Sounds like the real villains are the credit card companies who have the market power to enforce fees on cancelled payments. They are so entrenched no one is even questioning their position anymore.
Visa and Mastercard are massive drains on our economy - it's ridiculous how unquestioningly their 3% tax on commerce is accepted.
The American system is too deeply tied to capital to have a policy that actually helps citizens and small businesses get passed. The second a government official proposed something like this, the espionage arms of the credit card corporations would come down so hard on them and arrange for them to fail their next appointment (through "lobbying")
You say "only" as if this isn't the majority of the american bourgeoisie.
Pretty much all of finance, Landlords, IP trolling - the rich will unashamedly collect undeserved rent on anything they can up to and slightly over the line of the law.
It's a prisoner's dilemma. If we collectively switched to a payment system with lower transaction costs, we would all be better off. But as an individual, it is in your best interest to use the credit card with the highest rewards program, because you have to pay that extra 3% either way.
Agree, and specifically for prisoner's dilemma/tragedy of the commons scenarios we have the option of regulation, which corporate propaganda has labeled as "government intervention is always bad".
And we also taught our children to be ethical and aim to do good, even in school, which helped.
On the one hand, 3% cc fees are much higher than what would be set by a competitive market and are only possible with an oligopoly. On the other hand, the convenience that they allow for not carrying cash is often worth more than the 3% to consumers/merchants like me. E.g. any online payment. So while it's massively overpriced, it's still a win win usually, and I think that's probably why people aren't madder about it.
Yeah, the convenience of having drinkable tap water is also worth >3% of your net income. But luckily, because of competitive markets, it's often <0.1% of your income.
You've articulated the exact sentiment that I have to others before.
What can we do about it? Is trying to out-lobby i.e. regulate the CC companies the only way? I noticed that other countries don't seem to have this problem.
That article is about businesses charging excessive surcharges to customers (e.g. Jetstar back in the day charging 5% extra for Visa/MasterCard, when it only cost them 0.7%).
There are no laws against high processing fees; Afterpay takes around 8% for example.
There are, and both Visa [0] and MasterCard [1] have both recently been in trouble for it. Instead of it being a specific maximum, however, it must be "reasonable" and allow for competition. The network also chooses the cheapest routing, by default.
Visa and Mastercard typically only keep the fixed fees on refunded charges, the $0.30 part of the typical "$0.30 + 3%" fee structure.
Square is saying they'll keep the whole 3%. That's obviously different and not Visa/Mastercard's fault - Visa is refunding it to Square, Square is keeping it. Stripe is now doing the same thing too.
The fixed cost is the processing fee and that cost includes processing refunds. The percentage is the "interchange fee" and is supposed to represent the agreed take of the processing network for that settled transaction.
Depends on the business. The Barbershop I go to is cash only, doesn't take reservations, and has always had a 30+ minute wait. I assume the uhh.. tax flexibility of cash payments is worth a lot
The convenience of credit cards — and customers' willingness to spend more when they are accepted — is worth more to retailers and customers than the processing fees.
I for one never carry cash, and I will happily pay any extra transaction fees from local businesses for the opportunity to reduce the size of my wallet, the cost/risk of casual theft, and the need to queue at an ATM for cash as part of my daily life.
Debit offers most of these benefits though, at much lower expense.
I use credit because with the rebates it’s rational for me. If retailers offered a sufficient cash discount to wipe out the 1% rebate, I would move most of my volume to debit or even to direct debit.
An example is my cell phone bill. Verizon offers such a huge discount for direct debit that I do it. Otherwise I would certainly use credit.
Except with debit the risk is now back on me to make sure my PIN doesn't get stolen/skimmed/whatever. Transactions are less convenient than a single tap, and (at least in the US) requires paying attention to see if places even support debit.
Ironically, many smaller shops don't support it, even though it would theoretically be cheaper per-transaction, because the up-front costs and hurders are higher than a Square account.
My kid's university housing bill accepts credit card payments with no added fees, so I get my 2% back on that. The tuition bill can be paid by credit card but they tack on a 4% fee, so tuition gets paid by check.
Yeah, I'm really thinking of going cash-only personally just out of principle. Not that it will affect anything other than my own inconvenience though.
