Debit cards and the payment processors' cut

[Hentai-Semitism]

Josh often talks about how Visa etc. get ~3% of every transaction. I know nothing about money, taxes or running a business. I'm not good at math and neither my parents nor my schools have taught me anything. Can someone explain to me how it works?

Example: I live in the EU and I have a Mastercard debit card. I use a card reader at a store to pay exactly €100 for a jacket.

Is it literally 3% of the €100? Or is it 3% of the sum after 74 different taxes? Is the 3% coming out of my pocket or the business owner's?

On a related note: should I encourage my friends and family to use cash whenever possible to avoid giving those greedy scumfucks their cut?

 

[Smoltine Kiminal]

i dont think the normal euro debit cards from your bank are as bad as the visa/mastercard credit cards
if its a debit pseudo-creditcard its the same shit as with a creditcard

should I encourage my friends and family to use cash whenever possible to avoid giving those greedy scumfucks their cut?

yes, cash as many advantages and is far more comfortable as well
oftentimes small businesses depend on cash payments to stay competitive, so its extra important to pay with cash there
the privacy of cash is also nice

Is it literally 3% of the €100? Or is it 3% of the sum after 74 different taxes?

you can look at the paper you get, first the taxes, likely 20% or so vat
the rest is the actual price, and the business pays 3% from that
the buisness is banned from giving you rebate if you pay cash, thus you have no direct financial incentive not to use cards - the cards companies also cheat with cashback bullshit to actually incentivize card payments, but thats mostly an american thing

however if half of people pay cash instead of card, then the buisness can lower prices by 1.5% (pre vat) while making the same amount of profits

paying cash profits everyone, except the jews

 

[Nero Fiddled]

The card processing fees are taken prior to any other taxes.
As far as the person buying the jacket is concerned, they see the jacket advertised at €100 and that is what they pay.

As to whose pocket that 3% is coming out of, that will eventually be coming from the customer as all those potential 3%'s are built into the retail prices of the goods being sold.

 

[Unarmed Gunman]

Just as a point of clarification, debit cards are the cheapest form of plastic payment. It's not 3%, probably less 0.5% but it's been awhile since I looked these up and I don't care enough to do it now. Rewards cards are the really expensive ones (think cards with airline miles, cash back, etc). And American Express is expensive too, which is why a lot of places don't take it. If retailers could refuse taking rewards cards too, they would, but those are on the same Visa/Mastercard network so they can't. whereas Amex is on it's own separate payment network. So think of the 3% as a ballpark average for what a merchant pays across the board to process plastic payments.

If you can pay in cash, you should. That way the merchant can maybe hide some money from the gubmint tax bandits and you can provide less of your personal spending data to greedy pigs who want to squeeze you dry.

 

[Daddy's Little Kitten]

And American Express is expensive too, which is why a lot of places don't take it.

If I'm not mistaken, Discover fees are also very high.

 

[Hentai-Semitism]

Just as a point of clarification, debit cards are the cheapest form of plastic payment. It's not 3%, probably less 0.5% but it's been awhile since I looked these up and I don't care enough to do it now.

So the 3% that Josh mentions concerns credit cards?

As far as I know, debit cards are way more popular than credit cards here. I don't even know the difference. If we're talking about bank transfers, then they're only about 20 euro cents for overnight and about a euro for instant (fixed fees).

 

[Unarmed Gunman]

So the 3% that Josh mentions concerns credit cards?

There are so many different fees for different payment types, and it's not uncommon for larger retailers (like Walmart) to get much cheaper rates due to the volume of transactions. So the average is going to be hard to nail down, but 3% sounds about right across debit and credit combined.

As a general rule, debit cards have much lower rates for merchants than credit cards do because the payment risk is much lower (direct from your bank, vs hoping you pay your bill when it comes in a month). And for credit cards, there is a lot of variance in the rate they pay based on the network (Visa/MC vs Amex or Discover or maybe some foreign network like JCB or whatever) and the rewards offered on the cards. And although retailers can control which networks they accept (No Amex, Sorry), they can't control if you use an expensive ass rewards card or not, since the "Visa Platinum White Glove 6% Cash Back Travel Extravaganza Card" processes on the same network as any Visa Basic Chase Credit Card does. They just take it in the ass and pass the cost on to everyone else.

Also, if you don't live in the US, I have no idea if this shit all works the same. China or Russia probably have a whole different system for this shit, I have no idea.

