Yesterday I watched episode 2 of the money explained series on Netflix, a series so far I would highly recommend found it very interesting.
This episode was all about credit card companies and how we are basically playing a game that they obviously want us to lose.
Credit card merchant fees
The episode explained to me the merchant fees for stores etc accepting credit card transactions, "Merchant fees are money charged by a merchant service to a vendor for processing credit card transactions. Merchant fees are calculated as a percentage of each credit card sale."
The fees add up quite a lot to small business:
"What fees/charges will you pay?
Merchant service pricing tends to be fairly complex, which makes it tricky for merchants to know what they are actually spending each month.
In this section, I’ll take a quick look at the main payment processing charges and fees you will pay.
(For a more in-depth look at processing fees, check out this article.)
Merchant Service Charge: The charge on every credit or debit transaction you accept. Typically around 0.25-0.35% for debit cards, 0.7-0.9% for credit cards and 1.6-1.8% for commercial credit cards. A premium can apply if the card is issued outwith the EU, if the cardholder is not present or if the payment is made online.
Terminal Hire: The rental charge for your chip and PIN machine. Typically £14-16 for a fixed countertop terminal, £17-21 for a portable terminal and £20-24 for a mobile terminal.
Payment Gateway: If you take cards online or over the phone, you will need a payment gateway, which plays the same role of the terminal. Typically between 6-10p per transaction. There’s usually a fixed fee of around £20 per month but that often gives you your first 300 transactions for free.
Authorisation Fees: An additional charge for every authorisation on every transaction to test the payment method. Typically around 1-3p per transaction.
Minimum Monthly Service Charge (MMSC): A charge levied if your transactions fall below a certain level. If your other fees come to more than the minimum monthly service charge, you aren’t charged the MMSC. Typically set at £10-20 per month.
Set Up Fees: A (sometimes avoidable) one-off fixed fee for the installation of new merchant facilities. Typically around £50-150.
Chargeback Fees: An administrative fee charged every time a cardholder requests a chargeback. Typically around £10-20 per instance.
PCI Compliance Fee: An admin fee for completion of your annual PCI Self Certification Questionnaire and compliance certificate. Typically around £2-5 per outlet per month."
These fees are a lot for a small business to take on and eat into their profits
But with my crypto hat on, it got me thinking, as I had always wondered why we the consumer would accept a fee to be paid if I was going to buy some milk?, why would we, it was our money, I am unlikely to want to buy some milk for £1 then be happy for an extra couple of pence to come out of my wallet towards the milk.
Maybe it doesn't need to, however, the fees can come from the merchant so you pay £1 they pay the small number of fees, how this would work in practice I have no real Idea.
Something like a top-up card so you load with crypto then when purchased they change it to cash, this isn't quite the mass adoption that I suppose I envisaged, more the idea that there is no in-between.
I think the overarching thing for me was there was likely to be crypto that would be fit for use that would require fees, I am thinking Bitcoin cash fast and minimal.
It is likely the more uses and transactions taking place, and were the price to be high that fees were to go up as well, but if we could keep those fees down to a minimum to rival the credit card and Paypal fees. Why would merchants not want to accept a fast and reliable Cryptocurrency as opposed to a credit card with large fees?
Surely done right this is a no-brainer, it's just how we ensure there are no fees to the consumer and then less than the current credit card fees to the merchant, they are paying them anyway so it is not unreasonable, but bypassing a bank and a card company everyone can be better off.
The problem is volatility would any store want to take on say bitcoin cash if it then goes through the floor?, it needs to stabilise for everyone really to be comfortable using it.
Ideally we want a situation that instead of wallet to middleman to consumer, we want to buy directly from the store.
Intermediary means centralisation:
The reason being is otherwise all we are doing is back where we started, we will soon effectively be able to buy with crypto, but we will have the sticky situation of going through the financial institutions, Paypal plan is basically that, you can hold your crypto in PayPal (or will be able to soon), then change it to FIAT and buy something so the merchant gets the FIAT and not the crypto.
This isn't what we wanted, we didn't want PayPal to hold the money, and then take the fees, they will then still hold the keys literally and metaphorically. Is this then, any better than we want?
But they will be the quickest bridge.
There is still a long way to go and lots of problems to resolve, but it just made it clearer to me, by understanding how money works and credit cards and merchant fees work, that it is not 100 miles from possible.
Done right what could crypto mean?
So let's say we had the perfect crypto currency, we had a relatively stable currency (no currency is wholly stable) - we had a situation where the merchant could buy their stock in with crypto and sell it for crypto, they could use sell directly to the consumer with a digital transaction, no need for a middle man to take a cut and charge fees anywhere. The transaction is instant from one party to another. By limiting the fees for everyone, the products the merchant sells can be cheaper, they can sell it for cheaper we can buy it for cheaper, keeping more of your money. With your money only ever being your money no need to deposit it outside of your hand so PayPal or whoever can manage, it is always yours. Surely this then is the dream, and once this is made truly possible, and people realise all of the benefits. Well, then it surely is only a matter of time?
I am fully aware that this is far more complex than this. But it did make me realise there is big room for mass adoption potentially. There is a lot of protection the card companies offer for all parties
The more I learn about money, the more I see how much better Cryptocurrency has the potential to be and in many ways already is.
I think a lot of this will not be news at all to many of you, but for me, this helped me understand a lot how the system works, how a lot of the problems can be solved with my favourite currency, but also that there is a long road to go before we can get there. Keeping fees to a minimum and ensuring the price is stable, in relation to other currencies. How this is done without regulation is unclear. How facilitating the transaction and providing protection for everyone without a middleman again needs work. But looking at what the likes of PayPal are doing they are getting in on the action early so they can keep the financial system still centralised, the only way to stop this is to ensure convenience and security for everyone.
