Credit Card Processing is a Hard Business

Zachary Townsend (who used to work for Stripe) provides an interesting insider’s look at the payments industry in light of PayPal’s acquisition of Braintree:

The margins in the card processing business are incredibly small. A company would be very lucky to make .5%. That’s not discounting the money lost to risk or the cost of acquiring customers.

Let’s take the biggest online example. PayPal processed $144.973B last year. If that was entirely processed over credit cards than they would have made - assuming 0.5% - $0.724B on processing itself. $724 million isn’t all that much.

PayPal actually made more like $5.6B last year because they make most of their money by having people use electronic checks (ACH) while charging them credit card like fees, and by charging customers high, and opaque, foreign exchange and transfer fees.