What makes you think 3% is low? Why isn't it high? Seems like a huge chunk of a transaction's cost to me.

To clarify, supposed we lived in bizarroland where the transation fee was 7%. bizarrologicallee could post this very same comment, but as "if they had a trust, credit card processing fees would be 15%, not 7%"

Percentage fees make absolutely no sense, and that is the end of the discussion. A flat fee regardless of the transaction amount is the only method that even registers as logical.

Some part of the fee is used to insure against fraud. That is obviously related to transaction volume.

I think you mean transaction value ($) rather than transaction volume (#). You are correct, and the value is also the right thing to tax if you are funding 30-60 days of interest-free credit.

Thanks, English is not my first language. After looking at the first few Google hits for "transaction volume" it seems to be confusingly used with both meanings but it's best to be unambiguous.

Unfortunately with the way things are set up right now, a percentage fee is actually the only way it makes sense for processors, who are somewhat at the mercy of banks, who charge a percentage-based fee. So if they charge a flat fee, they run the risk of either losing money if the percentage fee is above their cost, or the business will overpay if the flat fee is a lot more than the percentage fee.

(Note, that applies even to flat percentage fee. That's what happens with companies like Square. They lost their shirt in their flat rate deal with Starbucks, because it cost them more to process the transactions than they made via the flat fee.)

But we don't live in bizarro-land where it's 7%, so we don't have to decide whether 7% or 15% would be profit-maximizing. But we can say for certain it's not 1.95%. The reason I feel that profit-maximizing is closer to 7% is the example of actual monopolies or duopolies.

Western Union, which cut its teeth on being a "an industrialized monopoly dominating the telegraph industry in the late 19th century" and in some areas I feel succeeded in establishing a money transfer monopoly, has rates close to 15% in some cases. Here is an economist talking about its remittance monopoly: http://therealnews.com/t2/index.php?option=com_content&task=...

So in areas where western union might have a literal monopoly, or a duopoly[2], they might set their price at around 12%. This is ridiculously high, and shows a monopoly level of pricing.

1.95% is a level that reflects a fair amount of competition, not at all a trust versus cash. You can argue till the cows come home, but you can see the actual monopoly or duopoly rates on this type of thing for yourself and compare.

[2] http://www.theguardian.com/global-development/2014/apr/16/uk...

So, why does the German Girocard system then have fees below 0.25%?

The fees for credit card transactions are roughly four times as high as fees for debit card transactions.

That's not necessarily true. The debit network fees have gone up a lot. In some cases, they get pretty close to credit card transaction costs.

The very same networks have rates for the very same cards less than half of that in the EU.

Yes, but cash back and incentive rates are much higher in the US.