Tag: finance

Elaborating on FIPNA: why it’s needed and why money intermediates shouldn’t have freedom of association

This was written in response to a comment on YouTube from someone who was trying to understand my FIPNA (Financial Provider Neutrality Act) arguments. It’s not a simple problem and I can see why it’s hard for someone to see the whole picture if they’re not familiar with incidents where PayPal and MasterCard have brought down a censorship hammer in the past. I appreciate their questions far more than the other guy that was talking to me who basically spent the entire time recycling the bogus Limbaugh-level nonsense of calling me a socialist and suggesting that what I want is the same thing as holding a gun to his head and forcing him to do work for me. My full wall-of-text diatribe comment follows. I’d be interested in any comments you have on this subject; just know that comments here are moderated as I find time to do so.


What I’m trying to do is find a solution to the problem of financial services banning people in a way that smacks of collusion. It helps to define the problem better first. Patreon banned Sargon and blamed their “global payment network” which could be any of PayPal, Stripe, Visa, or MasterCard. Sargon moved to SubscribeStar which immediately got kicked off of PayPal as a result. PayPal has also banned a lot of people and categories of businesses in the past, and every time they’d blame a payment card network (Visa or MasterCard) and upon contacting the blamed card network, the contacting party would be told that PayPal was responsible, not the card network. This circular blame tactic results in both parties not taking any sort of responsibility…and yet the financial cutoff on the basis of not liking someone’s category of business remains in place.

The thing about financial service providers is that unlike nearly every other category of private business, a financial service provider or colluding group of them can render someone destitute with the stroke of a pen and existing law carves out huge exceptions for banks to harm people without consequences. A story comes to mind where Bank of America had a customer come in with a scam check and asked if it was legit and, if so, could he cash it out. The bank made him wait and called the cops and had him arrested. He ultimately didn’t get any charges filed but he did get to spend some time in jail and have an arrest record, and he couldn’t sue BofA because the law says that they can have people on the premises arrested without consequences.

Ignoring the banks themselves, the ultimate problem seems to be payment card networks, specifically Visa and MasterCard. All ATM cards that are also members of a payment card network in the USA are (as far as I am aware) issued either a Visa or MasterCard card number. This means that Visa/MC form a duopoly, or what is known in capitalism as a “monopoly of two.” Essentially, any duopoly acting in its own self-interest will end up cooperating such that they behave no differently than a monopoly. The competition that forms the basis of a core element of a capitalist economic system (supply and demand) doesn’t start until you have a third player in the market that directly competes with the other two. American Express and Discover are the other two major payment card networks but I have never seen a single ATM card with either of their logos, and frankly I can count the number of Amex and Discover cards I swipe in a year on one hand. They only compete with Visa/MC in the credit card space and they’re quite minor competition by comparison.

Bringing my point full circle, the Visa/MC duopoly control the payment card networks that the entire country has to use to engage in electronic commerce. Even when you individually consider alternatives like using PayPal with a bank draft only, PayPal still needs to maintain their relationship with Visa/MC for every other customer that DOES use a Visa/MC card, be it a bank ATM card or a real credit card, otherwise Visa/MC will threaten to pull their partnership which would decimate PayPal, if not outright destroy it. This means that if a corporate executive at MasterCard (or someone who knows such an exec and has influence over them, i.e. a wife, family member, or close friend) decides that they hate Sargon’s politics or that Sargon rubbed them the wrong way one night when they were browsing through YouTube, that executive can leverage the banhammer power of the entire MasterCard company to force every downstream payment processor and intermediate money handling platform that has any payment processing relationship with MasterCard to refuse to do business with Sargon under threat of losing the ability to process ANY payments through MasterCard OR any other provider that partners with MasterCard, *potentially up to and including entire banks.*

This is the real reason why Stripe, PayPal, and Patreon seem to be colluding even though they may not be: it’s MasterCard pulling their puppet strings and I guarantee you that we have no access to the payment card network blacklist because the payment card networks will have that blacklist under strict non-disclosure agreements with hefty penalties for breach of that section of the contract. Because MasterCard could theoretically bully any kind of financial institution into doing their bidding and taking the public heat for it, my proposed solution is a law that requires all financial service providers to provide their services universally to anyone legally allowed to request them. The devil is always in the details (for example, loans would still require due diligence and be subject to rejection based on reasonable assessments of risk) but the basic premise is that everyone should generally have a right to open a bank account, get a payment card that can be used to engage in commerce online, and freely enjoy the use of that card as a means to send and receive funds between other consenting private parties without concerns over being “cut off” for any reason other than commission of a crime. When the outrage mob shows up and demands that PayPal cut Sargon’s account because he’s “muh alt-right troll insert emotional buzzwords here rah rah,” PayPal can throw their hands up in the air and say “hey, it’s the law, we HAVE to service Sargon no differently than we service you guys, so you’re wasting your time!”

