Personal Finance

Like a lot of legislation, this reads like someone without much expertise in the field wrote it.

The number of parties taking a cut of processing fees is one major issue. A lot of point of sale providers are payment facilitators (payfacs) or independent sales organizations (ISOs), which means they’re selling the merchant on processing with a third party and taking a cut. For example if you buy Toast POS, you’re forced into processing with them, which is actually going through 5/3rd bank, but Toast keeps between 0.5 - 1.0% just because they have you locked in.

There are also all kinds of murky security fees. If your platform tokenizes card numbers (swaps the encrypted credit card number out for a single use token, which means if the traffic was MITMed and decrypted it still wouldn’t contain full card info), there’s a fee for that, typically 1 cent per transaction or so. On top of the ~5 cents per transaction network fees (which are separate from interchange fees). Card not present transactions (online / phone orders) have higher fees. Swipes have higher fees than emv/nfc. Has anyone ever looked into how strongly all those upcharges tie to the cost of increased fraud with those methods? Knowing credit card companies I wouldn’t be surprised if they slip in some extra profit here, it’s certainly not transparent or regulated. And for that matter - how much are processors saving on fraud now that emv puts liability for chargebacks onto the merchant? Processing rates have only increased over the years, but that was a pretty major shift in the favor of the banks.

Some point of sale providers have quietly been rolling out what they call “cash discounting”, which means that paying with cash is cheaper, with the consumer paying the card fees on top of that if they pay by card. And a lot of payfacs use this as an excuse to sell absurd processing rates, I’ve seen over 4% + 15 cents per transaction a few times (industry standard for small restaurants/retail is 2.6% + 10c per); since the merchant isn’t the one paying it, they’re less likely to argue about that.

Toast decided recently to start adding a surcharge to every order on the platform that goes directly into their pocket - that’s on top of monthly subscriptions from the merchant and their cut of processing fees. Why not legislate something as blatantly predatory as that?

In any case - fintech is far more convoluted than it needs to be, something as simple as busting the entire idea of payfacs, forcing all platforms to allow a choice of processors, would go a long way in encouraging competition. A bigger overhaul would be to start restricting who can handle that data and how many hops are allowed - hypothetically right now your card can go from merchant to point of sale to tokenization provider to gateway to processor to bank to card brand, and they all take a cut.