I went to a Chase last week. They didn't have any cash. I filled out a withdrawal slip and finally found a teller. She just told me to use the ATM. I didn't have my card with me. That's why I went in the branch and used the withdrawal slip.
And on top of that there's so many businesses that just refuse to accept cash now.
Not really, because you have to embed the CC costs into the retail price. So even if you pay cash, you pay for CC fees indirectly. While only the actual CC users get some minor cashback. So non-CC payers have the highest cost.
Seems to me that the real villain is the network interchange companies. The credit companies which use said networks are numerous and are in reasonable competition with each other, continually eroding their share of the transaction fee to provide more and more compelling 'rewards' to their customers.
Once upon a time people dreamed that blockchain would provide the network, operating in a distributed fashion that isn't dependent on one or two companies, and bet big on it becoming that, but obviously that didn't pan out.
I don't know enough about the topic to analyze whether 3% is high or low, but I don't think it makes sense for them to refund the fee in the case of refunds. They have provided the same service, same costs. So I would hardly call them villains for that aspect.
They provide a service and they charge for that service. What part about this is so villainous?
I agree that is not a consumer friendly situation but on the grounds that it because its effectively a duopoly and not because they charge for a service they provide.
These monopolies never benefit the consumer. The best ways to approach this are 1. the government to break up the duopoly, 2. a competitor to come along to introduce more competition, or 3. the consumer can get fed up and go back to using cash or carry a laptop around to transfer bitcoin until said companies are forced to break up and consolidate to a better product. These solutions are tried and true.
I am tired of hearing people complain about a service and still continue to use the service.
From a user perspective, I get a lot of benefit from credit cards. I get cash back, an interest-free advance, the ability to do chargebacks, very low liability for lost/stolen cards, etc.
If I got 1% or 2% lower prices, would I give all that up? I doubt it.
Cashback on credit cards is really just a rebate on the CC fees that are baked in to all prices. It's still a net economic loss for consumers, just not as bad as if you weren't taking advantage of that.
Credit cards only seem like a good deal to consumers because it is hard to reason about n-th order economic effects. The profits these companies make are ultimately coming from all of our wallets.
Yeah, I'm aware of "churning". AFAIK its only possible to beat the system by taking advantage of many temporary offers in series and distorting your spending to get the 'free' value offered by their featured partners. i.e. you can only beat the system to the extent that you value airline miles and gift cards as their cash equivalents.
I'm not even talking about churning, though that can be a thing too.
I need to use something for purchases, and each method of payment has pros and cons. Even if using a credit card had a visible 2% additional cost, I'd use it on certain transactions. If I'm dealing with a vendor I might not trust to do a refund, a cc lets me do a chargeback. If I'm concerned about holding large amounts of cash, a cc lets me limit my risk exposure. If I don't have the cash currently, a cc give me an interest-free advance until the statement due date (between 20-40 days in the future).
We can certainly argue about whether those things are worth 1% or 3% or .02%, but they're worth something to consumers.
I get 2% cash back on all my purchases. So they are going to have to drop prices by more than that. And I also get the protection of the cc company if my card info is stolen or a company doesn't deliver what they promised.
Yea people keep talking about the convenience of not having to carry cash. I think the best benefit of a credit card is that you can do a chargeback if you're fraudulently charged or if the company does not deliver on the obligation of the purchase. Which I've had to do more and more lately as companies increasingly hide themselves behind powerless frontline customer support punching bags. I've done more chargebacks in the last two years than I have in the 20+ years I've had my Amex card.
France has its own payment network, CB (previously Carte Bleu). Payment cards emitted by French banks are usually both CB and Visa, which allows French banks to route payments through CB rather than Visa. This could probably be done by other groups, national or otherwise, with little effect on users.
A lot of local shops near me pass the processing fees to their customers. Usually with a small sign at the register that says 3% added for credit card payments.
This will affect businesses that do 3rd party merchant services, like events. If the event is cancelled, refunds are issued. Who pays that fee? It would be up to the business to try to claw back funds from the promoter of the event... who is now bankrupt from not being able to do their event. It gets ugly fast.
I think that's why (well one of the reasons along with generally poor behaviour) most ticketing sites tag on so many extra "service" charges. Some charge to even receive a digital copy of your ticket! I believe they don't have to refund these charges when the event is cancelled.
The extra fees are simply a way to gouge end users. It has nothing to do with refunds and it is also often out of the control of the promoter of the event.
