardware.
Nobody talks about Dall-E anymore which is how far the open models have progressed. Why use a shitty web UI when you can have Invoke's incredible inpainting, brushes, and layers for free? Or fine tune your own style?
This game isn't going to be about foundation models. The value of a foundation model is fungible and will go to zero. The switching costs are zero and there are too many players.
This is a game about compute and applications.
Thanks for speed running the game OpenAI and showing everyone the way. We don't need you anymore.
I'm mocking the whole idea of this or that lobbying being done to crush a particular competitor, when tech companies are very much a Rising Tide Lifts All Boats business.
OpenAI is not a monopoly and has numerous extremely large and well funded competitors such as Google (gemini), Meta (llama), and Alibaba (qwen), to say nothing of smaller startups like Anthropic. The blog post blindly asserts it's a monopoly because monopolies are bad.
Taylor Lorenz also insists that everyone continue masking and social distancing for Covid and that refusing to do so in 2024 is equivalent to denying AIDS during the height of the AIDS epidemic. And she obsessively lies about her age to the extent that her actual birth year is listed as a range of plausible years on Wikipedia, since she's changed her statements repeatedly by wild margins. I think her compulsive, somewhat paranoid difficulty engaging with reality is important context when reading her (many) vague, unresearched, but extremely negative blog posts about tech.
Yeah, her beat as a journalist has historically been social media[1]. I'm not sure what value she brings to a discussion of market dynamics and lobbying; she doesn't seem to have any sources close to either Congress or OpenAI so this comes across as more of an opinion piece than anything else.
> Doesn't explain what regulations Visa pushed for and got which helped it maintain its monopoly.
Visa, the organization, is little more than a small clearing house. Credit card issuers (banks) and credit card processors (also banks) define the network in so far as determining what organizations can be "on the visa rails" (also almost exclusively banks).
are you allergic to doing your own research like everyone else on hacker news? someone took the time to write a thought provoking article and all i see is critical reception.
> allergic to doing your own research like everyone else on hacker news
if an article wants to make a point, then the onus in on the article author to present evidence that supports their view, not on the readers to try to find the evidence supporting the author's view
that seems like a very convenient and lazy interpretation of what hacker news is for. a comment can be anything, including info that helps clarify what the original poster said. can we come to the forum in good faith, or is anonymity too tempting a mistress?
When an article provokes thoughts with assertions that OpenAI has a meaningful monopoly on AI to maintain, sometimes those thoughts are “that article is just wrong.”
>As of December 2024, OpenAI's ChatGPT maintains a dominant position in the AI chatbot market, with over 300 million weekly active users, processing more than 1 billion messages daily. (THE VERGE)
>In contrast, Anthropic's Claude AI has experienced significant growth, with its website receiving over 54.4 million monthly visits. (NOTTA)
+1 for Acquired. They started out covering tech acquisitions but have branched out to covering non-tech companies with interesting stories. I particularly liked their episode on IKEA.
I think the most interesting bit from the Visa podcast was that in the past 5(ish?) years, their revenue has massively increased... From a "things are nice the way they've always been", this felt like a indication that change was afoot there, too, and has me wary of Visa maybe causing greater harm in the near future.
It also took a long time to build up such a network.
Replacing all payment terminals is not easy. And as a customer I'm more likely to care of my card works and not care if I'm charged x% fee.
The visa trick if any, was hiding the credit card fee and pushing it to merchants.
Whether its a trick or not is hard to tell, for small businesses it was probably bad, but for a big business dealing with lots of cash is probably not cheap.
> I'm more likely to care of my card works and not care if I'm charged x% fee.
Sure, any alternative needs to work on a practical/technical level, be convenient, have fraud protection etc.
But if it does, and a merchant I know and trust (these are fairly big caveats!) were to offer me a discount equivalent to what my card issuing bank pays me in cashback and then some as an incentive for paying using that alternative, why wouldn't I do it?
> Replacing all payment terminals is not easy.
Terminals already support multiple payment networks today, some even non-card based.
> for small businesses it was probably bad, but for a big business dealing with lots of cash is probably not cheap.