I’m theorizing to some extent because there is a huge information vacuum right now, but based on all available evidence, Visa and/or MasterCard are the puppetmasters and the fight must ultimately be brought to their doorsteps. One last point: the reason I want a Constitutional amendment rather than a normal law is because a normal law will fail on FIrst Amendment grounds, namely the right to freedom of association, but a Constitutional amendment would be able to supersede the First Amendment right to freedom of association specifically for businesses that serve as financial transaction intermediates (anyone between your personal money and another person you’re trying to do business with being able to receive that money.)

Why I don’t take credit cards. Also, rude customers!

Yesterday, we had a customer call up to get an external hard drive from us for $88.  I even offered to write him a quick backup script that would back his Windows user profile up to his external hard drive for no extra charge if he brought his computer with him.  Apparently he was coming from almost half an hour worth of driving distance, and at no point in the TWO telephone calls he made to my store did he ask about payment methods.  He liked our prices and I added further value to the service by offering to integrate the items he was purchasing for no additional cost.

When this man arrived at the store, he noticed my large green sign posted prominently on the front door stating that “we do not accept credit cards (but there’s an ATM next door!)”

The first words that myself, my wife, and one of my customers heard from this man were “I drove 25 minutes down here and was going to buy $160 worth of stuff, but you don’t take credit cards!”  His tone of voice was clearly hostile, as if I had insulted his mother.  He then said something which I cannot recall the exact wording of, but the gist of it was that “we just lost a sale because we didn’t tell him.”  My response to his poorly chosen attitude and words was “You didn’t ask, sir!”  That irked him enough to make him turn back around and say, “I’m not the one in business here, you are!” and subsequently storm out of the front door.

After an experience like this, you might be as perplexed as I was.  I did some thinking over the remainder of the day while my wife and customer issued some negative comments on this man’s handling of the situation, and felt that this topic was certainly important enough to deserve a very big blog post, explaining why this experience will NOT result in me taking credit cards.

I will openly admit that I am not blameless: I could have informed all customers on the telephone from the very beginning that we do not accept credit cards and prevented this scenario from occurring.  However, at the same time, this individual was dealing with a business which he knew nothing about, and made an (erroneous) assumption that “all businesses take credit cards.”  Common sense dictates that if one is dealing with a business that one has no experience with, the payment policy at that business is part of the information gathering process that a responsible consumer must engage in; while it’s safe to assume that Best Buy or Wal-Mart take credit cards, a lesser-known business such as mine is a great big question mark.  If you change auto mechanics, for example, and you’re calling a shop you don’t know anything about, do you ask the shop if they take credit cards, or do you make an assumption that they do and get flaming mad when they don’t?  It’s your payment method of choice, so it’s your responsibility to ensure that it’s accepted where you want to use it BEFORE you drive 25 minutes away.  While I am not blameless for failing to proactively inform potential customers, the customer is, at a minimum, equally at fault for the misunderstanding.

On to the main reasons why a very small business like mine does not take (and cannot afford to take) credit cards.  You need to understand how profit works, so let me explain it in brief.  Profit is easy: it’s just the price I charge a customer minus the price someone else charged me.  Let’s pretend that I purchase an item from a supplier for $60 each and resell the same item for $70 each.  On each item, I have made a profit of $10, because my price to a walk-in customer is $10 more than the raw amount I paid for it.  This would also be called a 17% markup.  (Cosmetics have markups as high as over 100%, but grocery markups are usually low single-digits.)  The bottom line:  my total profit on the $70 retail sale of an item is NOT $70, it’s $10.  The other $60 is just recovering the original cost of the item.  I’d have to sell $700 worth of those items just to make $100 in actual money for the business.

You also need to understand that credit card merchant services take a cut out of the total amount charged to the card before giving me my money.  As an example, this would usually be around 1.9% of the item’s cost plus $0.30.  I use 2% as an easy number to work with.  On a $100 item charged to a credit card, the card company takes a $2 cut, meaning I get $98 instead of $100.

Now, let’s explain how credit cards have affected my business so far.  This man refused to buy $88 of equipment, on which my profit would have been about $13, because we don’t accept credit cards.  We have been open for a little over one month so far, and out of all other credit card requests, this has been the only one that actively refused to make a purchase; the others walked to the bank immediately next door and pulled cash from the ATM, or wrote a check.  Therefore we are currently losing one sale per month due to our refusal to take credit cards.

