▲ | chupchap 4 days ago | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
I don't understand why transaction fee is a percentage as it takes the cost of transferring money is the same irrespective of the amount. There should be a reasonable cap. For example 2% for any transaction less than $2, and $0.2 for any larger transactions. Why do we still have this charade of collecting money and then giving some pittance back to the customer in the form of credit card points? | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
▲ | athrun 4 days ago | parent [-] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
It's about provisioning for credit losses. Roughly speaking, when a transaction needs to be unwound, if the merchant cannot cover the reversal (for example, because it has defaulted), then the payment processor needs to pony up instead. Note that this isn't an edge case, this is something that happens every day. If the payment processor defaults (gasp!), then the processor's sponsor bank needs to cover it. This is why a sponsor bank will have a lot to say about what a processor can and cannot do. If the sponsor bank is unable to meet its obligations (argh!), then it's the card Network itself that is on the hook. This is why card networks have a lot to say about what a sponsor bank can and cannot do ;) The key to understanding payment processing is to realise that the risk is very asymmetrical. The processing party collects only a small fraction of the transaction amount as fees, but is effectively on the hook for the full amount if things go pear shaped. That is why the cost is typically proportional to the value of the payment. You'll see fixed/capped fees mostly on payment methods that don't allow reversals (ie: not very consumer friendly), or that take place between highly trusted parties where credit risk can be handled through other ways. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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