It's exactly the other way around. Big chains can strike custom interchange and scheme fee deals with Visa and Mastercard, because they have the credible threat of offering steep discounts on store cards or other "on-us" payment methods; small businesses basically need to accept what they get.
I think that shouldn't be permitted. (As in, be illegal for the card companies to impose or enforce.)
On the other hand, most gas stations seem to post credit vs cash prices, so they get away with it. What's the story there? Why don't more merchants do it?
It's also contrary to card agreements for merchants to add an extra fee ("it's +0.50 if you use a credit card, is that OK?"), but that doesn't seem to be meaningfully enforced.
It's not 100% enforced, but to the card networks, they dont need 100% enforcement - they just need majority of merchants to comply. Small corner stores and gas stations probably could get away with surcharges, but not big box stores.
Visa, the organization, is little more than a small clearing house. Credit card issuers (banks) and credit card processors (also banks) define the network in so far as determining what organizations can be "on the visa rails" (also almost exclusively banks).
> The visa trick if any, was hiding the credit card fee and pushing it to merchants.
Merchants pay their discount rate and customers pay their interest rate. "The visa trick", as it were, was getting customer confidence in credit cards being accepted at enough merchants to warrant use.
There was never a "hiding the credit card fee." Both parties pay and always have.
There was only patience by the banks and heavy marketing to customers in order to create demand that would force merchants to have to accept credit cards.
Visa was originally a chaord - a strange construct jointly owned by competing banks. That idea never caught on, but worked. See Dee Hock's "Birth of the Chaordic Age".
Just because some one has a slightly better product doesn’t mean they have a monopoly. That’s like saying McDonalds has a monopoly because they have better fries. It’s just not true in any part of the statement
If McDonalds had a fry machine and lobbied that making fries anyone other way was dangerous and only they should be allowed to use the fry machine that would more align with this situation.
It's not a monopoly but trying hard to get a government based one.
You're stretching so far to attempt to make a point you're now trying to equate a trade mark as a monopoly. These are totally different concepts and you've totally lost the plot with this analogy
McDonald's is considered an oligopoly, where a few firms dominate an industry and can set prices. McDonald's is not a monopoly because it doesn't sell a single unique good.
Claude by Anthropic outperforms OpenAI and Meta's models on several benchmarks and for the coding I do, and Anthropic is only 500-1000 people according to Crunch base
But not even near X SOTA model doesn't matter to 99% of people because 99% of people don't need or care about the difference.
It's like sure Porsche / Ferrari makes a car that can hit insane top speeds really fast on a track, but 99% of people don't drive in such a manner where that matters. In that analogy though, everyday cars aren't free, so profit possibility is even less in OAI case than the supercar case
And it's less likely after the election. Trump pledged to repeal Biden's 2023 executive order on AI. He put out a very different executive order in 2019 that sought to reduce barriers. He is an enthusiastic deregulator compared to the current chief. That helped more than a little to get Andreessen, Musk, etc., to climb on the bandwagon. It can all be reversed at the wave of a very transactional presidential hand, but the sounds coming from the incoming administration are more favorable to open AI than to OpenAI.
Do keep in mind that both Trump and Andreessen & co are not interested in deregulation for ideological reasons, only because this specific deregulation is favourable for the men in question.
It's not about "open AI" but just opposition to the tech giants. And as a consequence, there's a danger that they may pivot on AI regulation the moment anything happens to the current AI bubble that makes it unappealing for VC funding. (OpenAI & co raising the prices on the models to above operating costs would almost certainly eviscerate the AI startup scene)
It should also be noted that those elements are dynamic and update in pseudo-real-time. In case my boy is still trying to make sense of them in the context of the article, lol.
OpenAI isn't even close to a monopoly, and if it did it has none of the structural advantages that a financial network has to allow it to defend a monopoly.
What a manifestly and obviously stupid article.
If you set up a financial network, you have to get a little box (often physical) in some saturation level of stores and gas stations and websites so that people will want a card that works on your network in the first place. Once you achieve saturation in both retailers and consumers, it becomes almost impossible for someone to build a competitor because nobody wants to invest to be able to accept a card nobody has, and nobody wants a card you can't use at the stores they want to shop at. There is a fundamental network effect that reinforces this monopoly.
