A Response to Pricenomics

[read this post’s disclaimer below]

Priceonomics Blog, a publication I often read with interest, recently posted an article alleging that the major card networks (Visa, MasterCard, Amex) are a “tax” on the United States. You can read the post here.

Now, that’s a pretty strong allegation, and while the author spins a tale that sounds both dramatic and nefarious, he also omits crucial context and facts relevant to the discussion.

I wrote a comment in response, but the more I thought about it, the more I felt this was worth addressing in a post of its own.

Merchants certainly are not required to accept cards, and many do not, but the trade-off is usually lost sales, lower ticket sizes and slower lines. It’s a simple (proven) fact that people spend more at merchants if they are not limited to the cash in their pocket (or even bank account) at any given time. What value should a merchant place on that benefit?

And what of the hidden cost of cash — notoriously difficult to calculate, but definitely greater than zero. Handling & processing cash is not free, and some of it just goes missing (due to theft, loss, accidents, time inefficiencies, etc.). One study estimates the cost of cash in the United States at $200 Billion a year, or $1,739 per household (3.3% of median income)!
(Source:… )

As for the claim that credit cards exacerbate debt —  well, debt and delinquent debtors existed long before credit cards, as Pricenomics’ own example of a small town merchant with his 3 book keepers highlights. Money lending is one of the oldest businesses, and it’s not likely to die with an absence of cards.

Distributing and running a nearly ubiquitous payment method that works quickly, efficiently and consistently around the globe, and which simultaneously protects the consumer from fraud, is a non-trivial undertaking. Anyone who has tried to roll their own learns this quickly, and usually the hard way as fraudsters and scaling effects take their toll.

There are real, material costs associated with all these things. Everyone loves and has come to expect free checking accounts, but who pays for that? Banks’ compliance and regulatory costs are through the roof (thanks to that “inactive” government of ours, as Pricenomics labels it). Card fees help in part to offset these costs, while also providing a valuable (and popular) service to consumers.

Even those in the payments industry wish we could snap our fingers and instantly modernize global infrastructure. But you’d be surprised how hard that can be; try getting a small merchant to upgrade an older (yet still functional) payment terminal to a tablet or even install a broadband connection, just to be able to use some of the newfangled payment methods Pricenomics suggests. See how willing the merchant is to fund that expense. Would Pricenomics consider that expense a “tax”? Or just a cost of doing business? Now multiply that by all the merchants in the country. Or the world.

By the way, virtually every service the Pricenomics post references at the end (PayPal, Stripe, iTunes and Apple Pay, Square Cash, Snapcash) is enabled either entirely, or in large part, by card networks’ infrastructure.

If we could start from scratch today, I doubt anyone would begin with a system requiring a 16-digit number printed on a plastic card, and an evolution is certainly underway in payments. A lot of work is being done to move towards faster, more efficient and richer payment experiences. But unfortunately this doesn’t happen over night, and it’s anything but free.

DISCLAIMER: this post is solely my personal opinion. It does not reflect the official views of my employer, or of any particular bank, card network or payments company.