YHK - yet another hacker news clone

What do Visa and Mastercard do? An intro to card networks

144 points evakhoury 1 day ago 64 comments

hungryhobbit 1 hour ago | parent

They tax our entire economy at X rate, while maintaining their infrastructure only requires Y cost ... and X is significantly higher than Y.

From the actual article:

> The payment processor keeps 0.35% ($0.35), then pays 2% ($2.00) to the cardholder’s issuing bank and 0.15% ($0.15) to Visa. The 2% is the interchange fee, commonly known as interchange. The 0.15% is the network assessment fee. 8

In other words, they get 0.35% of every transaction ... and it does not require anything close to that to maintain their network.

superxpro12 1 hour ago | parent

middlemanning is the most american of business ventures

gloryjulio 1 hour ago | parent

> and it does not require anything close to that to maintain their network.

If it's so easy to disrupt visa/mastercard payment network, they wouldn't be able to charge this much. Payment is a highly competitive business. We witnessed so many payment companies went under or were bought out, but these two stay for years and are still profitable.

The truth is their moat is considered very durable and hard to build. A global n banks to n banks payment network is not as simple as how people thought.

cassiogo 1 hour ago | parent

> If it's so easy to disrupt visa/mastercard payment network, they wouldn't be able to charge this much

If they have the US government behind them its much easier

https://thepaypers.com/payments/expert-views/pix-hits-a-wall...

Aspos 1 hour ago | parent

If someone owned all the highways, building an alternative would be difficult as well.

coredog64 1 hour ago | parent

Same as it ever was: https://news.ycombinator.com/item?id=9224

UltraSane 1 hour ago | parent

Credit card companies are mostly parasitic middle men but I have a credit card that I use for most payments and pay off the balance every month and effectively get 2% cashback with no interest costs.

losteric 1 hour ago | parent

The actual rates charged to merchants are variable, and typically higher for rewards/cashback cards. Basically, other people are subsidizing cards with higher benefits/cash back (of course as people shift, the merchant raises prices to compensate for the higher average fee, or just charge an additional Z% higher than your cash back)

tialaramex 1 hour ago | parent

That 0.35% feels more reasonable in 1976 or even maybe 2001 than it does today because technology changed so much. But maybe I'm wrong about that

If you're an American that 2% is a much bigger problem for your society. That's a direct funnel from the poor to the wealthy, it's not as a obvious a problem as "Trump gave the ultra-rich a tax cut" but it might structurally be more significant.

tonymet 49 minutes ago | parent

Goods (and services) are priced at what the customer is willing to pay. In this case, the alternative is cash or cheques, both have much higher loss rates. That’s why vendors are eager to take visa over cash.

hgomersall 22 minutes ago | parent

No, the alternatives are any number of other solutions that are not given a look-in to the very lucrative duopoly. The network effects are prohibitive for upstarts.

techdmn 1 hour ago | parent

I remember reading a comment here a while back about merchants being offered a discount on the processing fee if they also transmitted detailed data about the purchase (essentially the data that would be on the receipt). That data could then be resold on to advertisers. Does anyone remember this or have links to more data? (Not having much luck with search, maybe I'm hallucinating the whole thing.)

mikeweiss 1 hour ago | parent

I would love if it was transmitted to the bank for my own use so I can easily remember what I purchased or run budgeting software against it! Obviously wouldn't be excited about it being resold tho.

ctkhn 43 minutes ago | parent

It's crazy it is resold but we don't even get it for our own use. Budgeting with credit card statements would instantly become so much more useful with less effort.

dylan604 31 minutes ago | parent

Just provide Plaid your login credentials to your card account /s

mikeweiss 30 minutes ago | parent

How does that help if the bank doesn't have the data?

supertrope 1 hour ago | parent

Level 3 data.

hadrien01 1 hour ago | parent

Level 2/3 data: https://docs.adyen.com/payment-methods/cards/enhanced-scheme...

It's only available in the US, many countries have lower interchange fees and prohibit sending this data.

RobRivera 47 minutes ago | parent

This would explain why so many damn coffee shops dont deal with cash now - the double as a coffee shop and data reseller

mikepurvis 38 minutes ago | parent

I mean, cash is also expensive in its own way. It has to be handled and insured, coins may need to be rolled before being taken to the bank, a register is a mechanical device to power and maintain, petty theft by employees is a concern.