OpenAI has literally none of these advantages. In fact it's the opposite, I think OpenAI has no defense as soon as better models come along. They've lost all of their best engineers already and that trend seems to be accelerating. Their new models don't work and are years behind, and meanwhile Anthropic and others are just as good if not better for most use cases.
From my very own perspective, to compare OpenAI with any others is meaningless: AI is far different in terms of resources and business models, maybe similar to some others, but it may collapse or have the rug pulled out by another significant technology evolution, e.g., quantum computer which may ridiculously speed up the training, or a more self-update-friendly model architecture.
To the rest of us, training a usable model these days is relatively affordable, and it seems to make no difference to use a "most intelligent" model against a subtly small model. The current business blocker is to find the application fields that work for models, which is not an area where OpenAI has an advantage.
How does this attempt even work these days? So let's say you get your monopoly for only OpenAI in the USA. Everyone else in the world just stops and OpenAI just gets to do what they want and name their price? I don't think so.
Isn't DeepMind HQ'd in the UK already? I am sure Ireland would jump at the chance to create some friendly tax treatment again to entice competitors. And of course China can just keep being China and churn out a few more coal fired power stations every few weeks to power things cheaply. You may capture consumers and a few Gov contracts, but global companies will just circumvent it
Yeah but my point is the US can do what it wants, but that's not going to stop anyone else in the world doing it. And the companies that want it will just go and get it from their China or the EU operations instead.
the US government would basically forbid you from doing business in the US if you violate what us puts into place and very few companies would willingly lose US market
> What Visa did in response recently got it sued by the Justice Department, which accused Visa of using aggressive tactics with companies like CostcoCOST $956.14 (-0.29%) and AppleAAPL $258.99 (0.35%) to guarantee that a competitive payment network would not develop, The Wall Street Journal reported.
I don't buy the reasoning as to how Visa built a moat. From the WSJ article linked in the article:
>> Visa offered to pay Costco $150 million. One condition of the deal: Costco would not do a credit-card deal with a bank that had its own network, according to the people familiar with the matter and the court filings. That shut out Chase. Visa also offered Costco an exclusive discount on the interchange fees the store pays when someone makes purchases with Visa credit cards.
So basically Visa offered Costco a discount if it allowed their cards exclusively. The thing with credit cards is that you can have more than one. I have a Visa and a Mastercard and when I shop at Costco I use Visa. I don't see this reason stopping someone wanting to compete as though if they can't get the Costco dollars, they have no product.
That's not to say that Visa doesn't use lobbying and legal system to erect barriers to entry. But that really has to do with ridiculous regulations and things like KYC, but we're not ready to have that conversation yet.
> The thing with credit cards is that you can have more than one. I have a Visa and a Mastercard and when I shop at Costco I use Visa.
Well... yeah. No shit. Because you couldn't use the Mastercard if you wanted to. That's what this article is complaining about. And in their most recent quarter Costco posted a handy 80 billion in net sales, I'm betting those processing fees added up to a tidy sum for Visa, corroborated in the fact that they plunked down 150 million to keep it exclusive to them.
> I don't see this reason stopping someone wanting to compete as though if they can't get the Costco dollars, they have no product.
It's literally textbook pay for play. It's purchasing an advantage in an open market. Mastercard will receive no transaction fees from Costco this or any year unless this agreement is revisited, and not because people don't want to use Mastercards there, but because Visa paid Costco to not let them. How is that anything but anti-competitive?
Yes, all these are anti-competitive. But illegally anti-competitive? That is not really possible to resolve in a HN comment. Every market in every region is different, and whether some exclusive contract is or is not anti-competitive has to be resolved in court, which looks at all the details of the matter.
It's not whataboutism. Whataboutism would be 'what about children dying in Darfur?'
This is an explanation that this practice is normal in a competitive environment and trying to prevent exclusive deals is silly if you extrapolate it to other domains
In other words, create a rule or principal that's clear and not specific to this situation. Because right now the principal seems to be exclusive deals between businesses should be illegal and I explained a handful of cases where this would obviously apply
The fact that monopolistic agreements are common place doesn't make them competitive.