When I built an event ticket sales site, we tried to get promoters to just raise their ticket prices a bit to include the 'service fees' so that end users got a single price, and they refused.
Promoters just want to advertise $25, not $32.50 (contrived example)... they don't care that the end user has to pay the additional fee. We did all of the math analysis and the end user total cost could have been lower, while the promoter got more money, with our method, but perception is king.
It's only natural that "Promoters just want to advertise $25, not $32.50", so I think the only way how change is going to happen is by truth-in-advertising regulation that requires advertising the fees-included price, where it must be possible to actually get the thing by paying the advertised amount.
Yea, we tried very hard to promote T-I-A, but we were fought on it the whole way and at the end of the day, it was part of the downfall of our business. Promoters didn't want to list their events on our site because of that. It became a friction point for them, even though at the end of the day, the math was better for them and for the end user.
From the merchant service aspect, they provided the service (allowing the user to buy a ticket to an event), I don't see why they would have to refund their fees for that service.
In effect, for better or worse, that is also what Square is doing now too.
Of course, that isn't what the end user wants.
What the end user wants is the promoter of the event to refund them their ticket cost AND the fees. That would be up to the promoter to do that, which they aren't going to do since they are now bankrupt from not hosting the event.
I hate to bring up the whole 'crypto fixes this' thing here, but it does. The transaction fees on L2 chains are so low that the promoter could just afford to give full refunds in whatever stablecoin the end user bought with. There would be no square, credit card company or anyone else in the mix trying to dip their fingers into the pie. The whole problem revolves around the issue of too many cooks in the kitchen and some of those cooks are really corrupt.
Who is 'they' in your equation here? Also, tell me how a small merchant services business is going to get an insurance plan that covers something like that? This isn't 3% revenue on one single event, it could be on a number of events. What if a multi-event promoter goes out of business?
This also isn't just events, that is only one example. Any 3rd party merchant service provider is going to be affected.
Back when I had my events company, we went with WePay because they were the only service at the time that offered 'free' refunds. Eventually, it became the norm. Now it seems like this policy is getting reverted and that's going to have a large impact on merchant service providers.
> If the event is cancelled, refunds are issued. Who pays that fee?
Insurance. The promotor would have insurance to cover this. If the event was cancelled due to a performer cancelling, the performer's insurance will pay.
All this puts up the price of insurance, which puts up the price of event tickets.
I guess the days when refunds were frictionless so that consumers could purchase with confidence are gone? Refunds have always been a cost of doing business - it just seems the processors / card companies want to change the rules and have their cake and eat it now that cash is mostly dead.
Refunds are still frictionless for consumers. It's vendors who have to maintain product quality and prevent fraud to avoid returns. It's not Square's job to make sure that a vendor's product is high-quality or that customers really want to keep the products they buy.
"Not Received In Time" - Delivered 3 days ahead of schedule.
"Too Small" - Item clearly says in multiple places, and even demonstrates in images, the item is 2mm in diameter.
The result? Everyone pays more for the products so we can support a few bad apples serially returning stuff.
This new policy from Square is going to stick merchants with an empty bag for all returns. Which ultimately will make merchants more careful, to avoid getting hosed, ie. raise prices for everyone to support a loss on a returned or cancelled transaction.
If a transaction is cancelled, or reversed/refunded - nobody should be making a profit. That includes Square, Visa, etc. This is just an absurd anti-consumer policy that small businesses (the only ones using Square) will get blamed for being greedy over.
Zappos is a prime example of this. Most folks order two or three of the same shoe, and return the ones that did not fit. Zappos has Free Shipping to you, and Free Return Shipping.
And... if you price shop the shoes, Zappos is rarely-if-ever the cheapest. You pay for that "service"...
> When clothing manufacturers remove an inch or three to make people feel better about themselves, what else can you do?
Is that actually a thing for clothes sized in inches? Or are you referring to the unitless sizing of women's clothes?
I do get that unitless sizing is annoying to deal with. But it's apparently popular enough to exist as a thing.
For Men's clothes that aren't measured in inches and are instead s/m/l/..., I find those measurement to be shockingly stable across the industry. Although, to be fair, men's clothes are generally meant to fit more loosely than many articles of women's clothes.
