Why does no exchange allow credit card financing?

VishwaJay

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Quote from: Razick on April 09, 2013, 02:07:58 PM

Quote from: Elokane on April 08, 2013, 03:34:00 PM

I understand the risk of chargeback, but why would it be so hard to just ask for a higher rate that is based on the percentage of fraud?
I am sure many people would pay the higher fee, even if it's 10%(?), to get funded instantly and avoid going to a bank.

Is there something I'm missing?

The problem is that people intending to commit fraud would flock to such a service. So even though the majority of buyers are probably honest, the service would have a higher percentage of fraud than conventional methods.

I still think it could work if the marketing targeted Bitcoin newcomers who are intimidated by having to use their bank account, but the marrkup may have to be more like 15% with a cap at $250 per purchase to ensure profit.

My bank charges me for direct access.

A debit card is not considered direct access, though it's basically the same thing, but I don't have to pay a fee.

It's not so much intimidation as it is that I really like not having to pay 12% of the transfer in banking fees, with a minimum bank transfer amount of USD$85 (above the maximum transfer amount for one exchange, FWIW). Seriously, it's just not feasible to require a bank transfer unless I'm going all-in like some people (Rick Falkvinge, for example).

It would make more sense to charge a 5% fee for debit card purchases, because they operate with the convenience of a credit card but are required funds. Add a 3-5 day wait for the funds to clear, and it's a good model for business (at the very least, better than what it is right now).

Mike Christ

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Quote from: Elokane on April 08, 2013, 03:38:15 PM

Yes, that's a "chargeback". But since most people will just want to buy some Bitcoin and the rate of fraud can be easily(?) determined, why not offer it as a high-fee service?

Chargeback on high fee, too. And nobody's gonna go for it if they're not trying to chargeback.

josor

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One problem is that the credit card companies (or their processors) do not allow it. Bitcoin Nordic tried, but got shutdown without having a single chargeback.
I have to say that, although it would be convenient, it is understandable with the non-reversible nature of bitcoin.

Razick

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Quote from: Elokane on April 08, 2013, 03:34:00 PM

I understand the risk of chargeback, but why would it be so hard to just ask for a higher rate that is based on the percentage of fraud?
I am sure many people would pay the higher fee, even if it's 10%(?), to get funded instantly and avoid going to a bank.

Is there something I'm missing?

The problem is that people intending to commit fraud would flock to such a service. So even though the majority of buyers are probably honest, the service would have a higher percentage of fraud than conventional methods.

I still think it could work if the marketing targeted Bitcoin newcomers who are intimidated by having to use their bank account, but the marrkup may have to be more like 15% with a cap at $250 per purchase to ensure profit.

DataPlumber

full member

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Quote from: VishwaJay on April 09, 2013, 10:28:19 AM

One way it might be able to work is to put a 10-day wait on the first 5 credit card purchases.

However, I am wondering why debit cards are not permitted, in general.

Or for that matter, treating it like a cash advance.

Hang a shingle selling BTC for cash, put an ATM in the doorway. "There's your credit card acceptance, sir."

Keep restocking ATM with funds just withdrawn.

VishwaJay

newbie

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One way it might be able to work is to put a 10-day wait on the first 5 credit card purchases.

However, I am wondering why debit cards are not permitted, in general.

barbarousrelic

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Quote from: bitcoincraps on April 09, 2013, 07:28:58 AM

VISA International accepts a maximum of 2% of fraudulent transactions from a merchant. I believe that at least 10% of the purchases would be chargebacks. Its not like when you buy gold. Gold has to be delivered to a physical address. BTC can not be traced.

It could easily be traced if the purchaser lists his Bitcon address and the merchant sends the Bitcoin to that address. But that would involve Visa understanding and trusting the blockchain data, which is unlikely.

bitcoincraps

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VISA International accepts a maximum of 2% of fraudulent transactions from a merchant. I believe that at least 10% of the purchases would be chargebacks. Its not like when you buy gold. Gold has to be delivered to a physical address. BTC can not be traced.

antares

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the problem is, that even if someone offered this service, the transaction volume from fraudulent customers would probably be higher than the volume of legit customers. that in turn means that customers would have to pay 50%+(the plus being the additional fraudulent volume plus the chargeback penalty the merchant has to pay when chargebacks occur) markup on current spot prices. Also, if you're a credit card accepting merchant, you would get into trouble because of the high chargeback rate(high risk business). most payment providers will simply keep your money as a security and nullify your contract with them if you have more than 10% (in most cases its a lot lower) of your transactions charged back. what I could imagine however would be a walk-in store where you could physically swipe your card. the ability to have the customer sign a receipt and check their ID(non us only) if there's doubt would allow such a business to sustain. however with botnet operators usually having all the info they need to fool a credit card merchant and sometimes even the ability to use their victims computer as a proxy, a bitcoin business wont be able to sustain online. Even a phone verification call wont be able to nullify the customers ability to order a chargeback.

ruggedman_dan

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We on P. Sherman 42 Wallaby Way, Sydney

It will take an entrpreneur with balls of steel to make this happen.

CecilNiosaki

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VirWox does.

Xch4ng3

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There is no perfect solution to cutting out fraudulent charge backs, which is why the problem still persists. Otherwise everyone would be accepting credit cards for BTC. Even after thorough checks, there is still no way to confirm the user won't go into his bank and say the coins were never received.

Elokane

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Truth is a consensus among neurons www.synereo.com

Yes, that's a "chargeback". But since most people will just want to buy some Bitcoin and the rate of fraud can be easily(?) determined, why not offer it as a high-fee service?

barbarousrelic

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Activity: 675

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Bitcoin transactions can never be reversed. Credit card transactions can be easily reversed if the buyer says he was deceived, or his card was stolen, or he's not satisfied, etc.

This leads to many cases where fraudsters will try to buy Bitcoin with credit cards, take their Bitcoin, and then tell the credit card company they want their money back. And, in many cases, they get it back, and the exchange loses all their money.

Elokane

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Activity: 817

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Truth is a consensus among neurons www.synereo.com

I understand the risk of chargeback, but why would it be so hard to just ask for a higher rate that is based on the percentage of fraud?
I am sure many people would pay the higher fee, even if it's 10%(?), to get funded instantly and avoid going to a bank.

Is there something I'm missing?

Topic: Why does no exchange allow credit card financing? (Read 1213 times)