 

[Harvey Danger]

Just as a point of clarification, debit cards are the cheapest form of plastic payment. It's not 3%, probably less 0.5% but it's been awhile since I looked these up and I don't care enough to do it now. Rewards cards are the really expensive ones (think cards with airline miles, cash back, etc). And American Express is expensive too, which is why a lot of places don't take it. If retailers could refuse taking rewards cards too, they would, but those are on the same Visa/Mastercard network so they can't. whereas Amex is on it's own separate payment network. So think of the 3% as a ballpark average for what a merchant pays across the board to process plastic payments.

So the 3% that Josh mentions concerns credit cards?

It used to be cheaper, 1.5-2.0% per transaction was the norm. Over the last few years Visa/Mastercard have been raising their fees, which is why you see more merchants outright offer cash discounts when they used to just eat the cost.

Also, there used to be minimum fees, structured like "cost per transaction is $0.25 or 2%, whichever is greater". So you'd see merchants set minimums, like "$15 minimum transaction for credit card". But most of those seem to have faded away. I'm not sure if the card companies changed the minimum, or if Covid's cashless push made them prefer cards, or if inflation just means there aren't many bills below the $15 minimum.

 

[Hentai-Semitism]

which is why you see more merchants outright offer cash discounts when they used to just eat the cost.

Damn, I never knew about that. That's sad. Like Brad Pitt's character said in Killing Them Softly (otherwise a very forgettable film): "America is not a country, it's a business".

"$15 minimum transaction for credit card"

I've seen this in a few movies and now I finally get it!

 

[Harvey Danger]

Damn, I never knew about that. That's sad. Like Brad Pitt's character said in Killing Them Softly (otherwise a very forgettable film): "America is not a country, it's a business".

It's an old economics problem, the barrier to transaction. The idea is that customers want your product, they are ready to pay for it, but they may have issues because of the way they carry money. Maybe they have $100 bills, or gold coins, or a pocket full of pennies, or a particular debit/credit card. A merchant that says "sorry I don't take your form of payment" loses out on a sale, which is inconvenient for the customer but really bad news for the merchant.

Generally, the merchant puts in extra work to accept as many different ways of payment as possible, to get as many sales as possible. However there's costs to accepting some forms, and risks to accepting others, and even business-disrupting effects to some forms. So a lot of the signs you see about payment represent a cost/benefit balance the merchant has come to accept, trying to maximize accepted payments while minimizing risk/cost.

Some of the common ones:

Spoiler: "No bills over $20 accepted"

This is to avoid losing money from counterfeit bills. You might lose a sale to someone who only had $100 bills in their wallet, but that's very rare. The risk of losing $100 on a transaction is much higher than the odds of losing that sale.

Also, someone paying with a high bill risks wiping out the change in your register. Registers usually only have $100-$300 in change, if a few people pay for their $10 meal with a $100 bill, you'll quickly run out of change. It's too inconvenient for business, again for a low risk of losing the sale.

Spoiler: "Only USD/Euros/pesos/etc accepted here"

Common in tourist spots or internationally travelled cities. It's way too chaotic to have a cashier trained on a hundred different currencies, and to keep up with multiple exchange rates. So they'll usually pick just the home country's currency and/or the most common tourist currency. They might lose out on some sales, but it's a reasonable expectation that travelers exchange into a local currency already.

This is one of the huge benefits of CC, the card company will handle the exchange automatically between whatever currencies both sides name. Just swipe the card, nobody has to do math, both sides are happy.

Spoiler: "$15 minimum transaction for credit card"

Like I mentioned above, having a flat CC fee makes low value transactions less profitable for merchants. But they don't want to reject all CC, that loses them sales for people who don't carry around a lot of cash. So they compromise. $0.25 for a $1 purchase would lose them money, but losing 2% of a $50 purchase is worth the cost, as long as it gets them more sales overall.

The mathematical tipping point where $0.25 becomes less than 2% is actually a $12.50 purchase. But it's easier for cashiers to just round it up to $15 for the CC-allowed threshold.

Spoiler: "We don't accept Discover/Amex/etc"

Similar to the minimum fee calculation, except these cards charge the merchants a higher percentage, usually 3% or more. The merchant decides that they can't afford the profitability loss, and relatively few people carry those cards so they won't miss out on a critical number of sales.