Comment by mahboi
6 hours ago
The biggest thing is disputes. I have no problem with an escrow service asking for a cut if I want to use them, cause they have real costs. The creepy thing is how that escrow built into credit cards is forced on every little transaction.
> The creepy thing is how that escrow built into credit cards is forced on every little transaction.
That's essentially what a CC company does though, every transaction they're briding the timing gap between the card holder paying the CC company and the CC company paying the business. That's the core value add and cost they're bearing that they charge for.
They have risks from both sides of the transaction; on the one hand scam merchants who might get chargebacks and on the other customers who never pay off their balances (thought I guess that risk is covered by their interest charges mostly).
The timing gap is only there because it is a credit arrangement, it's not inherent in payment processing.
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As I understand it, most of the fees associated with US credit cards don’t actually go to the parties that are on the hook for disputes.
Most fees go to the issuing bank. The issuing bank is usually on the hook for customer disputes. So I think you are mistaken.
AIUI, the issuing back generally recovers the amount of the chargeback from the merchant, possibly through some intermediaries. See:
https://usa.visa.com/content/dam/VCOM/global/support-legal/d...
> If the dispute is valid, the acquirer deducts the amount of the dispute from the merchant account and informs the merchant.
Also, keep in mind that companies like Stripe will not only recover the disputed amount from the merchant but will also recover a fee from the merchant!
I mainly meant the processor has to spend money handling the disputes. They may eat the cost too if it's small, but usually that's on the merchant. They're more likely to eat the cost of fraud.
I actually think this is an example of where government should be more involved - like often times if I file a chargeback, there's a solid likelihood that there should a real world repercussion to the other party because it's probably related to fraudulent or abusive behavior.
If a merchant has a pattern of disputes with customers, they can get kicked off the card networks. That's a real world repercussion.
There are fraudulent customers too, I would say even more often since they have no reputation to uphold. You can see this more in the open on Yelp.
Customers do have a reputation to uphold. Real-time customer reputation and risk scoring services are a profitable and growing industry. They maintain extremely detailed records of customer interactions with businesses and assign scores to individuals.
Returning a defective product to one store, only buying things when you have coupons or promo codes, or issuing a chargeback at one business can get you instantly flagged as a higher risk at countless unrelated stores who are using the same services. Other factors that can impact your score include your income level, your home address, the devices/software you use, your interactions with websites (for example going directly to the product you want instead of searching and browsing around, or pasting your information vs typing it out is considered suspicious), how much money you spend, inconsistencies in the personal information you've given to different businesses, even your attitude when dealing with employees and how much of their time you take up can negatively impact how you're scored since that lowers your expected profitability (CLV/LCV/LTV) which lowers the tolerance threshold for risk.
At least Yelp is public and companies can see how they are rated. Businesses typically won't tell you that you've been branded a high risk for fraud or chargebacks. Instead they'll just apply different prices and polices to you on an individual basis. They might tell you that don't accept certain payment methods. They might tell you they don't accept returns, will only give store credit, or give very narrow return windows. They may reject your business entirely or limit you to only a subset of the products or services they offer.
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PayPal does this well with friends & family transfers.
Zelle is like this too. Though everything seems to be reversible in some way, not cause of disputes but because of unauthorized charges.
I tried to pay a 3 figure sum of money for a service that was provided to me, and Zelle through my bank app refused to do the transaction. When I called my bank to understand what was going on, the person read me a script that said they can refuse any transaction, and don't have to tell me why.
The app even has a warning that Zelle is basically cash, and you really shouldn't expect any reversal.
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Not just disputes. Also absorbing some significant part of the cost of fraud.
this process of giving out your 'secrets' (ccn, exp, ccv, zip) to tens of people a day with no other real authentication is inexcusably insecure. and instead of trying to get on top of the problem for real (like an hsm), we have this very half-assed fraud detection and chargeback mechanism that costly, ineffective, and seems to just bury the real issues behind a facade of concern. its been decades that this has been going on, I remain confused as to what incentives the banks have to continue to prop up this farce.
I've used chargebacks much more often because of services not rendered than because of a lost card or because of stolen credentials.
The chip on a credit or debit card is an HSM.
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>with no other real authentication
Nowadays for the first purchase for a merchant it can require me to hold my card to my phone to prove that I have physical ownership of the card.
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Any links for this? Since the abusive practices towards their users should already eliminate most of frauds that isn't caused by the actual banks themselves.
> the cost of fraud
Fraud in modern financial systems is kind of.. funny? obvious? Local banks who know who Bob is can't make enough money due to scale, we'll scale that system to a national level with millions of participants. How will we do that? Bob is now customer 11,476,112. Oh no this anonymous number we created cheated us because we didn't know who he was, what do we do? Charge Bob and everyone else for the cost of this, our scaled up business model wouldn't work otherwise. We'll skim 3% off of every financial transaction infinitely, so that after our $100 virtual bill has changed hands 30 times it has disappeared into our coffers.
I have had to fight hard for disputes, even with “premium” credit cards like Amex Platinum. I’m not talking about “not as described” bs, but being asked over and over for the same info to wear me down.
I recently ordered some snacks from another country and after 3 months the vendor stopped responding while never having sent anything. When I asked for a chargeback, my claim was denied because I didn’t have proof they didn’t send anything! I literally had an email from them that said they are backed up and unable to send stuff.
Out of all the banks I’ve done chargebacks through Chase has been the least painful. I think only one time I had a back and forth with them. And that time I had one phone call, sent my evidence, and that was that. The company then tried to charge me again, which I also disputed, never heard from them again.
This was a moving company that insisted I should use their flat rate package and 3 movers rather than the 6 hourly I asked for. It took forever and they tried to charge me extra fees.
I've had a foreign chargeback go into the void too. I don't get the feeling chargebacks are a thing in Italy, so chalked it up to that.
Not unlike the experience many Americans have of fighting their own insurance company that they already pay a monthly premium to.
The lengths insurance companies will go just to avoid adding to a deductible are, given the circumstances, rather disgusting.
They don't seem to produce any savings. Are credit card companies much different? Why are their CEOs making millions of dollars? Is it all supposed to be because of innovation in preventing fraud?
As with health insurance companies I too have found in reality their way of dealing with these things leaves much to be desired. The way they treat it seems transparently like health insurance - add minimal value upfront, then wear you down so you never actually get the service or "value" they were supposed to provide in the first place.
That shitty service is the margin padding that multi million dollar salary. Where's the innovation?
So much of the economy seems to be about wrongly extracting money from people, and then only giving it back to the people who have enough free time and persistence to endlessly argue and haggle for it.
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Yeah, I've been extremely disappointed with disputes on Amex Platinum.
I literally had a bike rental company in Amsterdam attempt to get me to conspire to report a bike stolen (which had briefly been stolen but was back in my possession), and then when I refused, charged me as if the bike had been stolen!
I reported all this to Amex, and I was never refunded, and to my knowledge, the attempt fraud was never investigated.
Seems the common thing between the three of us not getting chargebacks handled right is that the merchant was outside the US.