As with every single time something monopolistic comes up on HN. You can squash one instance of it at a time; you do not need to address every single one in a fell swoop.
You can have a Mastercard, but now if you want to shop at Costco with credit you have to have a Visa. Not having a Visa card is much less of an option for many individual customers, and not accepting Visa is much less of an option for other merchants.
Even if this is potentially true, 1 to 2 % is a very fair price to pay to be independent of their credit card network and paying much more anonymously.
This is Costco, you have a membership tied to your identity which they check every time you enter the store and checkout. Your order history is tied to your membership. There is no "anonymous" purchasing at Costco. They likely share your purchasing decisions with Visa whether you use the card or not.
> thing with credit cards is that you can have more than one. I have a Visa and a Mastercard and when I shop at Costco I use Visa. I don't see this reason stopping someone wanting to compete as though if they can't get the Costco dollars, they have no product.
I'm sorry, are we really saying that it's acceptable for the market to begin preferring one completely compatible payment network vs another? This is clearly an undue influence in the market due to monopolistic power being used as leverage. No one should have to open an account with visa just to shop at a retailer. Anti competitive and anti consumer to the core.
> But that really has to do with ridiculous regulations and things like KYC, but we're not ready to have that conversation yet.
Ahhh, fearmongering about KYC. Know your customer is an obviously good regulation for banks to know the type of business they are partnering with for both risk assessment and anti fraud protections. So, what scams are you in favor of allowing by removing KYC regulations?
> No one should have to open an account with visa just to shop at a retailer.
You know you have to pay just to enter Costco right? What's the difference if they want to force customers to use cash or Visa. Do you feel the same way about businesses that reject Discover?
I really don't understand the outrage.
> Ahhh, fearmongering about KYC. Know your customer is an obviously good regulation for banks to know the type of business they are partnering with for both risk assessment and anti fraud protections. So, what scams are you in favor of allowing by removing KYC regulations?
KYC and AML measures have a limited impact on stopping fraud and terrorism financing. Current efforts intercept only an estimated 0.1 to 0.2 percent of laundered money. A 2018 study suggested that the overall impact of AML policy intervention on criminal finances is less than 0.1 percent, which is considered negligible. This aligns with a 2011 UNODC report indicating that "much less than one percent (probably around 0.2 percent)" of the proceeds of crime laundered via the global financial system are seized and frozen.
Regulations should not be judged by intentions but rather results
> What's the difference if they want to force customers to use cash or Visa.
I'll leave the cash option aside because the provider of cash is the US treasury. But yes, I do think it is wrong for a merchant to only allow mastercard or visa or discover. I understand merchants not taking Amex because their fees are significantly higher on the merchant side, but discover, mastercard, and visa are all similar for the merchant. I work in payment processing for a multi billion dollar company and we gladly accept all of these card types. My issue is with visa providing Costco with a kickback, so that Costco then pressures you to have an account with visa. It should be totally fine if someone just happens to have only mastercard cards and wants to shop at costco. I'm against kickback schemes.
As for the AML/KYC ineffectiveness argument, I'm reading through that 2018 study now.
I don’t understand this line of argument at all… Costco has competitors, you do NOT have to go to Costco. I choose not to go to many places because I disagree with their business practices or politics or whatever I feel like - it is my right. I do not understand this at all - especially in America. You don’t want my MasterCard or Discover or WhateverNewPaymentThingy? Great, imma head over to XYZ and spend my money there. Going to Costco (or any other business) and saying “you must accept XYZQ form of payment or else…” feels China-ish at best. And excusing Amex - why is that?! Fees alone? So we’d be cool if Visa just said “whatever you have to pay MC/Discover we’ll do it for one penny less”? At Costco’s scale that’d still be a boatload of money
If you want a healthy market, your standard cannot simply be: As long as there is more than one retailer in the space, retailers can place whatever restrictions they want on how you pay for their services. Businesses in one sector being able to directly affect consumer choices across sectors is how you end up with cross sector monopolies.
