This is an important question- most of the costs of a credit card providers come from dealing with fraud and chargebacks. That's partially because, under US law, credit card companies have to eat fraudulent charges if they can't get the person or company that did the fraud to do so. (Funnily enough, this is one of two places where protections for average people in the US are significantly better than protections for average people in Europe).
But credit card companies can keep their costs low by making a business decision not to renew the accounts of frequent chargeback-ers or chargeback-ees (even if they never officially found those individuals at fault). If the government had to make a payment system for everyone and take on all responsibility for all fraud, that would create an incentive with massive second-order effects.
The article did an awesome job explaining what are the parties involved and you choose to use a generic term instead.
> dealing with fraud and chargebacks
A lot of that is offloaded to the merchant, which instead has to pay them on top of what they already pay to the issuer bank.
There is no reason why fraud and contract violation must be handled by unelected and unaccountable payment processor, when the government has already set up a consumer protection system for disputes related to cash payments. The payment processor is best left as a dumb pipe that does what parties and (in case of disputes) courts tell it to do.
Because that would break the subscription-based billing model for a lot of businesses.
Making a purchase is (still) voluntary for the customer.
For everyday purchases at physical stores, cards are convenient. You just swipe and maybe put your PIN. But other digital payment methods or cash can be just as convenient. You're never going to chargeback a coffee, a sandwich, or your groceries.
But for distance purchases such as online shopping, hotel bookings, flight reservations and such, trust is the most important factor, not convenience. Cards have fraud protection. Other payment systems do not. These "unelected and unaccountable" people can actually help you if you've been the victim of wire fraud. Much faster and much less of a hassle than going through the courts. And if they don't help you, you haven't in any way, shape or form abstained from your right to justice through a court of law.
If customers can have that security and ease of mind, then they are much more likely to make a distance purchase. Which means that the vendor can sell their product. If the customer can't have that ease of mind, then the vendor will not make a sale.
So vendors who want to make sales will gladly accept cards. Anybody foolish enough to try to sell without making it easy for the customer to pay in their preferred way will go out of business.
Another point worth mentioning is that cards work instantly across pretty much all currencies in the world. You can go from anywhere to anywhere and pay with your card and currency exchange is done automatically. And in the past 10 years, cards have given very good exchange rates.
This is only in US and it is needed in US, because US has very limited consumer rights regulation. EU has much stronger consumer rights (mandatory 14-day return windows for any reason, easy cancellation for subscriptions, mandatory 2-year warranties).
So the things that the (private) credit-card companies protect you from in US (via chargeback support and fraud detection) are things that laws protect you from in EU.
Where are you going to do the transactions in your scheme? Because credit card transactions are not the same as sending money from one bank account to another. There are settlements, disputes, chargebacks, etc.
How is the central bank going to offer the same variety of products described in the article? I.e..
> Interchange fees vary dramatically based on the kind of card, category of spend, and even the metadata attached to a transaction. The network’s goal is to set fees that incentivize desired behaviors on their network, including using more secure payment methods (lowering interchange fees for merchants), or for companies to do more business spending (higher interchange fees on commercial credit cards).
Your scheme sounds like all these crypto guys who think they can replace credit cards with bitcoin transactions, as if they were the same thing
But they set the interchange rates and disallow (or at least have until recently, in the US) merchants to discriminate against cards based on rate or type via their “honor all cards” rules.
They are absolutely propping up and benefiting from the high fees.
Brazil's Pix costs ~$10M/year to run: https://whatispix.com/
This is much cheaper than the entire credit card ecosystem skimming ~3% off of the economy. Efficiency!
FedNow Is Live - https://news.ycombinator.com/item?id=36801491 - July 2023 (1022 comments)
Walmart is currently trialing it to save $3B-$7B a year in interchange fees. No crypto, just XML messages through a mainframe at the Federal Reserve with a 20 second SLA.
> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”
> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.
Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://news.ycombinator.com/item?id=41593450 - September 2024 (3 comments)
https://news.ycombinator.com/item?id=49433164 (citations)
(as of this comment, there are 100+ instant payment systems live across the world; we should assume that all countries will eventually have an instant payment system, or integrate with someone else's)
https://www.pymnts.com/wp-content/uploads/2026/09/PYMNTS-Int... [pdf] (September 2026 revision)
Take SEPA Instant, for example. It’s great for many things, but effectively nobody pays using it in stores or even online.
It actually supports my point: FedNow could be SEPA Instant (if it were to be widely supported and available to retail bank customers), but it’s definitely not UPI, Pix, Wero etc.
My link mentions how Wero, replacement for US credit card rails in Europe, is being built on top of SEPA Instant. An adoption tracker is included, to show uptake progress. ~35% of tracked banks in scope in Europe for Wero have adopted it, as of this comment. They are actively building to get off of US credit card rail infrastructure.
In the US, similarly, it will take time to move off credit card rails, but we’ll get there. As mentioned, Walmart is already running live trials for pay by bank. I agree it is not fully operationalized yet, but it will be eventually. The most important primitive already exists (FedNow rails). Everything else is app experience and consumer training (for payment requests and transfers).
I see the pattern between the EU and US credit card -> instant payment transformation journeys, but maybe you don’t. Pix and UPI have shown how easy it is.
(Almost every deposit institution in the US currently has access to FedNow, per the Federal Reserve’s latest participant report, and through those deposit institutions and service providers, their customers)
Banks earn money on card payments and pay (or potentially even lose, due to fraud liability) money on ACH and FedNow. The card networks compete with each other exclusively on the issuer side for structural reasons (a merchant generally has to accept whatever the cardholder pulls out of their wallet or risks losing the purchase) and can for this discussion be considered aligned with the banks.
Cardholders get (often opaquely valued, sometimes even gambling adjacent) points and perceive credit cards as having better dispute rights for them, so they also prefer them over anything else, including cash and bank transfers, and any legal action against cards will face immediate popular backlash. (I can hear the "mile optimization" influencers screaming bloody murder just thinking about it.)
Merchants are the only stakeholder heavily lobbying congress for literally anything cheaper, but so far it hasn't made a real dent, despite decades of trying. I think the Durbin amendment can be considered a failure, all things considered; not many stores offer discounts on debit cards or surcharges on credit cards specifically, and those that do seem to often just make a completely disproportionate money grab of 4% or more, vastly beyond their actual costs. Besides that, the "small issuer exemption" ends up benefiting large fintech players at least as much as the actual local and community banks it was intended to serve.
Please tell your user that this SLA is much too high for many purposes. A cafe or such would lose a ton of money if every transaction took 20 seconds longer to conduct.