Topic: Combating friendly fraud (Read 2662 times)

So let me see if I got it right: a debt collector buys the debt from you and contacts the customer to get the money in an amicable way (doesn't go to court straight away), right?

Pennies on the dollar?! This should mean their own recovery rate sucks (or they have huge ROIs )!

And if they do go to court ultimately, where did you find such a progressive debt collector (who's making a tx in the blockchain look like evidence), if you do not mind me asking.

Outsourcing the debt and successfully dealing with the "black fraud" could be the solution, indeed. The question remains: is it worth the headache?

Given you need to file in the local court where the cardholder resides I doubt it unless your volume is tens of thousands of customers per month.

I am not saying reducing fraud is impossible but of all forms of fraud,  fiat->Bitcoin has to be one of the hardest to defend against..
1) It is new so the teminology and concpets like showing a tx in the blockchain is going to make any claims adjuster or judges eyes glaze over

2) It is irreversible.  Enough said.

3) It is fungible. Other digital goods aren't.  If I steal a game (via friendly fraud) from Steam I risk losing access to Steam forever.  Many gamers may balk at that idea.  1 "free" game vs losing access to all future games on Steam.  Given 1 bitcoin = 1 bitcoin a thief doesn't care about a lifetime ban.   They can just buy (or steal) coins from another source.  Obviously this aspect doesn't apply to "black" fraud but I think we agree there are technical solutions that at least have the potential to fight black fraud.

I intend to start selling Bitcoins but with physical delivery (and contract w/ debt collection company which is advised to customer in advance).  If I can keep fraud costs down I am looking into technology to allow small purchases online with some ideas on customer verification.  So I don't want to be hypocritical and make it look like I am saying it is impossible while perusing it myself.  The bar is pretty high though.  

I have some experience fighting CNP fraud.  I made a good amount of money back in the internet dark ages (1990s) selling phonecards before selling the company (well brand, domain, customer list) to a competitor.  I moved quickly from physical delivery to online delivery.  Now with phonecards you at least have the ability to de-activate fraudulently purchased cards (if they haven't been completely used).  

What I learned is that organized crime is just that ... organized.  I estimate less than 5% of actual customers were fraudulent but if they found a hole in the fraud "net" they would spam it with hundreds of orders before that hole was patched.  So everything can look good w/ low chargeback rates for weeks even months and then a tidal wave of fraud just start rolling in.   I had one month were 37% of orders were disputed.  

The other difference is markup.  In the 90s, phonecards were marked up 70%+.  So I would buy 1 million minutes @ 0.4 cents per minute and mark them up to 5 cents (effective w/ connection fee).  With fatter margins you can absorb more fraud.  Saw a lot of copycats try it with resale accounts (like what stores use) and the smaller margins (10% to  20%) means they couldn't absorb the fraud and died.

Obviously the margin on Bitcoins has to be much much much lower (or you only attract the thieves).  Less fat means you have to be nearly perfect.

Long winded but ....
TL/DR I don't think legal is ever a viable option.  Selling the debt (even for pennies on dollar litterally) may have some value as the friendly frauder gets stuck w/ full charge + $50 to $200 collection charge (max allowed by the State, not sure about international) plus penalty interest charged by debt collector plus negative hit on their credit report.

It is my hope if I can weed out the "black fraud" that the risk of hundreds of dollars in collection charges, negative credit report action, and just the downright hassle of fighting collection company will make it unattractive to friendly frauders.   ..... Maybe.

Is it possible to minimize the legal costs by disputing friendly chargebacks in batches maybe?

In court? You are kidding right? Legal filings alone would be more than you would ever recover.  You must also PROVE that friendly fraud occurred.  Between the cases you can't prove, the ones you just lose because judges are stupid, your court costs, and your legal team costs you are talking a major cost likely 5x to 10x anything you recover from the thief.

So how do you pay for that cost?  Raise your prices?  Ok well you just drove away the honest customers (who will be price sensitive) and packed your sales book with dishonest customers (who don't care what the price is because they have no intention of paying anyways).

I was wondering, why can't you hunt all the friendly chargebacks down, one by one, providing evidence you have sent the Bitcoins (in the court of law, if necessary)?

Is the process of combating friendly chargebacks prohibitively expensive?