Topic: The Horrors of Credit Card Processing - page 2. (Read 2823 times)
You have to take into consideration the size of Bitcoin compared to CC transactions, which still puts Bitcoin in the "lots of fraud" zone.
Bitcoin has seen plenty of scandal in recent weeks with things like the Mt.Gox and MyBitcoin catastrophes, but these episodes have been totally within the realm of normalcy compared to what happens every single day to conventional merchants who accept credit card. The Visa/MC monopoly controls business much like the mafia do. And like the mafia, these things aren't discussed much. So here are few of the horrors of credit card processing, especially relating to internet based sales, that you might not be aware of:
* That 3% rate you see quoted everywhere is a lie. Card-not-present transactions (i.e. anything online) are billed at a much higher rate. Rewards cards, business cards, and any of dozens of other types of cards are billed at different rates too. A more typical base rate is going to be around 4.25% On top of that, there are authorization fees both to the gateway and the processor, which will total about $0.60 per transaction. That puts total fees on a $9.95 sale upwards of 10%. Keep in mind that's coming off of gross. Even the IRS doesn't charge this much because they're just grabbing a share of your profit.
* Chargeback fraud is getting out of hand. Once designed as a failsafe to protect against stolen cards, the chargeback is now being used as a catch-all for unreasonable customer demands. Wanted the product in a different color? Charge it back. Found it somewhere else for a better price? Charge it back. Changed your mind about a purchase? Charge it back. Simply want to have your cake and eat it too? Charge it back. There's no reasonable time limit either. We've received chargebacks up to a full year after the purchase was made.
* In addition to losing the money from a sale and the goods or services your customer stole, your processor will also hit you with a chargeback fee. These fees range from $20-40 per incident. Think about that in terms of how many new sales you have to make just to cover the cost of that fee. You'd probably lose less getting mugged in an alley.
* Credit card authorizations occur within seconds, very much like an unconfirmed bitcoin transfer. At the end of the day, a batch is processed and sent to the processor with that day's transactions. The processor typically holds that money for a week before it gets deposited into your bank account. A week!
* Get too many chargebacks in too short a period of time, and your processor will shut you down or start suspending deposits. How many is too many? That's arbitrary (despite whatever you may have heard about a 1% limit).
* The processors can do anything to you without notice. They can shut down your account for no reason without even telling you. They can withhold deposits to your bank account. They can increase their rates. They can refuse to process certain transactions even after they've been authorized without even telling you. They can implement a "reserve" on your account where they withhold some portion of your money (like 20%) just for "safe keeping", again, without even telling you.
* If you complain about anything, or if you encourage your customers to pay by other means, you can be shut down without notice.
* With that one week delay on your deposits, getting shut down means losing an entire week's gross revenue. We have a client who got shut down about a month ago and still has more than $30,000 stuck in limbo. The former processor is claiming we have to wait 270 days before they will even consider releasing the funds. There aren't even any written contracts or bank statements to substantiate our claim.
* To even get processing, the principals of the company must pass personal credit checks and the products/services offered must meet various arbitrary and unpublished requirements. You can be rejected simply because your product is "too commonly available," or conversely, "too unusual".
I could go on, but I think you get the point, so I'll stop here for now. Successful businesses just have to fight through this as best they can by passing as much of the cost onto their customers and employees as possible, and that's not good for anyone. Bitcoin can solve every problem on this list. If the user base grows enough, merchants will flock to it. And they'll even be able to offer huge discounts to their customers for using it.
tl;dr:
The Visa/MC monopoly is choking the life out of us in ways many people don't realize. Bitcoin has the potential to save us.
* That 3% rate you see quoted everywhere is a lie. Card-not-present transactions (i.e. anything online) are billed at a much higher rate. Rewards cards, business cards, and any of dozens of other types of cards are billed at different rates too. A more typical base rate is going to be around 4.25% On top of that, there are authorization fees both to the gateway and the processor, which will total about $0.60 per transaction. That puts total fees on a $9.95 sale upwards of 10%. Keep in mind that's coming off of gross. Even the IRS doesn't charge this much because they're just grabbing a share of your profit.
* Chargeback fraud is getting out of hand. Once designed as a failsafe to protect against stolen cards, the chargeback is now being used as a catch-all for unreasonable customer demands. Wanted the product in a different color? Charge it back. Found it somewhere else for a better price? Charge it back. Changed your mind about a purchase? Charge it back. Simply want to have your cake and eat it too? Charge it back. There's no reasonable time limit either. We've received chargebacks up to a full year after the purchase was made.
* In addition to losing the money from a sale and the goods or services your customer stole, your processor will also hit you with a chargeback fee. These fees range from $20-40 per incident. Think about that in terms of how many new sales you have to make just to cover the cost of that fee. You'd probably lose less getting mugged in an alley.
* Credit card authorizations occur within seconds, very much like an unconfirmed bitcoin transfer. At the end of the day, a batch is processed and sent to the processor with that day's transactions. The processor typically holds that money for a week before it gets deposited into your bank account. A week!
* Get too many chargebacks in too short a period of time, and your processor will shut you down or start suspending deposits. How many is too many? That's arbitrary (despite whatever you may have heard about a 1% limit).
* The processors can do anything to you without notice. They can shut down your account for no reason without even telling you. They can withhold deposits to your bank account. They can increase their rates. They can refuse to process certain transactions even after they've been authorized without even telling you. They can implement a "reserve" on your account where they withhold some portion of your money (like 20%) just for "safe keeping", again, without even telling you.
* If you complain about anything, or if you encourage your customers to pay by other means, you can be shut down without notice.
* With that one week delay on your deposits, getting shut down means losing an entire week's gross revenue. We have a client who got shut down about a month ago and still has more than $30,000 stuck in limbo. The former processor is claiming we have to wait 270 days before they will even consider releasing the funds. There aren't even any written contracts or bank statements to substantiate our claim.
* To even get processing, the principals of the company must pass personal credit checks and the products/services offered must meet various arbitrary and unpublished requirements. You can be rejected simply because your product is "too commonly available," or conversely, "too unusual".
I could go on, but I think you get the point, so I'll stop here for now. Successful businesses just have to fight through this as best they can by passing as much of the cost onto their customers and employees as possible, and that's not good for anyone. Bitcoin can solve every problem on this list. If the user base grows enough, merchants will flock to it. And they'll even be able to offer huge discounts to their customers for using it.
tl;dr:
The Visa/MC monopoly is choking the life out of us in ways many people don't realize. Bitcoin has the potential to save us.
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