It's not really that hard to see why a business charging $5-20 per transaction from people who all have phones and credit cards anyway might choose not to accept cash.

why-el 22 minutes ago | parent

> a register is a mechanical device to power and maintain,

surely a million times less expensive than a subscription to a POS....this is not a strong argument.

smelendez 28 minutes ago | parent

Well, they still pay a fee, it’s just reduced.

They primarily don’t deal with cash because cash is a pain. It needs to be physically taken to a bank and protected from theft by both staff and random robbers with guns, it needs to be counted all the time, and you need to maintain the right denominations to make change.

I have reservations about businesses getting rid of cash, especially if they’re turning away people who don’t have alternative ways to pay, but I certainly understand why they do it.

It’s also always awkward when a coffee shop is like 95% credit, and you try to hand them cash and they look at you like you’re Rip Van Winkle.

Peanuts99 27 minutes ago | parent

Merchants aren't going cash only to sell your data, they're doing it because it's expensive to handle cash and makes their taxes a whole lot more troublesome too.

umeshunni 24 minutes ago | parent

Not to mention the crime risk of cash

foobarian 8 minutes ago | parent

Huh, I thought accepting legal tender was a federal rule, I guess not. Looks like a salad variety of regulations that vary by state and city.

collabs 1 hour ago | parent

In my opinion, the only solution is everyone (individuals as well as corporations) gets a direct account with the federal reserve as long as you can associate a taxpayer identification with the account. Using it is voluntary but it is free of cost, paid for by taxes, and moving money to and from accounts is free of cost. Depositors would get the same overnight interest rate that banks do, and this interest is added every day. I think if we could make this happen, the chokehold of Mastercard and Visa can be greatly diminished. The disintermediation of commercial banks, the loss of credit card perks, and the added cost of customer service should be an acceptable cost of removing the parasites visa and master card from our economy.

most importantly, this opens up a lot of money that the federal reserve can hold directly, something that will become more and more important as bond yields go sky high.

Bratmon 1 hour ago | parent

How are chargebacks resolved in this situation?

This is an important question- most of the costs of a credit card providers come from dealing with fraud and chargebacks. That's partially because, under US law, credit card companies have to eat fraudulent charges if they can't get the person or company that did the fraud to do so. (Funnily enough, this is one of two places where protections for average people in the US are significantly better than protections for average people in Europe).

But credit card companies can keep their costs low by making a business decision not to renew the accounts of frequent chargeback-ers or chargeback-ees (even if they never officially found those individuals at fault). If the government had to make a payment system for everyone and take on all responsibility for all fraud, that would create an incentive with massive second-order effects.

toomuchtodo 28 minutes ago | parent

Customers can pay the credit card fee to get their chargeback insurance, if they choose, while others who can pay with cheaper instant payment rails can opt out. This is trivial with merchants able to surcharge credit card payments, as many merchants are starting to do (US mobile phone companies, US internet providers, restaurants, etc).

mopsi 16 minutes ago | parent

You solve it the same way you handle in-store cash purchases of products that turn out to be faulty.

There is no reason why fraud and contract violation must be handled by unelected and unaccountable payment processor, when the government has already set up a consumer protection system for disputes related to cash payments.

diegocg 46 minutes ago | parent

So the article shows how visa and mastercard are, by far, not the ones taking the largest fee, and the solution is to get rid of them?

Where are you going to do the transactions in your scheme? Because credit card transactions are not the same as sending money from one bank account to another. There are settlements, disputes, chargebacks, etc.

How is the central bank going to offer the same variety of products described in the article? I.e..

> Interchange fees vary dramatically based on the kind of card, category of spend, and even the metadata attached to a transaction. The network’s goal is to set fees that incentivize desired behaviors on their network, including using more secure payment methods (lowering interchange fees for merchants), or for companies to do more business spending (higher interchange fees on commercial credit cards).

Your scheme sounds like all these crypto guys who think they can replace credit cards with bitcoin transactions, as if they were the same thing

toomuchtodo 43 minutes ago | parent

Central bank instant payment system. The US has FedNow, and has had it for almost 3 years. It costs a few pennies to move up to $10M per XML message.

Brazil's Pix costs ~$10M/year to run: https://whatispix.com/

This is much cheaper than the entire credit card ecosystem skimming ~3% off of the economy.

