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What we need is a competitor that disrupts credit cards altogether

http://www.dwolla.com




ACH chargebacks are even worse than CC chargebacks, from the perspective of being able to fight them.

As soon as a payment touches any of the existing networks, it's at risk. The only way to fix it completely (or at least significantly improve the situation) is to have a system that's completely isolated and properly secured; i.e. every payment authorization requires true multi-factor authentication.

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This is the thing that drives me crazy. It's the 21st century, so just about every major bank in my country provides two-factor authentication for their customers to use their own on-line banking facilities and numerous similar alternatives are available as well. And yet if a company sells someone something, there is still no guarantee that when the money hits their account they actually have it short of real legal action to show that they must give it back. Moreover, because someone else might get stuck with that responsibility if the merchant bails, merchants have to jump through absurd hoops and accept all kinds of crazy one-sided terms just to get into the game.

I wouldn't mind so much if consumers were actually advised of their ability to use these chargeback facilities, but apart from Direct Debits it seems almost no-one gets told about this here in the UK. Certainly no bank or credit card service I used had ever told me before I started running businesses and seeing it from the merchant's side. The one time I got screwed as a consumer and a chargeback would have helped because it wasn't really worth the time/hassle of figuring out the courts' small claims procedure, I didn't know I could do that so the merchant won by default anyway.

So right now, the do-I-have-it-or-don't-I question over funds is a huge burden for merchants here, yet the supposed protection it offers to consumers here is mostly illusory as well. Nobody wins from this kind of arrangement. The entire payment services industry needs to die and be replaced by something fit for the 21st century, where you simply can't transfer money electronically without robust proof of who you are, and you can't accept money electronically without robust proof of who you are, but given such proof transfers are final as soon as they are confirmed. Is this really such a crazy idea?!

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It's interesting that you mention Dwolla. Their approach is indeed to prevent fraud rather than charging back after it happens, but when people look at the hoops that Dwolla makes them jump though (linking a Facebook account, etc.) they usually go running right back to credit cards.

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I think you're completely missing the point, because there's a large grey area that requires human intervention in deciding if fraud occurred. The larger the volume the larger the resources needed to review every single claim.

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