Visa To Offer Person-To-Person Payments

angry tapir writes "Visa has announced it is planning a new service that will let US customers send money directly to one another, presenting new competition to PayPal. Visa already lets people send money to Visa accounts in many other countries, but this will be the first time it will offer the service in the US."

Comments

Credit card fees

[Compaqt]

You'd think with the enormous increase in processing power experienced over the past 4 decades, the amount of money required for operating the credit card networks would have plummeted.

So why are credit card fees still anywhere from 2% on up (borne by sellers)?

And is it (much) more expensive to send $100 vs. $10?

Re:Credit card fees

[viablos]

Nothing in the business is based solely on costs. Of course they will keep taking 2% if they can. What comes to person-to-person payments, credit card phishers must love this as it cuts the middle-man. No need to buy items and resell them, just transfer money directly.

Re:Credit card fees

[Tridus]

Because there's no particular reason for them to lower the fee?

VISA's not in the business of saying "well gee we have too much money today, lets cut the fees!"

Re:Credit card fees

[Compaqt]

Well, I guess we're seeing market failure.

Basically, an oligopoly between Visa and Mastercard.

Re:Credit card fees

[eln]

Every time you buy something with your credit card, Visa sends that payment to the retailer in cash. It does this by carefully placing each individual dollar bill on a velvet pillow, and having it lovingly hand-carried to its destination by a Visa representative, who is dressed in a tuxedo and wearing white gloves.

So yes, it does get more expensive the more money you send, and Visa is practically running a charity by only charging 2%.

Re:Credit card fees

[SimonTheSoundMan]

Visa offer a service. They have to make money, from for example, off debit cards.

2%, still cheaper than handling physical money.

Re:Credit card fees

[stomv]

If it's the case that the costs associated with offering the product are far less than the fees, then there is market failure because in a well operating market, charging too much invites competition who will undercut your prices.

Are Visa and Mastercard charging so much that there's room to be undercut? I don't know. Ask Discover.

Re:Credit card fees

[Sky Cry]

It's because the card is issued to the customer, while the the cost of transaction is paid by the merchant. The customer has no benefit in moving from one credit card company to another. So the credit card companies have no benefit in decreasing the fees either.

Re:Credit card fees

[somersault]

Would you go to your employer and say "Hey, I've figured out how to save money on my bills at home, could you cut down my salary by 10% to compensate for that please?"

Re:Credit card fees

[kvothe]

Sort of like the oligopoly in the realm of American cell phone service? Or land line internet service? Or in the gasoline market? One could argue that the American market has failed many times over, due to a few large corporations dominating the relevant market, and doing everything in their power to maximize their profits at the expense of everyone else. I wish I knew what could be done to change the situation, but it seems like so many factors went into creating the situation that we find ourselves in that it would be very complicated indeed to extricate ourselves.

Re:Credit card fees

[fuzzyfuzzyfungus]

In theory, a competitive market will result in the price of a commodity or service equalling its marginal cost of production.

The fact that the amount the CC guys skim off the top of transactions(in addition to their loan-sharking business) has barely budged despite what are almost certainly declining costs leads one to suspect that the market may not be especially competitive.

The phrase "cosy duopoly", in fact, tends to spring to mind...

Re:Credit card fees

[rtaylor]

So why are credit card fees still anywhere from 2% on up (borne by sellers)?

Isn't most of that basically insurance? The percentage varies with the risk of the merchant (online shops are higher, grocery stores can get lower rates). My card has bit hit with fraud a couple of times over the last decade. Both times I called Visa and they made the charges disappear.

While they probably didn't eat most of those fees (chargebacks or whatever back to the merchant) they probably did have a fair amount of overhead for those tasks.

There was one charge that Visa probably ate. The merchant went bankrupt and disappeared after charging my card but before shipping the product. 4 to 6 weeks delivery became 8 weeks before I got Visa involved.

Re:Credit card fees

[justin12345]

Just try using Western Union. Then come back and whine about a 2% transaction fee.

It's especially hilarious because WU will actually ask you if you are sending money to make a purchase, because that is not allowed. You have to make up a story that you are sending money to your old roommate, for bills you never paid (even though you are actually buying some Japanese cell phone that turns into a small dog with laser eyes).

