It's insane how expensive financial transactions are in the United States. In the UK, the equivalent of an ACH transaction would be a BACS payment, which costs roughly 30p ($0.45) for a small business per transaction, although some banks will do them for free. Many smaller businesses however would just use Faster Payments Service for payments under £10K, which is like wire transfers in America, except they rarely cost more than 25p ($0.35) and once again, many banks will process FPS payments for free for small businesses.
Bank transfers don't really cost $5. The typical price for an ACH transfer is more like $0.05, down to $0.01 at scale. Stripe is making a nice profit on these because it's really hard to get an FI to do this for you if you are a startup.
The infrastructure is there. The government operates a realtime gross settlement system with ~$1/transaction cost to banks (FedWire). It even has the very nice security property of being push-based rather than pull. The problem is that banks all seem to have agreed to charge $25/transaction for it.
I mean, there is also a free market in the UK, yet Faster Payments Service transaction cost a fraction of what wire transfers cost in America, so what's the difference?
It's because of all the fraud on the backend they have to fight. I'm sure banks would like nothing more than to have a simple system where they only charge half as much but net 2x the transactions. Lots of overhead with fraud.
It's not. It's because the largest banks are all stakeholders in the Automated Clearing House system, they make far higher margins on faster out of band methods (wire transfers), therefore it doesn't behoove them to improve.
There is some progress being made though, slowly and painfully.
I should also note that there is powerful Fed-chartered initiative, called the Faster Payments Task Force, going on right now. It combines +300 of the nation's payment stakeholders (including big banks, networks, retailers, etc). We've made a ton of meaningful progress on speed, standards, and more.
Same Day ACH has been in the works for a while; however, a payments expert I spoke with said all the big banks are opposing it since (a) they make more on wires, as mentioned, and (b) most of them have in-house same day transfers, so it's an argument for opening multiple accounts with them vs at different institutions.
The electronic financial system in the US is an embarrassment, to be honest. Instant transfers have existed in other countries for years. The only platforms that allow instant payments require (a) holding money in their bank account (e.g. your Venmo balance) and (b) the companies to comply with incredibly stringent money transmitter laws.
From what I've heard, Stripe doesn't make much from CC transactions (hence why almost all providers are at the same pricing). ACH costs fractions of a penny, so even if they only make $5 it's nearly 100% profit.
[Note: I'm not a payments expert so would love if someone who is could (in)validate all the above.]
Large banks aren't opposing faster payments anymore. It's my understanding that the NACHA membership voted to approve Same Day ACH and it will be phased in over the course of 2016-2018. In addition, the largest FIs are creating an actual real-time ACH system through The Clearing House, which has licensed technology from VocaLink (the developer/operator of the UK's Faster Payments system) and FIS to do so.
there's also the problem that it's a bit vague as to who can actually enforce faster payments. The effort is currently led by the FED, but they technically don't have enforcement power, the CFPB could do something but that'd be a bit of a stretch.
Additionally, the large banks are trying to influence the rules and requirements; for example, clearXchange + early warning system merging under a (large) bank consortium
Banks DO NOT pick up the bill for fraud in the US. The end merchant/seller does.
Edit: Downvote all you like. It's the truth. When the chargeback comes, you pay Stripe/Paypal/Etc a fee, and they yank the funds out of your account. Whatever item you shipped is gone.
Edit 2: The liability shift referred to below doesn't apply to online transactions. Card not present fraud is almost 100% on the seller/merchant. And given that the context is Stripe, well..
I don't understand why this is being downvoted - it's correct.
It is the case that banks pick up the tab for transactions where the card is present, hence the move to EMV chips. However, merchants have liability for transactions where the card is not present, i.e. every Stripe transaction.
I upvoted, we had ecommerse store and we used authorize.net (it was like 10 years ago), every time we got a chargeback because of fraud - authorize.net deducted money from our bank account.
I think 3DS may work better in Europe, but here in the U.S., it just doesn't.
It requires the use of a password, and adds additional steps to the checkout process. You can't really make it mandatory on your store, as conversions/sales would crumble. So, you make it optional.
If it's optional, only the most security conscious customers end up using it. Those are the customers with the lowest risk of having their card info stolen, and the most likely to report it quickly if the info is stolen.
So it adds more protection around a tiny fraction of your sales...the sales that were already very unlikely to be fraudulent.
It doesn't make any notable change to "the cost of online fraud in the US is 100% on the merchant/seller".
Why would 3D-Secure work better in Europe than in the United States? I fail to understand that from reading your comment.
Yes, it requires extra authentication (My issuing bank has chosen password as the auth - some others use the bank code boxes for One Time Tokens). All online stores that I routinely buy from in Sweden and in Europe have 3D-Secure turned on. The only exception I've encountered is an airline.
The customers don't get to choose - it's not optional for customers. It's optional for merchants/shops. If they however disable 3D-Secure: They're liable though.
I don't think this is true. So many shops these days sell fulls (inc SSN, DOB) at reasonable prices, some including even VBV/MSC passwords; you can filter by non-VBV/MSC as well, making VCV/MSC useless.
And if you really know where to look, the ability to look up someone's SSN will only cost you a buck or two.
Before October 2015, issuers ate the fraud, not merchants.
After October 2015, the "liability shift" means issuers won't eat the fraud if it's a chip card and the merchant didn't use the chip reader. Otherwise, they still eat the fraud.
I wonder if fraudulent transaction levels are similar in the US to those in the UK and if no, what the reason is for the difference (and if yes, why the transaction costs are so much higher in the US).
One reason why it might be much higher in the US is the prevalence of swipe and sign. In Australia signatures are no longer allowed and essentially all transactions are chip and pin (or tap if its under $100). This basically eliminates in store fraud as a chip cant be skimmed. No idea why ACH is so expensive / terrible in the US compared to other countries, I guess its the number of banks?