FedNow Is Live - https://news.ycombinator.com/item?id=36801491 - July 2023 (1022 comments)

Walmart is currently trialing it to save billions of dollars a year in interchange fees. No crypto, just XML messages through a mainframe at the Federal Reserve with a 20 second SLA.

> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”

> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.

Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://news.ycombinator.com/item?id=41593450 - September 2024 (3 comments)

https://news.ycombinator.com/item?id=49433164 (citations)

(as of this comment, there are 100+ instant payment systems live across the world; we should assume that all countries will eventually have an instant payment system, or integrate with someone else's)

https://www.pymnts.com/wp-content/uploads/2026/09/PYMNTS-Int... [pdf] (September 2026 revision)

mlefer 18 minutes ago | parent

A few years ago congress had a nice solution via a market mechanisms, have sufficiently large banks be required to have their cards support at least 2 card networks, via which the merchant may at at swipe time decide which network to run against. Unfortunately like any good idea, it died in congress.

kburman 1 hour ago | parent

> Use this knowledge to topple the Visa/Mastercard duopoly and design your own payment method.

You can’t, because Uncle Sam will come after you.

nosioptar 37 minutes ago | parent

The answer to that is to "donate" to about 270 congress critters. Buying 5 motorhomes for supreme court members could work too.

9cb14c1ec0 28 minutes ago | parent

> The answer to that is to "donate" to about 270 congress critters.

Not too far off. You gotta ask why such a lucrative business has a near monopoly, and the answer is not that potential competitors don't notice their profit margin.

tonymet 1 hour ago | parent

Don’t forget arbitrage, which is the withholding of transferred funds for 7 days while the capital remains in visa’s accounts for “investing” / speculation.

It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi

nonethewiser 22 minutes ago | parent

>It’s like if you gave your buddy $100 to give to his room mate, and he decides to wait a week and gamble it on Kalshi

Or treasuries.

Its actually a minor part of rheir business.

And frankly who cares given that its a sustainable system. I pay on credit and then someone else pays. I dont give a shit of they are betting on how many times Al Roker says Trump on New Years Eve.

throw1234567891 21 minutes ago | parent

You better don't look into how banks make money on your savings.

1970-01-01 55 minutes ago | parent

>The merchant pays 2.5%

The best way to pay for poor services already rendered and move on with life is to simply pay via card. Didn't like that haircut? Terrible food at the restaurant? Hold onto your cash and slip them the card.

tonymet 51 minutes ago | parent

Jokes on you. Merchants prefer credit cards because there is less loss than cash. 2.5% is nothing compared to 5-10% loss at the register. Plus easier and more accurate accounting.

1970-01-01 46 minutes ago | parent

If you're expecting 10% loss at the register and have terrible service, that's a 1-2 punch for bankruptcy.

aand16 33 minutes ago | parent

90% of cash I give to restaurants goes in the pocket, not the register.

Bad service = card always.

nonethewiser 28 minutes ago | parent

Are you saying servers keep 90% of what you pay? Tip and otherwise? What country? How do you know? How could a business possibly operate in this reality?

Onavo 32 minutes ago | parent

ACH is still the best

https://gocardless.com/

dylan604 29 minutes ago | parent

Great, so it is immediately deducted from my account and swiftly deposited into the recipient's account in 3-5 business days.

seri4l 28 minutes ago | parent

>5-10% loss at the register

Where did you get this number from?

asdff 10 minutes ago | parent

If your employees are stealing you should probably nip that in the bud...

3pm 49 minutes ago | parent

> The issuing bank keeps 2%

Is this why the best cash back credit cards give 2%?

dmoy 46 minutes ago | parent

US Bank for a brief period opened up a 4% card, but then closed it so quick that obviously the numbers didn't work out there.

2% seems to be a local maximum of cashback cards. There's a lot of 2% cards, and only a handful above that.

Makes sense?

pverheggen 34 minutes ago | parent

2% is just an example figure, the actual rate varies

nonethewiser 26 minutes ago | parent

In the US. Not in Europe because interchange fees for consumer cards are capped at 0.3%

bob1029 37 minutes ago | parent

VisaNet & friends make the modern consumer world go round. The fees they extract are a drop in the bucket compared to the economic activity that they enable with their networks. Many businesses simply couldn't exist without something approximating this.

https://investor.visa.com/news/news-details/2016/Visa-Commis...

