Topic: Buying BTC with Visa / Mastercard [New Service?] (Read 3385 times)

I had a long conversation with a representative from FinCEN today about the requirements to register as a MSB. I'll let you know what I hear back. For a government organization they are awesome. My phone call was returned the same day. They asked a lot of really good questions about bitcoin and were really trying to understand the currency and how this kind of service would fit into it.

  good one. Generally its not a good idea to buy btc with credit cards.

Interesting! I wonder how much fraud they are seeing with credit card orders. Further, I wonder if I could do it any better (or cheaper).

https://www.quickbitcoins.net/ accepts USA credit cards. They request DL/bills/etc to prove identity.

Thank you all for your advice here. At the very least it's helped to highlight a couple of hidden costs. At most I feel like hiring a lawyer first is a good idea. At any rate, I am still planning to give it a go.

Software wise it's a snap.  Several years ago I was involved with a company that believed exactly the same way you do now.

Here is the truth of it.
You WILL run afoul of Visa & Mastercard regs from the get go, you can't convert credit to cash, you must use a "cash advance" type transaction which will require a "Know your customer", type of in person, present an ID along with a bank statement and a local utility bill type of transaction. (See Casino Cash) for one example of how this is done.

If your company is in the USA you will need to register with OFAC, and check your clients against the OFAC list.  You can still take their money, but you must seize their funds and submit it to the treasury department.  Otherwise you WILL be charged with money laundering/ supporting terrorism/ killing kittens.

You will also need to register as money service business.

Depending on the state you live in you will need to pass a background check, post a bond (typically $250,000 - $1,000,000) and register as a money transmitter or check casher.  In most cases you will also need a physical retail location to even qualify as a money transmitter and thus local zoning laws will apply.

After all of that you will need to find a way to actually accept and process the cards. 

This will require a merchant processor, willing to work with you.  There aren't any in the USA that will touch you with a 10ft pole.  The ones I've dealt with have all been foreign and instituted significant rolling reserves regardless of your actual chargeback rate.  If your chargebacks exceed 15% you will be dropped, if you find another processor and exceed 15% you will be banned from ever handling Visa/Mastercard transactions again.

Chargeback rates on first time transactions using credit cards were around 20%, that means 1 in 5 transactions are fraudulent.
Your rolling reserve will be at least 35%, so unless your profit margin can account for that you're basically hosed.

Bitcoins once given out can't be taken back. 

We were fortunate in the pre-bitcoin days.  I was part of a service that was very much like paypal or dwolla.
Most of our transactions were for merchants whose merchandise took several days to order, arrive, re-pack & ship.  So we could notify merchants that the funds were no good.  You won't have that luxury.  Plus chargebacks can occur up to 180 days after the transaction, for ANY reason.

Even after all of that we were put out of business in < 2 years due to the high costs of banking and regulatory compliance.

Your fraud is going to be much more than 3%.  I would plan for 15% (and probably 20%+ is more likely).  Also your discount rate isn't going to be 6%.  Once your chargeback rate exceeds a few % they will either drop you or jack the rate to 10% plus.  Chargebacks are going to be $35 on top of the complete loss.  So if your average loss is 10 BTC ~$120 you can count on chargebacks adding another 15%*($35/$120) = 4%.

So planning on 10% markup is a good way to get raped.  15% + 10% + 4% +5% (profit) =  ~35% markup.  Honestly you will still crash and burn and end up owing your processor a small fortune but 35% is more realistic than 10%.  The problem is a single organized attack could easily be hundreds if not thousands of fraudulent orders.  You won't even notice until the next month (when they all reverse leaving you tens of thousands of dollars short).

The problem with this is that 1 fraudster > ∞ legitimate users. One turd ruins the pool party.

Of course it is a good thing if you can find a way for people to buy bitcoins with paypal/credit card. I don't think it is something impossible if you find a way to manage all the risks correctly.
I wish you good luck and let me know if you are succeeding.

Elwar, sure... could happen. Probably will. Theft using your own card will only safely work once though. Plus, you risk criminal charges and have to deal with a canceled credit card. Might as well buy something more valuable on there first.

Serith, thanks for the feedback. Especially for the link at the end.

I've started development on this project now.... I might be wrong, but I think there is enough good in this community that the legitimate user base would outweigh fraudsters. So, I'm going to risk it. So far, I have the domain, server, and SSL all setup. Code development is about 25% done. Expect to see a public beta in 4-6 weeks if all goes well. Of course, it is still an exercise until I can find a payment processor willing to take a high risk bitcoin account. Does anyone have recommendations? So far I've tried:

    strip - No
    rocket gate - No
    moneybookers - No
    instabill - Maybe, in process
    paylinedata - Long shot, in process
    authorize.net  - Evasive answer
    dhd media - no response
    epoch - no response
    iProcessing - no response
    cmcicpaiement - no response

Also, it's looking like some of the merchant accounts for high risk processors are expensive. Some charge a monthly fee of $50 and as much to 6% (or more) per transaction. To cover exchange fees, processor fees, and have enough margin (3-5%) to cover charge backs it could be as much as 10% above what you get from Mt. Gox.

Thanks

None that will protect you.


Have been tried, it's not working.


Maybe.


You have no way to know IP adresses of significant amount of possible proxy servers.


Isn't that defeats the purpose of being instant?


Won't matter if you have near 100% fraud, also have been tried.


No law will protect you.


Because all of the above reasons.



There was a very good post about selling bitcoins via PayPal with manual transaction processing, but you would have to be very perceptive to do it: How CoinPal avoided PayPal fraud

1. Sit down at computer
2. Buy 10 Bitcoins with Visa card
3. Transfer 10 Bitcoins to new account
4. Call Visa "My Visa card was stolen"
5. Get money back for 10 Bitcoins.
6. Profit

It seems to me that there is demand for a service that would sell BTC instantly through credit card transactions. I understand this had been tried in the past and fraud ran these folks out of business. I'm considering giving it another go and am curious to get your thoughts. I'm not talking about a full exchange. Just credit card transaction -> BTC.

Here are some of the thoughts I have -- and a LOT of questions. If anyone can help I'd appreciate it. Most of these things are to help make the service less attractive to fraudsters. That means trading anonymity in a lot of these cases -- which I have mixed feelings about. Anyway, here goes:

* Which payment processor and banks are going to allow things related to virtual currencies? (Stripe is not able accommodate)
  - some people are able to do this in virtual games now right?
* Any idea which laws would apply to this kind of a service?
* How effective do you think limiting the maximum transaction to 10BTC / account / day would be at limiting fraud liability?
* Phone verification?
* Blocking proxies? No tor or reverse dns with VPN in the name.
* Forcing 2 factor auth with a fob mailed to a physical address?
* Requiring address verification and cvv code with the payment processor.
* Verified by Visa already exits...
* Sliding scale commission based upon the current amount of fraud
* Limiting source ip and users to countries that will pursue fraud
* Why aren't the existing exchanges doing this?

I'm really interested to talk to anyone that tried this in the past. It would be great to have an easy way for someone completely new to BTC to sit down at a computer and within 10 minutes have their first BTC in their wallet.