None of what you’ve mentioned has anything to do with Visa and Mastercard. Visa and Mastercard are just payment networks, their whole business is literally just transporting transaction information from payment terminals to banks and payment processors, plus keeping track of all the numbers (which is pretty important).

Payment networks don’t provide credit or any kind of liquidity whatsoever, that entirely provided by the various financial entities that communicate via the payment network. The reason Visa and Mastercard haven’t been easily replaced is simple network effects, nobody wants to integrate with a payment network where there’s nobody to transact with.

There are many countries where debit cards are the norm and credit cards are extremely rare. In France, people are so afraid of consumer credit that cards are renamed ‘deferred debit cards’ rather than credit cards, otherwise people do not want them.

> For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for

This is a uniquely American viewpoint. In most of Europe you don't buy anything on credit ever.

In Europe, credit cards for individual use are extremely rare. I've only had one to manage a company expenses account.

> credit cards are giving you a revolving loan

I'm confused - is it not the issuing bank that gives you the loan, and the credit card company just provides the infrastructure?

Btw. having an overdraft limit of a few hundred Euros is quite typical for those liquidity issues. You don't need a credit card for that.

I shouldn't have to pay for your usury economy if I'm using cash. If that were really the issue, these companies would have no problems with businesses charging different prices or offering discounts for cash.

A debtless society probably wouldn't suffer as many catastrophic economic recessions/depressions though (usually a result of cascading liquidations/unpayable debts)

Cash flow and fraud, yes. Credit, not much in most of Europe. AFAIK nobody has had something close to real credit cards until recently. They were called credit cards but it was a debit card with payment and deferred to the end of the month and backed only by the cash in the bank account linked to the card. I guess that no financial institution did like to risk any money on the behavior of European customers.

> For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for -- credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees

This is really much less of a thing in Europe, or at the very least in Germany and Spain. Mostly it's the overdraft from banks that you can use as what you call a revolving loan. Most of the visa and mastercards I've had in my life simply debit from my main account.

> credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees

Neither Visa nor MasterCard are loaning customers their money. It's the European banks that hold the bulk of the risk for European credit card transactions.

I agree the risk transfer is very important, but Visa and Mastercard don't do that (they just facilitate it)

Visa/MC have built walled gardens which provide many services.

Some of the services include: - Consumer Credit - Fraud protection - Payment network - Discount service (rewards, etc) - Concierge services - Rental/Ticketing services - etc

No one is denying the utility of what they have created. The problem is they’ve built monopolistic walled gardens where these are all bundled together which raises overall costs while also prevents competition.

These services can easily be unbundled (for example in India the payment network is open and cost free, so anyone can provide those other services on top of the payment network).

What has made this far more urgent, however, is that these companies are located in the U.S. which has recently leveraged the power these networks have to attack EU citizens for frivolous reasons.

So even if the MC/Visa business model was perfect, it would be foolish for even American allies to rely on them given the actions of the current administration.

> If you want to switch the world to a debit-based system where economic transactions are limited by cash on hand, I'd argue that's a poorer and less dynamic world than the one we're operating in today.

Disagree. Credit has its uses, but debit is superior for the vast majority consumer transactions: lower fees, lower risk, instant settlement, easy P2P transfers, and broader accessibility. That we've become used to credit card payment system in the West is largely a historical aberration that needs correcting.

Also, I'm a bit biased since I live in China, but WeChat Pay and Alipay are so far superior to the credit card system that I can hardly find a single redeeming quality in the latter. China was lucky in that it leapfrogged the traditional credit card system since it didn't have that historical baggage.

Hmm, maybe for countries with strong consumer protection, yes.

I lost 3 credit cards INSIDE an airplane (hello AirAsia!). I only realized it when I turned on my phone while queuing at immigration and was bombarded with dozens of "Successful transaction" messages. That's ~30min from stepping off the airplane. When I checked my statements, I saw dozens of physical transactions (swipes/taps) with different merchants in different cities from the airport.

All 3 cards have different PINs. All require a PIN for transactions above ~USD200. Yet the banks rejected my disputes because "it's a physical transaction, so you must be the one doing it." Apparently, they all think I could fly to different cities, buy different items, and fly back to wait in immigration, all in 30 minutes.

Isn’t that financial risk of credit cards borne by the banks doing the lending? It’s not really any different to a debit card transaction on a bank account with an overdraft facility.

> - For many consumers there isn't sufficient money in the account to settle all the one-time and ongoing transactions they are liable for -- credit cards are giving you a revolving loan, there's risk it will not be repaid, and that risk ends up reflected in processing fees.

Their risk is covered multiple ways (as reflected in their profits). You pay an annual fee to have a card. You pay per transaction, you pay for paywave, you pay 21% in interest.

They cover their risk by hitting every possible angle.

> For many _businesses_ managing cash flow is existential

Err, no - for _all_ businesses managing cash flow is the _only_ NR 1 crucial thing, because if they dont, they will disappear by tomorrow :)

You're mixing debit and credit cards.

In the EU, debit cards are pretty common, and largely its a network effect. You need to get terminals that are supported by your payment provider.

A lot of merchant terminals are provided by banks, and frankly they are itching to get a sweet sweet cut of each transaction. Not only the information, but the cut of each transaction. Something like 0.2-1.5% of each transaction. (I'm sure mastercard and visa give them a cut)

For Credit cards, the banks/operator already handle most of the risk, and then pay visa a percentage for the privilege of charging usury like rates

This risk is all covered by the banks, not the interchange networks?

That's all the bank's problem, not the network's.

You know here in Europe you can just overdraw your bank account anytime without bullshit fees, just with interest that is still way lower than average US Credit Card Interest (around 11%)?

Also bank transfers are easy, instant and free.

> For many _businesses_ managing cash flow is existential -- as merchants they want to be paid as quickly as possible, but as B2B customers they want to have 30-60 days to sell the input goods they've purchased so they can pay for them upstream. There is a premium for that flexibility that gets reflected in processing fees.

Yes those businesses use a bank loan for this, no need for a credit card again.

> If you want to switch the world to a debit-based system where economic transactions are limited by cash on hand, I'd argue that's a poorer and less dynamic world than the one we're operating in today.

Thinking that the world doesn't have credit just because they use debit cards is one of the most idiotic things I've read today

Your comment seems to miss the point. It is totally possible to enable the first two of your bullet points without Visa or Mastercard, for example banks could just give lines of credit directly to consumers. Indeed, the myriad of loan products is run without Visa and Mastercard.

They are taking a percentage point or two on the entire consumer payment system.

I think there's plenty of money to back all the activity.

Especially if there are central banks willing to back them

Switch? We mostly use debit cards today.

man who has only used the american financial system: the world not singularly using the american financial system is less dynamic. surely there are no counterexamples to this.

Replacing EM dash with "--" doesn't take away LLM smell.