Yeah, it's still bullshit. Almost all vendors are going to experience some amount of returns and it costs almost nothing to process it. This is just another form of rent seeking from the credit card processors
I don't know who your current processor is, but if you have any real volume, get off Square/Stripe if that's where you are at. Their rates are awful for volume sellers.
Square approached us a few years back and could not comprehend why we weren't jumping at their offered 2.6% + $0.35... "but the AI!?!?" is all their sales people could come up with.
We're well below 2% + $0.20 per transaction for all cards (including AMEX, believe it or not). Square/Stripe and the rest are great for being Turn-Key for new businesses. But for anyone with real volume, they are a joke.
Does anyone know if the "real big" merchants like Walmart have to pay the fee? I assume they're so large they can sit on the processors and squeeze them (I know Costco does, they pay 0% fees in-store because Visa is so hungry to be their processor).
Costco gets away with 0% because they offer exclusivity and because they cover some of the cost of the rewards programs. I guess Walmart et al did the math and figured they would lose too much business.
The average Costco shopper makes over $100K a year, so getting another card just to shop there isn't a problem for most. Can't say the same for Walmart.
> The average Costco shopper makes over $100K a year...
While technically true, that statistic is misleading as it requires further qualification, namely that $100k figure only applies to shoppers in Costco's PNW area - not nationwide, and certainly not internationally.
Not sure why you think it PNW only. The number came from the CEO of AMEX, back when they were the exclusive credit card provider for Costco. He said, in 2015, that the average Costco card holder made $100K a year. So presumably that would be in all of the US.
More recent attempts at analysis put the number closer to $125K these days for all their customers worldwide.
Which makes sense, given inflation and the fact that they only build Costcos in more affluent areas and target business owners.
I was specifically wondering about the refund cost; I wonder if Walmart is eating the 1-3% on all refunds (I suspect the stores that DO eat it are the ones that really want to refund as store credit).
I work for a very well known retail brand and we've negotiated our average interchange fee to under 2%. I believe it is around 1.7% currently but it's been lower in the past.
I thought Walmart bought their own merchant bank/processor to avoid fees which sound like something walmart would do but I can't confirm, I know they're looking to expand on fintech services to consumers/business and that's difficult to do without some level of processing control.
Why sadly? This is basic consumer protection stuff. It seems like currently this fee ends up being paid by the vendor or some middleman, but that seems like BS too. Visa/whoever should be returning the fee and folding it into their business model as the cost of doing business.
Even if you do everything you can to prevent it, you still incur refunds. It is simply impossible to get everything right 100% of the time - not in the least because people keep buying the wrong items. Things like cancelled or modified orders happen all the time, and you can't really do anything to prevent those.
And that sounds like the cost of doing business to me. For especially egregious cases the companies should reserve the right to charge customers for being stupid and wasteful.
Where I live, that expectation is enshirined in a law created in 2001. The reasoning is, with remote buying you can't physically inspect the item. Hence you can decide to return an item at no cost, provided you have only handled it the way you would have been allowed in a physical store.
I believe the law was originally created due to massive over-promising of results by tele-marketers.
(I live in the Netherlands, but similar laws are common in Europe I believe)
I learned the hard way in March 2020 that PayPal doesn't do this anymore either. I was helping an organization raise money for a Charitable 5k when COVID shut everything down.
This was when everyone thought the world was ending still so we didn't think to change it to a virtual 5K. Refunded all payments on a couple thousand dollars and was out around 4% in processing fees.
It seems any victim of a decent sized "card testing" attack will pay a heavy price. They just removed their last incentive to protect against this kind of fraud by forwarding all the costs to their clients.
Why cant US have something like UPI [1], which significantly reduced reliance of credit card companies and extra payment traaction fees in India. Is there some regulation holding this back or no state or federal government has tried it yet.
Raised prices. The company I work for alrady has to pay a 3% charge on payment returns. Take 3% of the product price, multiply by the expected rate of return, and add that as a hidden fee to the new product price.
Everyone pays more for everything the retailer sells until their revenue and costs ratios match roughly as they did before, with variation depending on competition intensity and elasticity of the products sold.
