Comment by calchris42
3 years ago
Your explanation is so much more succinct than the article!
I believe buried in there is one other factor that is somewhat related:
- reducing friction helps drive more legitimate business. Accordingly, over-aggressive anti-fraud practices can result in reduced sales.
A toy example: a business could eliminate exposure to credit card fraud by not accepting credit cards. That would however reduce overall sales.
I guess this can all fit within a “marginal cost” explanation though.
>reducing friction helps drive more legitimate business.
A very real example in retail. I can minimize the possibility that I'll be hit with fraudulent returns. Require a receipt, short window, store credit only, must be in like new condition with all packaging, etc. (Or just sell everything on an all sales are final basis.) Different stores do many of these things to a greater or lesser degree on at least some merchandise. But you'd probably better be offering really good prices if you do.
And with all that effort all that friction, you still get hit with chargebacks no matter your policy for returns.
Yeah, the system is set up so the payment processors benefit from fraud.
> I guess this can all fit within a “marginal cost” explanation though.
Yes, but it undermines the first point, a bit. There's costs-- direct and social costs-- to making transactions hard; so perhaps optimal for a society is still not 0.
Also, there's nothing to say that the amount of fraud is stable and that we can't find a world where we have better mechanisms to reduce it for the same cost. (Improved technology, legal structures, norms, etc).
> a business could eliminate exposure to credit card fraud by not accepting credit cards
A business could eliminate all fraud, abuse and theft of every type by shutting down completely.