▲ | athrun 4 days ago | |||||||||||||||||||||||||||||||
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. | ||||||||||||||||||||||||||||||||
▲ | doctorpangloss 4 days ago | parent | next [-] | |||||||||||||||||||||||||||||||
Okay, why does this all work basically the same in Europe, but interchange fees are capped at 0.3% by law? The reason has nothing to do with fraud or technology. | ||||||||||||||||||||||||||||||||
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▲ | frollogaston 4 days ago | parent | prev [-] | |||||||||||||||||||||||||||||||
I wish there were a "the customer is always wrong" way of paying digitally, so that there's almost no fee. Right now the only way is cash. | ||||||||||||||||||||||||||||||||
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