It is bizarre to bring up China here, this isn't about the state dictating the payment system but maintaining a healthy market. It's like a garden, you don't dictate exactly how the plants grow, but you prune them once they encroach onto other plants to maintain a healthy balance.
I brought up Amex because it is common for merchants to not accept it, due to it being a significantly worse deal for the merchants. I am fine with the argument for an even more expansive version of my argument, but I'm making a more narrow argument due to discover, visa, mastercard being so close in how they function that it is not a burden on merchants to accept one vs the others.
but who the fuck decides this? you are saying visa, mastercard being so close in how they function as if you are the one that will make policy decisions on who can do what. and if not you, who? congressman and senators (average age 89), President (80+ current, about to be 80 incoming)…
neither you nor them get to make this call, you are biased and they are paid by lobbyist. just let costco accept whatever the fucking payment method they want, whoever doesn’t like it there’s sam club and other places to get 100kg of sugar for $8.00 97kg of which will end up in garbage somewhere
To be fair, the core AMEX product is a charge card, not a credit card. They have more recently expanded into a few credit card products. I don't know the exact details, but my understanding is that the charge card system is more merchant hostile than the credit card system and more than simply larger fees.
but we are establishing here that companies (like Costco) have the right to choose which payment methods they allow in their store… if they can (of course they can and no one should stop them) then they can - end of story
> Dozens of other companies, including Google, Meta, and most recently Amazon, have come out with their own foundational models. Some, including Meta’s Llama and Mistral’s 7B, are open source, meaning they can be downloaded and used in other companies’ products free of charge.
To say that these models are open source is debatable. At least by the OSI definition, they aren't [1].
The models are free of charge for commercial use, but it may have restrictions (eg. Llama [2]).
[2]
> Can anyone access Llama models? What are the terms?
Llama models are broadly available to developers and licensees through a variety of hosting providers and on the Meta website. The Llama models are licensed under the applicable Llama Community License Agreement and accompanying Acceptable Use Policy, which provides a permissive license to the models along with certain restrictions to help ensure that the models are used responsibly. Hosting providers may have additional terms applicable to their services.
https://www.llama.com/faq/
It was a great marketing strategy, imo, to say AI is so scary and impressive and awful it needs to be regulated immediately. Helps them look impressive and good willed & kills all competitors.
Not saying there are zero, but I think Sam's publicity tour bolstered the EU AI Act and the white house exec order, both of which have really hurt EU AI and small AI companies respectively
Given the business model, it's important to OpenAI that attempts to get a confidence metric out of LLMs be unsuccessful.
Here's why. If you could have simple LLMs which reported failure when asked a question they can't answer, you're going to send queries to them first. It's going to be like customer support people who answer questions from a menu but can escalate. The first-tier LLM is probably running locally on a 1U server. Harder problems get escalated to a bigger, but local, LLM. Only the really hard ones require buying some OpenAI tokens and asking the really big model.
That approach would reduce OpenAI's revenue by over 90%. What OpenAI wants is for simple models to not work reliably, so you have to use their giant models even on dumb questions.
Pushback on this will come from Google, which has to have a tier-type system to cope with their volume of queries, most of which are dumb.
Visa makes $20B a year in profit. OpenAI and every other large tech company in the space is burning through billions of dollars every year just to stay competitive. It is idiotic to crown a company as a "monopoly" in AI when the business case hasn't even been defined yet. Give it a decade or two then maybe we can have this conversation.
Yes, but Musk has his own AI company so it’s entirely reasonable to be concerned that he’ll try the same strategy. (No, I’m not particularly worried about X.ai, yes I think Musk absolutely would use his influence over the new administration to benefit himself.)
He said the govt is actively discouraging pure AI startups because they want the industry dominated by a small number of large companies which they can more easily control. It's a similar story with the crypto industry.
Prepare to be "de-banked" if your AI or Crypto startup is not on the anointed list...
The point of the article sounds plausible, but doesn't really present any evidence to support it.
Also OpenAI in no way has a monopoly of the kind that Visa/MC has.