The true problem lies in the ~2% cut that the credit card companies take.  For taking credit cards to not be worth that one lost sale’s potential $13 profit, I have to make enough credit card (a.k.a. “CC”) sales that I lose $13 to the CC company cut.

[Math Alert!]….If the $13 I lost is 2%, then 1% is $6.50, meaning 100% is $650.00 in sales on credit cards instead of cash that I have to make per month to lose money by taking cards.  If that sounds confusing, let me say it another way:  if I sell $650.00 a month or in merchandise on CCs instead of cash simply because I made CCs available, then I’ve paid that $13 I would have earned to CC companies anyway!  $650 a month is roughly equivalent to 11 hours of PC service before I pay a contract technician $20 for each hour of labor! If you consider that my business only yields $40 per billable hour, yet I’d be charged the 2% rate on $60 instead, that’s $1.20 per billable hour and represents a 3% cut instead of 2%.  In other words, once you stop looking at a credit card fee as a percentage of the cost to the customer and start looking at it after some expenses are paid out, that “little” 2% fee starts to grow pretty huge.

Let’s take all this stuff and expand it out a bit more with a (simplified) hypothetical situation.  If you were to examine CC cuts in terms of my net profit (actual money made after all obligations paid) instead of gross profit (money earned beyond the original cost of the item or sale, meaning services are usually pure gross profit), the picture gets worse: supposing I sell two hours of service a day, about 25 days a month, and half of those hours are charged on a credit card.  That’s $3,300 in a month for services, half of which I lose a 2% cut on, which is $33.  Now, $33 out of $3,300 total sounds awful small…until you pull out the double-whammy:  expenses.  The power company ain’t givin’ us no free powah!  You think the plaza space is as cheap as your apartment, too?  No, sir!  Cut out $1,000 a month for the retail space, $120 a month for power, $30 a month for water/sewer, $120 for business DSL, and a random figure of perhaps $100 in consumables such as paper and toner.  Then, after that $1,370 or so is deducted, don’t forget that the tech got 1/3 of the labor charges, so $1,100 was paid out to the tech for his work as well!  (All that ignores my initial startup costs and interest on the small business loan for SIMPLICITY, so this is an UNDERESTIMATE!)

In such a simple example, we took in $3,300 total from customers for services.  By the time expenses were taken into account, $2,470 of the $3,300 was gone.  Before the CC fees, this example yields $830 in net profits.

Anyone who’s been in school knows that percentages are easy:  “part over whole, times 100.”  So take the CC fees of $33 and do the math:  (33/830) x 100 = 3.976% of my actual earnings lost to the credit card companies.

This assumes that no one uses a stolen credit card and issues a chargeback, which could potentially cost me hundreds or even thousands of dollars; for example, if someone buys a $750 computer with a stolen card and the card’s owner issues a chargeback because they (honestly) didn’t purchase the computer and shouldn’t be out that $750, the CC COMPANY TAKES THAT MONEY AWAY FROM ME WITH ALMOST NO RECOURSE.  One fraudulent purchase of a new computer could wipe out an entire month’s net profits.

How do bigger businesses deal with these issues?  There’s only one answer:  everything is more expensive.  Period.  I can give a 4GB flash drive to a customer for $17 while my small but established competitor sells them for $40 because these “costs of doing business” are not rolled into the price of my products and services.  I don’t have 4% or more of my actual earned income being eaten by CC fees.  I don’t have the threat of CC fraud and subsequent chargebacks.  Add to that the fact that my margins and rates are already quite low and my customer service and turn-around are a million times better, and there’s no way even an established competitor can actually compete.

(Granted, a check could do about the same thing to me, so adding cards to the mix makes the risk significantly greater, and CC fraud is far more prevalent and easily executed than check fraud.)

The point is that the cost of taking credit cards isn’t exactly worth it, and the risk of chargebacks is too hazardous.  If the customer wants to use cards so badly, they can always step next door and withdraw a cash advance from the ATM, and eat the CC fees themselves that way.  So far, I have yet to have that happen to my knowledge.

If the customer doesn’t want to eat the CC fees, why in the heck would I?

If it wasn’t against CC merchant agreements for me to charge an extra fee for taking cards, I’d take them without too much hesitation.  The only way I can charge customers extra for taking cards and not run afoul of merchant agreements is to price all my items and services with the CC fee increase included, then offer a “cash discount” for non-CC buyers.  It’s the same thing as charging a fee to the card user, but also causes all my stated prices to increase, decreasing my competitiveness.  Completely unacceptable.

When the CC companies learn and change their merchant agreements, I’ll probably take cards.  Until then, it’s too risky and expensive, especially to such a small business as mine.