Re:Credit card fees

[Maximum Prophet]

I like the joke, but as the amount of the transfer goes up, so does the risk. (The risk the money won't be repaid, or the risk the transaction is fraudulent) So, yes, it does cost more to send more money. Does it cost exactly what they charge? Not at all, they can charge what they can get away with.

Re:Credit card fees

[JoeMerchant]

4% back on gas (that's about 0.15 per gallon, lately)

2% back on restaurants

3% back on some class of merchants I can't remember

and 1% back on just about everything else.

We get a $100ish check for every $9000 or so that we spend through the card.

Rewards cards are part of the landscape now... get used to it, or (as an industry, collectively) grow a pair and do something about it. What the "market failure" whiners fail to account for is the massive investment Visa and Mastercard made across the last 40 years to roll out their system worldwide. Of course they're entrenched, they would have been irresponsible stewards of their investors' capital if they didn't entrench themselves along the way.

As a consumer, I view cash as a "premium" payment option. If I value the anonymity that comes with cash, then I'm willing to go through the trouble to get it, the ATM fees, and the lack of rebate from my credit card. If you're a merchant who accepts credit cards, I assume you've already built in a 5% margin to cover that - if you're a small time place (like a hair salon or locally owned restaurant), I might pay cash as a sort of extra tip, both dodging the credit card fees and making income reporting potentially optional. But, most of the time, credit cards are just a built in cost, a tax paid to the money handlers, and I choose to deal with a bank that slides a little of it back my way.

Life has never been simple, when you were a child, you thought it was and you might have been taught it was, or should be, but those teachers were liars. Paybacks, graft and corruption are not just in the Mafia's domain - they have been a part of "respectable" business since long before the Magna Carta.

Re:Credit card fees

[Dragonslicer]

Visa and Mastercard really make their money on the fact that so many people have continuos rolling debt every month that builds interest.

Really? I had always thought it was the issuing bank that kept the interest.

Re:Credit card fees

[twistedsymphony]

this could very well change with person to person transfers.... unless the fees are free or very small people who frequently make transfers would likely switch to whichever company has the lowest rate. At very least if Visa is smart they'll undercut PayPal.

Re:Credit card fees

[ArsonSmith]

Perhaps someday you will learn about supply and demand, and how the price of a good or service is only very loosely tied to the cost to create/perform that good or service.

If you don't like the fees, don't pay for the service.

Re:Credit card fees

[lgw]

In theory, a competitive market will result in the price of a commodity or service equalling its marginal cost of production.

I've never heard that theory - sounds linke something someone would make up to discredit free markets. A competitive market should result in enough profits going to owners of capital that keeping their capital in that market makes sense.

The fact that the amount the CC guys skim off the top of transactions(in addition to their loan-sharking business) has barely budged despite what are almost certainly declining costs

Visa doesn't make any money of "their loan sharking business" - the fact that they never have is what allowed them to invent a new kind of money a few decades ago. But they're playing catch-up now.

Maybe you haven't done much with data center operations, but the cost of hardware isn't the dominant cost. And Visa in particular has traditionally been a mainframe shop, so they haven't been seeing much decline in costs over the year - but since cloud is the new mainframe I'm sure they're starting to see some now.

Re:Credit card fees

[skids]

"A competitive market should result in enough profits going to owners of capital that keeping their capital in that market makes sense."

Sure, but in a competitive marketplace less capital is needed per unit of gross as time goes on and competitors optimize their product/business model. This because they are, again, in a truly competitive market, competing with one another. Since they are, again theoretically, competing with one another they will also compete with each other over customer market share, which should result in in a smaller cost/product ratio on the customer end.

While cross-market competition for investment capital is a consideration, it should not generally be able overwhelm that trend in the long term.

That it hasn't is indicative that the "free market" system we have is not actually competitive. Some will argue that this is because we don't really have a "free market" due to regulations, others will counter that a "free market" does not emerge spontaneously from anarchy, and in the meantime, while theory is being thrown frantically against the walls, joe six pack will still be paying Visa 2% to sell a six pack to the local Visa-wielding wino, and musical chairs and golden parachutes will continue to be the tune blasting over the office intercoms on Wall Street.

Until the house of cards collapses, that is.

