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

Everyone is basically following PayPal's lead. To make price a compelling differentiator, you'd have to go to a place where it'd be very difficult to make money. 2.99% looks kinda lame. 3% is perceived as much higher. PayPal's choice was spot-on.

I've always wondered what kind of rate a high volume company like McDonalds or Walmart could negotiate? Could they be paying pennies per transaction?

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.

The problem there is you have to have the money in your account. If they could find a way to do instant withdrawl/hold of funds, then people could use Dwolla to make a purchase direct from their account.

As it is, you have to put money into your Dwolla account and let it sit there until you're going to spend it, making impulse shopping a lot harder to do.

It's not quite true that all payment processors charge 2.9% + $0.30. In the real world you'll find rates almost half that for brick and mortar merchants, more like 1.8% + $0.15, which is very close to a processor's wholesale cost (called "interchange"). It's specifically ecommerce processors that are easy for anyone to sign up with.

There are two main reasons "no hassle / developer-friendly" ecommerce processors charge so much more:

1. Value-added features, like easy-to-use APIs and friendly customer service

2. Higher rates of fraud

Fraud is a big issue. You see, processors essentially "vouch" for the businesses they add to card networks. If a fraudulent business starts up, runs tens of thousands in fraudulent card payments, and takes the money and runs, and then all those victims issue chargebacks to recover their money, the processor is left holding the bag.

This is why signing up for accepting credit cards at lower rates has traditionally been a pain in the butt. It was like applying for a loan. The processor wanted to do some due diligence on you.

So the easy-to-use processors are not only offering nice software, they're also taking on more risk by letting anybody sign up and get paid quickly with minimal due diligence hurdles. There's a lot more work and investment they have to make on the backend to mitigate this risk.

Footnote 1: Amazon's new payments service is a good example of how to do a more competitive rate without sacrificing ease of use. They start at 2.9% + $0.30, but then scale it down to as little as 1.9% once you have established three months of high-volume activity. That's a pretty good protection against fly-by-night fraudulent businesses.

Footnote 2: Other commenters have noted the role of interchange. But this in itself does not explain why no-hassle ecommerce processors charge more than other processors. Interchange is really not such a mysterious thing: it's the wholesale cost that processors pay to card networks, which in turn mostly gets passed to the bank that issued the card. Competitive banks will in turn pass this on to their customers via reward programs and benefits. It gets press because merchants resent having to pay out an extra 1-2% or so that mostly gets funneled back into their customer's pocket (long interesting story about how Visa used this to drive adoption of their network). But the main reason that "friendly" ecommerce processors charge more is quite simply higher fraud risk.