9cb14c1ec0 33 minutes ago | parent

Yes. As a merchant it's pretty cool that the money just shows up and I don't have to chase down as much bad debt. The processing costs easily pay for themselves.

pennomi 12 minutes ago | parent

The problem is not that the tech is bad, it’s that the industry is a cartel with no viable way to disrupt the established players.

shevy-java 33 minutes ago | parent

Europeans really need to stop handing their money over to Trump-Visa and Trump-Card here. Canadians learned that lesson already. Why do european politicians not learn anything? Leyen even signed a surrender treaty where european taxpayers lose money that goes into the USA. I say stop it with the proxy-control from Washington.

FabCH 27 minutes ago | parent

Europeans have alternative payment networks already. For example, CH has Twint.

They are actively being unified into a cross-border payment network.

Of all the things to complain, this is the one where they are actually doing something…

toomuchtodo 25 minutes ago | parent

Digital euro clears key hurdle as EU seeks to break free from U.S. credit cards - https://news.ycombinator.com/item?id=48647444 - June 2026 (376 comments)

European Parliament committee backs digital euro - https://news.ycombinator.com/item?id=48645468 - June 2026 (2 comments)

Gov.uk has replaced Stripe with Dutch provider Adyen - https://news.ycombinator.com/item?id=48415217 - June 2026 (235 comments)

Goodbye Visa and Mastercard: 130M Europeans switching to sovereign payment - https://news.ycombinator.com/item?id=48207004 - May 2026 (777 comments)

Wero – Digital payment wallet, made in Europe - https://news.ycombinator.com/item?id=47038965 - February 2026 (132 comments)

Europe's Banks Launch Wero Payments to Dislodge Visa, Mastercard - https://news.ycombinator.com/item?id=41666833 - September 2024 (88 comments)

Unofficial Wero Adoption Tracker - https://www.werotracker.eu/

https://en.wikipedia.org/wiki/Wero

https://en.wikipedia.org/wiki/Single_Euro_Payments_Area

ale 33 minutes ago | parent

Aside from the technical aspect I strongly encourage everyone to also read about VISA’s founder Dee Hock, still a very underrated figure in leadership and finance.

losvedir 29 minutes ago | parent

I play the credit card "game" because I hate feeling like I'm leaving money on the table, but I really wish I didn't have to. Some degrees of fees make sense, to run the network, and handle fraud, but it's ridiculous that people have this sense that shopping should somehow fund your vacation.

Where I am it's increasingly common to see credit card fees when checking out. I get it, because merchants are being charged 3-5% of their total revenue. I wish there was a low fee credit card network that merchants didn't charge a fee for, so I could continue the simplicity of digital payments but opt out of this crazy Visa Infinite rewards accounting boondoggle.

ianhawes 22 minutes ago | parent

There is, it's called debit cards, but Stripe et al. "simplified" pricing by charging a percentage regardless of card type instead of the traditional interchange-plus pricing. Merchant banks "used to" make money by tacking on fixed fees, i.e. a set-up fee, terminal fee, monthly fee, etc, but then Stripe came along and provided (1) a better dev experience, (2) better onboarding, and (3) simplified pricing.

sillysaurusx 20 minutes ago | parent

Agreed. The pool hall nearby has a game of pool for $2. But if you use a credit card the minimum purchase is $6 (three games) due to fees. It works, but I thought it was a gimmick to trap people into playing more pool until I saw your comment here and realized it was from fees.

JimsonYang 18 minutes ago | parent

Why do you play the points game?

I felt like if I didnt spend $1 on something that was the equivalent of me spending $50 to get those same credit card points

toast0 7 minutes ago | parent

I don't play the points game, I use a cashback card.

I use a cashback card, because most merchants will charge me the same regardless of payment method, and getting a 4% discount (+ time value of money) is the lowest cost to me. If I use some other payment method, the merchant may keep more of the transaction amount, and that's great for them, but it doesn't improve my customer experience. If interchange fees are strictly capped and cashback cards disappear, I wouldn't be upset; but while they're here, I'm incentivized to use them... following economic incentives while doing economic transactions seems like the right thing to do?

asdff 12 minutes ago | parent

Another thing to consider is your credit card rewards cash back etc are really trading your privacy for a little rounding error worth of discount in comparison to using cash.

You may also save far more money going cash only. E.g. some local restaurants near me give you like 5% off paying in cash. Gas is generally cheaper cash price vs card price or debit fee. You have a big job with a contractor, tell them you might be interested in paying cash and they might offer you a substantial discount.