It is amazing that in the year 2023, where things are possible that were science fiction until recently, we still rely on private payment processors, credit card companies, which extract fees for a service that doesn't have any technical necessity anymore. I think the reason is just inertia. They work well enough in most cases, and the fees aren't so high as to be painful, so there is little pressure to switch to something more modern.
It is not just inertia; it is government malice. The government loves that there are effectively only two payment processors, because this lets them exercise policy pressure without the inconvenience of a democratic mandate.
Yes, financial companies mostly regulate themselves. They have lawyers telling them what regulators are likely to approve of, and make rules based on that for themselves and their customers. If they do something sufficiently bad, regulators go after them. That’s how banks get regulated, too.
That’s how most law works, actually. There’s a question of how detailed the regulations are, but mostly you don’t go to court, and if you do, whether it looks bad to the judge or jury is going to make a difference.
I’m wondering what you’re expecting from democracy? More oversight from a bitterly divided and dysfunctional Congress? People voting on financial propositions?
If entire classes of financial transactions can be blocked through backroom conversations between financial companies and regulators, don't you think that's bad for democracy? We have laws which allow the US to tackle money laundering issues and it's understandable that regulators would create regulations along those laws; they have a clear mandate to. It's not clear to me that other classes of transaction should be blocked based on amorphous dealings with regulators and companies.
Part of the issue is that it's usually American regulators setting these rules, but they're applied globally due to the more-or-less duopoly of credit card companies.
>we still rely on private payment processors, credit card companies, which extract fees for a service that doesn't have any technical necessity anymore
The technical necessity is there; for your chase-backed visa card to pull money from chase and deposit it into your shop's citibank, there needs to be some infrastructure. Whether a private company or the government provides this infrastructure is another story.
(Although if the government provided you could argue that there would likely be even more political headaches that prevent what goes across the wire).
Bank transfers are a thing. They don't require an intermediary credit card company. The problem is that currently such a transfer is usually slow because of software/protocol issues.
Yes, the current system is a good-enough solution, and any better alternative has to be not just better but so much better that it is worth the large cost of switching to a different solution. Game theoretically, it's an "inadequate equilibrium".
And conversely: For online payments, credit card payments are my least preferred method. But I still use them quite often, because everyone accepts them.
I would be very surprised if something based on Blockchain or similar software doesn't offer a solution here. Another route would be to establish a protocol for near instantaneous bank transfers, and try to get a lot of banks on board. The immediacy of transfers seems to be the main reason why companies use credit card services, not buyer protection or actual credit.
I have no particular love of legacy systems (whether they be banks, imperialism, or Electoral Colleges), but what about your comment is plausible given the widespread recognition that blockchain technologies have been oversold, leading to widespread fraud and failure?
Maybe I’m missing something, but the above comment reminds me of the blockchain naïveté of 10 years ago. I don’t mean to be dismissive; I’m suspending disbelief long enough to ask what you mean in detail.
This is possible, and I don't have any deeper knowledge of cryptocurrencies / Blockchain. But payment systems don't seem to have a necessary connection to speculation and the high volatility which comes with holding a cryptocurrency. Maybe I overestimate the amount of problems those payment systems can solve.
There are permissioned "blockchains" which are just private ledgers, that banks could use with permission from the US gov't. These can be anything from a centrally run DB with ACLs or something like Hyperledger with permissioned P2P access. Whether you call it a blockchain or a DB with ACLs is immaterial; it's still much cheaper, faster, and pleasant to use this system over the current system of complex intermediaries in the US. Europe seems to have solved this problem with SWIFT.
There is a system called Faster Payments in the UK, which is "near instantaneous" between the UK banks which participate (most of them offering current accounts as far as i know).
But it is a permanent and final transfer, no easy charge backs like with a credit card, or fraud protection from debit cards.
You have to know which account you are paying into (sort code and account number), which is the main part of what Visa/Mastercard do. They are the layer in front of the bank account which means customers don't have to send money directly to an account.
I suppose now everyone has a smart phone it would be easier to hook up something like Faster Payments in a user friendly way with an app and a QR code/NFC reader that the merchant has. But Visa/Mastercard are entrenched obviously.
Well, chargebacks are not possible for ordinary bank transfers. The problem is that the they are too slow and not convenient enough. This is a software / standardization issue. Credit: PayPal is successful despite it only offering very short credits in order to ensure quick transfers. And in physical shops credit cards often seem to be no more than a convenient way to pay without cash. In Germany you can actually pay in all shops and restaurants with a form of debit card, which is just as convenient as paying with credit cards, but has less fees for the shop, since there is no credit card company in the middle. As a result most people don't own a credit card. This doesn't work so well online though.
> I would be very surprised if something based on Blockchain or similar software doesn't offer a solution here.
There is, it's a layer-2 on Ethereum called zkSync. It's not totally satisfactory (the company that makes it can steal your money, centralized sequencer, etc), but it's pretty mature and works quite well. To replace Visa you want high throughput and low latency and zk-rollups like zkSync can provide both. (There are other options too, like Starknet, but AFAIK zkSync is the most mature.)
No PayPal is basically a credit card company. It is an intermediary which gives short credits in order to achieve near instantaneous payments. And extracts fees along the way.
The main selling point to online shops would have to be a substantial reduction in fees compared to credit cards / PayPal. Most shops don't care about censorship since they wouldn't be affected anyway.
Yeah I don’t see that happening anymore. Crypto is always going to have fees and off-ramps, although I do think it’s helped create competition in the transfer space.
The real way crypto will work or not work is programmable money. If that works that will be huge, if it doesn’t then maybe someone will pick it back up 50 years from now.
The problem in this specific space is that many people don't want their payments to a NSFW company to be associated with them. Most blockchains makes this trivially traceable by design.
The ones that don't (eg Tornado cash) end up being used for money laundering so on/off ramps won't touch them. We'll see what happens with the ZK-based chains, but this seems a systematic problem that is difficult to fix.
Wow, this seems to be just what I meant. Unfortunately it appears it is so far only widely supported by Indian banks. (In Germany there is a similar system, called GiroPay, but it hasn't really caught on yet. And it isn't even intended as an international solution.)
