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

By establishing your own merchant account with the processor, you'll have lower rates but signing up will require a lengthier process of providing your business info and having that reviewed. Basically this mean that you're taking on the risk of fraud or chargebacks directly. The benefit of course is that you'll have lower net costs esp. at higher transaction volumes with the variable pricing aspects that has been mentioned here already. It also allows you to add more value-added services that align to your business needs, such as subscription billing or other servicing layers.

On the other side, signing up under a payment processor's merchant account (e.g. Stripe, Braintree) can get you up and running instantly with a simple pricing structure. This often make sense for businesses who need to get up and running quickly without having to go through a merchant account review process. Also, the risk is actually taken on by the processor since it's their merchant account with the processor. Of course the processor in this case monitors fraud on your activity in order to protect themselves. What you'll find though is that as your volumes grow, there will be an inflection point where it'll be more cost effective to switch to the first option.

There's benefits in both models, but as always, companies should see what makes sense for them.

The problem with cash reserves is that they hold cash for product you have already delivered, a 90-day 100% rolling reserve means that you are effectively extending net-90 terms for all of your customers. You're issuing credit, but not collecting any interest on it, while you have to pay your own vendors and other service fees/employees in the mean-time.

Another side-effect of this is running negative cash flows when your business surges. Say your business booms around the holidays, to meet the demands, you place larger orders with your vendors, and thereby incur larger costs - but have to pay them out of reserves from a slower period in the year. You cash flow for that ninety days around the holidays would be substantially negative (you've paid out a lot more than you've paid in), and the interest you may have to accrue from your vendors to float until disbursement may greatly exceed the nominal transaction fees you'd pay if you didn't have a 100% rolling reserve.

Generally speaking, I've always found higher fees (up and to a point) to be better than higher reserves. If you can combine just-in-time manufacturing (or purchase) with credit terms from vendors, you can "play the float" wherein you're paid today for something you don't have to pay for until a month (or, in reality, as much as 59 days later on a net-30 account) down the road. This is very effective at the beginning of the year for LLCs where members need to distribute all profits at the end of the year to members due to taxes being due, and minimizing the re-capitalization of the business to get through the 1st quarter.

http://www.interest.com/credit-cards/news/you-soon-could-be-...

From that article it sounds like it was part of a lawsuit that was settled. I had thought it was through one of the consumer financial protection bills that happened after the housing bubble pop.