Ask HN: Do we need to pay billions in fees to Stripe, Block, PayPal and Visa/MC?

Hacker News Discussion ↗

Massive fees paid to payment processors like Visa, Mastercard, Stripe and PayPal prompt questions about whether they’re economic “rent” or the price of real value such as fraud prevention, chargebacks, global interoperability and regulatory compliance. Commenters argue that technically replacing card networks is easier than replicating their trust, legal infrastructure and two‑sided market of banks and merchants, which is why well‑intentioned alternatives—from crypto to instant bank transfers like UPI and iDEAL—have seen limited or context‑specific adoption. Many see scope for lower fees via regulation or public rails (e.g. FedNow, digital euro), but expect card-based systems and their percentage-based pricing to persist where consumer protections and rewards are weakly provided by law.

What Payment Processors Actually Do

  • Commenters stress that Stripe/PayPal/Square sit on top of card networks (Visa/MC/Amex/Discover) and banks, solving UX and onboarding, but most core cost/complexity is in the underlying rails.
  • Key functions: fraud/risk management, chargebacks, regulatory compliance (KYC/AML/CTF), cross-border/FX handling, dispute management, and value‑add tools (inventory, tax, POS integration).
  • Several argue they are effectively specialized insurance businesses underwriting transaction and counterparty risk.

Why Fees Are High and Persistent

  • Interchange and network fees fund not just operations but rewards programs; merchants and non‑reward users cross‑subsidize affluent cardholders.
  • In the EU, interchange caps (≈0.3–0.5%) show fees can be much lower than typical US ~2–3%. Some see US fees as oligopolistic rent extraction.
  • Others argue that even tens of billions in profit is small relative to trillions in volume, and worth it for convenience and safety.

Consumer Protection, Fraud, and Chargebacks

  • Strong disagreement: some say most everyday transactions don’t “need” chargebacks; others note industrial‑scale fraud and account takeover make reversibility and fraud coverage essential.
  • Chargebacks protect against both unauthorized use and merchant non‑delivery, but are also abused (“friendly fraud”) and raise costs.
  • EU systems with stricter consumer law + strong authentication (SCA, chip+PIN, banking apps) rely less on card‑based protections.

Global Alternatives & “Digital Cash”

  • Many countries already use cheaper bank‑to‑bank systems: iDEAL (NL), BLIK (PL), Bancontact (BE), UPI (IN), PIX (BR), BankAxept (NO), various SEPA/instant transfer schemes in Europe, QR or app‑based systems in Asia, government‑backed systems in Mexico.
  • These often have instant settlement and very low fees but limited or no built‑in chargebacks; disputes fall back to consumer law and courts.
  • For P2P, systems like Zelle/Venmo/interac‑like tools act as near‑cash; scams and irreversibility are recurring complaints.

Can a New Network Replace Visa/Stripe?

  • Technically feasible but extremely hard: it’s a multi‑sided market (consumers, merchants, banks), with huge bootstrapping and trust problems.
  • Closed‑loop models (Amex/Discover‑style) avoid Visa/MC but require controlling issuing, acquiring, and network, plus absorbing credit risk.
  • Crypto and Lightning are mentioned as conceptually interesting but widely viewed as UX‑poor, volatile, energy‑wasteful, and regulatory‑problematic.

Public / Regulatory Paths

  • Ideas floated: FedNow‑style instant rails, central‑bank digital currency, EU “digital euro,” regulated interchange caps, forcing fee transparency, or treating payment rails as public utilities.
  • Skepticism that US politics and bank incentives will allow large fee reductions without strong regulation.