Everyone else that bought something at the higher prices covers the fees when the much smaller number of people request the refund. So it is essentially crowd funded
Well, they launched as a PayPal alternative, but now they are copying all the negative features. Anyway, we've stopped using Square long ago given their obscene policies. One such policy is charging $70 per month for "team access"! That's absolutely crazy to put a basic feature under a greedy paywall! So, basically, they force people to share logins! Add the rate hikes, now this! Sorry, but there are alternatives such as SumUp, Stripe Terminal, Clover, QuickBooks, etc. In fact, if you want the lowest swipe rates, go with QuickBooks!
It's not a penalty, it's just a cost of using the network.
If you use the credit card network not just once but twice -- once to process a purchase and then yet again to refund it -- you're using that infrastructure.
It makes sense you'd pay for its usage. If you drive to work on a toll road and then drive back home along the same toll road, you still have to pay the tolls even though you wound up in the same place at the end.
By that logic they should charge by request volume, not by percentage of amount. As a matter of fact, there is no logic in pricing. Sellers will charge what they can get away with, buyers will pay what they can afford. And of course, it is always negotiable.
That assumes that the cost is proportional to the number of transactions, and is completely uncorrelated to the size of the transaction, which doesn’t make any sense to me. Any costs due to risk will be larger for larger transactions.
In principle, repeated choice of whether or not to use a specific product is a form of negotiation, where each choice provides information to the seller, who can then update their pricing accordingly. In practice, this is an extremely weak signal, is swamped out by market changes, assumes zero cost of switching, ignores network effects, etc. One of many reasons why I distrust economist’s assertion of fairness.
They throw out a number based off my last salary, and said it was non-negotiable. Because I needed a job, I had no option of backing out. The time before that, I tried negotiating, and the hiring director basically said "I know what you made at your last place, so you'll get that."
Even vacation has been non-negotiable. It's disheartening, but typical for tech (and ironically largely enabled by tech).
That sounds like the usual "big businesses get extra considerations that small businesses do not". And since small businesses are the vast majority in number, negotiation is absolutely not something they can rely upon.
Or, to put another way, someone selling handmade goods at a fair using Square will never have more negotiation power than "if you don't like it, leave".
You negotiate by not using square and using an alternative system in that scenario. There are price competitive options even for small businesses. The UI might be clunkier and the equipment more dated but that is the tradeoff.
> In practice, [switching vendors] is an extremely weak signal, is swamped out by market changes, assumes zero cost of switching, ignores network effects, etc. One of many reasons why I distrust economist’s assertion of fairness.
You send them a formal letter to their listed place of business.
You very likely will find amazon is not willing to engage in much negotiation, unless you happen to have a unique offer. But nothing requires amazon to engage.
As a seller? You set up your own website and don’t use Amazon. There are literally thousands of mom and pop sellers that use Shopify and advertise on Facebook and Instagram
Well they actually do both, they charge by volume and percentage.
There is absolutely logic in pricing in terms of setting a pricing floor, which often comes from a combination of fixed and variable costs.
Of course you are right that there is flexibility above that, but again there's absolutely logic there as well in terms of price discrimination mechanisms.
None of this is just arbitrary. These companies put a lot of thought, and logic, into their pricing mechanisms. Get it exactly right and you make a lot of money, get it a little bit wrong and you go out of business.
> If you drive to work on a toll road and then drive back home along the same toll road, you still have to pay the tolls even though you wound up in the same place at the end.
Funny you should use that example. On toll roads you get charged in both directions, but I've never seen a toll bridge that had tolls in both directions. Usually the argument is that you really can't go any other way so the toll in one direction covers the cost of both trips.
But I actually think you're right here -- most people won't make the "return trip" so it makes sense to only charge people twice that do.
I've never seen a toll bridge that doesn't have tolls in both directions. I didn't even know that charging in only one direction was a thing. You live and you learn.
Fairly standard around Chicago area. Results for Illinois Tollway Plaza will show them (not all of them are - they can get interesting at intersections and off-ramps).
(late edit)
This is largely driven by the question "is a vehicle heading in one direction likely to return in the other?"
For trips from Oakland to SF, yes - it is very likely that the vehicle will go back across the bay bridge back to Oakland (rather than heading down to San Jose and then back up the other side).
On the other hand, a vehicle driving on the tollway through Chicago may be heading up to Minneapolis or to Detroit and then to other directions. Trips on the Illinois tollways are less likely to have a return trip and so both directions need to be tolled to capture the vehicles. It costs twice as much to do this (twice as many toll booths and staff) and so given the choice (trips to an island or other geographically isolated area) they only pay tolls in one direction.