Re:Credit card fees

[delinear]

Areed - it's at the point where fees become transparent to the customer that people will begin shopping around. Currently, in the UK at least, the merchant usually swallows the fee (and probably distributes it across all payment methods so they can have a single price point). It's rare to see a fee advertised for using credit over debit cards (and when there is a fee it's usually flat across all credit cards), but for something like regular eBay purchases, a minor % difference could be enough to motivate people to move.

Re:Credit card fees

[cdrguru]

Merchants pay for insurance against fraud because the credit card companies push it back onto them.

As a consumer, there is really nothing you can do about fraud. You hand your card to a waiter in a restaurant and he takes the number down. With 99 others he can get maybe $50 for his efforts. If you only used your card once that month and could remember the waiter you might be able to make enough noise with the restaurant manager to get the guy fired. Maybe. Maybe the restaurant thinks you are a nut and ignores you completely. The police won't do anything - you didn't lose anything, did you? The restaurant didn't lose anything. The credit card company didn't lose anything either. Nobody is complaining, so no charges can be brought.

Magnify this by 330 million people in the US with at least that many credit cards. Probably more of them that people because the people that have one often have four others to keep them company.

Credit card fraud is pretty much an equal-opportunity sort of thing. You get card grabbers that get maybe $0.50 for a valid number. This is an obvious way to get some more money in the service business where wages are low. Then you have the buyers that go out and buy stuff with the stolen numbers. They get a cut (or they wouldn't do it) and this is all the employment there is for a lot of people. They can use the numbers online or get real-looking cards made up that can even be signed and everything. Did you really think anyone wanted to steal your card with your name on it and try to forge your signature? Why? Making a nice clean fresh card costs maybe $1 if you have the right equipment. And there are places turning out 1000s of cards a day for this purpose.

From the buyers you get all sorts of people turning the goods into more cash. Ebay - unregulated. Pawn shops - regulated but loosely. Street corner vendors. Whatever it takes. So you think you got a good deal on some electronics? No, it wasn't "hot" but it did come from a credit card buyer.

We aren't talking about a lot of organization but it is at the grass-roots level. People make enough money off doing this to survive, and nobody is really getting hurt all that badly. So credit card fraud is going to continue and some people are making out very well with running the operation.

Next time, try to find someone in law enforcement that is interested in doing something about it. You could be holding the guy with your credit card number by the collar and the police will tell you to let him go. No charges. Nothing. In this environment do you really think there will be an end to this?

Re:Credit card fees

[ShadyG]

In this case, any "market failure" is very much the fault of government interference. The core problem is that merchants are not allowed to pass this fee on to the customers explicitly, charging an extra 2% for VISA purchases over what they would for cash. If they were allowed to do this, another company could undercut and would get business.

Re:Credit card fees

[locallyunscene]

Rewards cards are part of the landscape now... get used to it, or (as an industry, collectively) grow a pair and do something about it. What the "market failure" whiners fail to account for is the massive investment Visa and Mastercard made across the last 40 years to roll out their system worldwide. Of course they're entrenched, they would have been irresponsible stewards of their investors' capital if they didn't entrench themselves along the way.

So, just suck it up and take it? Forget all that blather about competitive markets promoting meritocracy and efficiency because those CEO's have "worked hard" to stifle innovation form gentleman's agreements about pricing?

It's one thing to recognize that corruption exists and will never go away. It's entirely another to condone it and tell those "whiners" to shut up because things will never get better. Large and difficult goals are achievable over time time if enough people work towards them. The amazing advantages we enjoy in society today is proof of that.

Re:Credit card fees

[locallyunscene]

Retailers are liable for fraudulent transactions, not the credit card companies. The credit card company simply tells the retailer the offer was made in bad faith and the money is taken back. I've worked for several online retailers and a bank error is never in your favor, even if it's not your fault.

PayPal advantage?

[fahrbot-bot]

From TFA:

As the leader in global online payments for the last twelve years, PayPal has unmatched advantages that we believe put us ahead of the competition...

For example. Since we're not regulated like a bank or real credit merchant, we can do things like freeze or disable your account simply because we feel like it or someone complained about you, or whatever. Don't worry though, customer support will explain everything and get you sorted out in a jiffy.

Re:PayPal advantage?

[MichaelKristopeit414]

paypal stole $200 that was in my account paid by players of my online market simulation game... the game included narcotics, so paypal assumed the drugs in the simulation were real. not real enough to contact authorities, just real enough to steal my money.

paypal will answer for their transgressions.

