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Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

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Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#41

Post by ethanazir »

jmduke wrote: post #37
ethanazir wrote: post #36

Earlier quoted context omitted.

A one year CD goes for about 1% now ergo 3% is a long time horizon on value. 2-3 months is ~equivalent to a 0.1% fee per CD rates.

I think the vast majority of merchants would find more utility in the expedited payout & resulting liquidity than the extra 2-3%.

Retail merchants have capital tied up in product; what difference does it make if its on the shelf or already in customer's hands? ... sure cash strapped people always pay more. But the reason the rate is so high; 3% on month > 36% APR b/c of network leverage and government regulations.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#45

Post by ethanazir »

abalone wrote: post #40
ethanazir wrote: post #31

Why can't the merchant's funds simply be quarantined for say 2-3 months? ... Victims of a fraudulent merchant would have 30 days to 1) get their bill and an extra 30 days notice of the fraud charge on their bill to cancel/dispute. If the customer did not pay bill; the 'visa' could avoid crediting the merchant. A 2.9% transaction fee is like a 1 year quarantine. quite long me thinks.

Because most merchants would then need to borrow money to pay their suppliers and expenses while awaiting payment, which would end up costing them a lot more than an extra 1%.

"extra 1%" on month > 12% APR.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#46

Post by cma »

DanBlake wrote: post #25

Everyone forgets points/cashback. That visa card you just got that gives you 2% cashback? That doesnt come from thin air. It comes from the merchants pockets paying their transaction fee.

It was VISA et al's way of taxing people purchasing with cash. They had contract terms that wouldn't let you sell at a discount when the customer paid in cash; under Obama the federal government finally banned them, and several states had already done so, but I think usually only for gas purchases.

I think the contracts (or consumer inertia) still make stores advertise at the credit-card price, and the different price for cash has to be advertised as a discount.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#47

Post by PeterisP »

ethanazir wrote: post #31

Why can't the merchant's funds simply be quarantined for say 2-3 months? ... Victims of a fraudulent merchant would have 30 days to 1) get their bill and an extra 30 days notice of the fraud charge on their bill to cancel/dispute. If the customer did not pay bill; the 'visa' could avoid crediting the merchant. A 2.9% transaction fee is like a 1 year quarantine. quite long me thinks.

Cash flow is the major priority for most merchants. You wouldn't get 0 rates anyway, and the majority would rather pay 2.9% instead of 2% + 3 month extra delay; especially growing businesses - for a stable business you can plan for $x being frozen; but with quick growth if you're getting 'old&small' revenue while having 'new&increased' expenses for the goods; you'd run out of cash in no time.

Don't compare the cost of money with a CD rate, but with the expected ROI for VC investors - you won't get cheap funding in the amount you need; intentionally shortening your runway by 3 full months will bite a noticeably hole right in your equity.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#48

Post by jsonne »

trebor wrote: post #5
xfactor973 wrote: post #2

Dwolla doesn't charge that but I have no idea who uses them

Dwolla doesn't charge that way because they're not billing credit cards. You give them your bank details and they do an ACH transfer with them, IIRC. I've heard both good and bad about them, but they don't have large use yet.

That's correct on the ACH bit.

In so far as large use cases, they have some really good traction in the bitcoin market. I believe that they are the go to for transferring USD in and out of MT. Gox.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#49

Post by PeterisP »

ethanazir wrote: post #45
abalone wrote: post #40

Earlier quoted context omitted.

Because most merchants would then need to borrow money to pay their suppliers and expenses while awaiting payment, which would end up costing them a lot more than an extra 1%.

"extra 1%" on month > 12% APR.

Why 'on month'? You'd get a 1% discount at most; if you 'buy' that discount by freezing all funds for the whole chargeback period (90-120 days) then it's 3-4% APR.

[edit] the thinking is, if your revenue is $100/year, then in (A) scenario with higher rate you pay $1/year more in fees; in (B) scenario with delayed funds you need a permanent loan of ~$25 which will cost you more than that unless you can get an APR of lower than 4%.

Re: Ask HN: Why do all payment processors charge 2.9% + $0.30 per transaction?

#50

Post by abalone »

ethanazir wrote: post #45
abalone wrote: post #40

Earlier quoted context omitted.

Because most merchants would then need to borrow money to pay their suppliers and expenses while awaiting payment, which would end up costing them a lot more than an extra 1%.

"extra 1%" on month > 12% APR.

Wishful thinking > actual APR of short-term, high-risk loans and difficulty of small businesses in securing them in the first place.
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