Also tolls crossing into NYC. Since going around is impractical, it means you need half as much tolling. And since the land for tollbooths would be more expensive on the NYC side your savings are even larger.
Interesting! It may be a geographical thing. Clearly they don't want you to be able to do a free "circular commute" so for instance, in the Bay Area, all bridges charge toward San Francisco, and are free in the opposite direction. So there's no way to do a circular commute that wouldn't add 100+ miles by circumnavigating the Bay every day. But it seems like it "should" be simple enough (Dangerous words!) to coordinate say, "all bridges over a river in the metro area charge eastbound."
It seems kind of a waste from my perspective to have to do the traffic bottleneck in two directions.
An example: to use the ferry system here in Washington’s Puget Sound, you pay to go to the island, but the return trip is free. Same applies for bridges taking you to islands.
> I've never seen a toll bridge that had tolls in both directions.
Huh, I think I've only seen this once (the Tacoma Narrows Bridge). Other toll bridges I've driven have all had tolls in each direction, e.g., Ambassador and Blue Water Bridges to Canada, Lake Washington floating bridge. Maybe I need to start taking more bridges to nowhere!
The floating bridge has a toll in both directions because there’s an alternate route which isn’t too much worse when there’s no traffic (and something about federal highway grant money)
Interesting! I'll admit my sample size is limited to bridges in California, but at least in the Bay Area all the bridges only have tolls in one direction.
I suspect the Bay Area model is more common where the dominant traffic on a bridge is two-way commute traffic that can’t easily escape the toll regime for one side of the commute. In that case, one-way tolls reduce infrastructure and operating costs, and traffic impacts, of toll collection without any significant downside.
The other half of that is a practical matter -- collecting tolls in both directions means constructing and staffing a larger and more complex toll plaza. It's hard to justify that expense unless a lot of tolls will go uncollected without it.
> The other half of that is a practical matter -- collecting tolls in both directions means constructing and staffing a larger and more complex toll plaza
That’s part of what I waa getting at with “infrastructure cost”, yes.
That makes sense. It fits with the Tacoma Narrows Bridge, which connects Tacoma (urban economic hub) to the Olympic Peninsula (some small towns, mostly wilderness).
It costs Square money (card network costs) to refund a transaction. It's not a penalty, it's just costs associated with moving money. Even if the money is moving the other way, there's still a cost.
Definitely "The way it is" -- but it does seem greedy. All systems drift toward the greediest possible implementation, though, in the absence of competition or regulation mandating otherwise, of which we have neither.
Apparently merchants can avoid it with store credit:
> Additionally, we offer a number of resources and tools to assist sellers in accommodating this change. Our Return Policy Guide & Templates provide sellers with guidance on how to create a return policy that best suits their business, while Square’s free eGift Cards can serve as an option for providing store credit to buyers with no additional processing fees.
A refund _is_ a chargeback – the only difference is who initiates it. Technically, any time funds are moved onto a card, it's called a chargeback. This is how one would load a gift card, for instance.
When it comes to credit card merchants, a chargeback always dings a transaction fee, and the merchant may additionally tack on a chargeback fee. So a full refund process will incur two transaction fees, plus possibly a chargeback fee.
>Technically, any time funds are moved onto a card, it's called a chargeback.
I've seen more companies offering a reverse debit now (not sure of the actual term). Is this not through a different mechanism? Funds are available instantly same as how they're drawn via debit vs credit.
> Depending on your fee schedule, you may incur fees to refund a charge. Additionally, Stripe's processing fees from the original transaction will not be returned in case of a refund.
Which is a great reminder for all the purchasers of SaaS or other business services on here:
If the terms of one provider are noticeably different than the rest (and those terms have a directly measurable economic impact on the provider), it's marketing. It will likely get pulled as soon as the provider is at a large enough scale that they no longer need that marketing.
Devils advocate: this penalises businesses with a LOT of refunds. Which is probably a good thing. Because they generate a lot of work for square and are doing something wrong commercially (misadvertising?). And SHOULD be discouraged...
Visa and Mastercard are massive drains on our economy - it's ridiculous how unquestioningly their 3% tax on commerce is accepted.