Re:PayPal advantage?

[fahrbot-bot]

Paypal is a bank. A European bank.

Well... perhaps in Luxembourg. From PayPal Bank Status:

Peter Thiel, the founder of PayPal, has stated that PayPal is not a bank because it does not engage in fractional-reserve banking.

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.[47] PayPal is not classified as a bank in the United States ...

Commencing 2 July 2007, ... PayPal moved its European operations from the UK to Luxembourg. As a Luxembourg entity, it is since regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF) and provides PayPal service throughout the European Union.

So *that* clears things up. :-)

Why did it take so long?

[Just_Say_Duhhh]

Paypal mapped it out years ago. The fact that Visa (and AmEx, Discover, etc) haven't been all over this idea by now makes me wonder if they're even paying attention.

I, for one, welcome competition amongst our financial overlords

Is the post so corrupt in your country...

[Anonymous Coward]

Is the postal system so corrupt in your country that simply sending CASH to someone is dangerous? In 50+ years of sending and receiving gobs of cash in birthday cards and christmas cards, I've never had any problems.... and we're talking thousands of dollars here...

Re:Is the post so corrupt in your country...

[subanark]

Its not the post office, its the people at both ends.

1. Although it is a federal offense, it is often easy to steal people's mail and thus the money simply by taking mail out of the mail box on either end.
2. Cash isn't traceable, you can't go to court and claim you payed your bills in cash unless you did it in person and got a receipt.
3. Cash needs to be processed manually, if you send cash to a business, someone has to open the mail, count the bills, store the bills, and make a note that the payment was received. People cost money to hire, and people tend to make more mistakes than computers.

Re:Is the post so corrupt in your country...

[icebraining]

That may be fin for birthday gifts, but it obviously doesn't work for payments; systems like Visa or Paypal provide you with a proof of payment.

Ripe for abuse

[creamy_red]

Seems to me like this will be an open invitation for hackers since you send and receive the funds by putting your full credit card number into their website. Who wants to give someone else their CC number so they can give you money?

If you enjoy having all your purchases tracked...

[unil_1005]

...this is the one for you!

Check out Hawala for a better alternative

[Squiff]

The elephant in the room here is the Hawala system (http://en.wikipedia.org/wiki/Hawala) quicker, far cheaper, no accounts getting suspended- as reflects it's origins as a money transfer system designed to work in a hostile environment without regulatory authorities. And it does work, has worked for centuries. The only brake is the media scare stories on 'Islamic terrorist banking'...

Re:Because they can.

[delinear]

I have a credit card and a debit card. I enjoy all of the above with my debit card without a per transaction fee.

Re:Finally...

[mxs]

But why? Paper checks cost the banks money to process and the banks can't wait to get rid of them (and cut down on personal...). Well, couldn't wait to get rid of them of them, they are practically non-existing and only used when doing business with US partners.

Greed. Sure they don't want to support paper checks anymore. But they want to offer "new" services for less money even less. Banks operate on the principle that nickle and diming their customers is the best foot forward, and any services offered for "free" are just to get them in the door or offer a competitive advantage they'd rather do away with were it not for the pesky morons a decade or two ago who thought free cheque processing should be something to compete on.

Why not just use bank transfers?

[timbo234]

In every country I've lived in (Australia, the UK, Germany) bank transfers are completely free and easy to do over online banking. If I book holidays with my friends and we don't settle who owes what to who in cash during the trip we can simply transfer the difference over to them once back home.

In Germany it's particularly pervasive - you pay for everything with bank transfers, it's even the preferred method to pay on ebay (preferred by users not paypal/ebay obviously).

Astroturf?

[tqk]

I'm pretty sure I transferred money via on-line banking to my sister five years ago. WTF is wrong with VISA?!? A little slow to the party?

Everything I read about markets, "Banksters", the financial sector, and all their regulators just reminds me of that "Scream!" painting that was so easily stolen a few years ago. It's like they think they're in a safe, cocooned environment where nothing can affect them. Meanwhile crackers hammer on their doors, taking down one of them after another, ...

How the hell do they hide out from so much reality for so long? 'Cause they can. It's like they're subsidiaries of the Catholic Church (which, no offence meant, has got away with atrocities for centuries - Giordano Bruno, ...).