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I've posted this idea before on HN, but: if you believe you have a better way to detect fraud, put your money where you mouth is, and price and sell insurance o

I've posted this idea before on HN, but: if you believe you have a better way to detect fraud, put your money where you mouth is, and price and sell insurance on a per-charge basis. If a chargeback is made for for fraud, you would cover the loss. What stripe has done is great, but is really a rules engine, and the challenge will be keeping those rules up to date and making the business decisions to feed into the rules. If you price and take-on the risk, it becomes a very simple business decision for your customers: "am I still making a profit?" This is of course a much harder business ... but don't give up just yet!

wiwillia 10y ago
Unfortunately this wouldn't really work. If you're selling insurance, you're going to have a strong incentive to play it safe. If you run a business, you're going to be furious if legitimate customers are rejected (which is unavoidable at some level, but no matter what level that is you're going to make the business furious when they discover a legitimate charge being rejected).
- mhluongo 10y ago
  I think a different model could align incentive while still providing the same service. Maybe "We get X% in payment processing that's not charged back" or similar.
- Artemis2 10y ago
  There is a new, quite stealthy startup that does this (not sure if I can give away their name when their website doesn't say what they actually do). They guarantee every payment they accept against fraud. The tradeoffs are pretty obvious to merchants when they compare their authorization rates between processors and look at the revenue the lose, either through fraud or through false positives.
- justinsb 10y ago
  I wasn't thinking about outright rejecting any charge, but rather that you would price some charges more expensively than others. As a seller of insurance, you're going to price above your estimated percentage, to give you some profit and compensation for the risk, but if you price too high you have no revenue. It also becomes a much more interesting market if there are multiple competing providers of insurance that bid against each other (just as ad networks work, for example). As a buyer of insurance, I would always have the choice to not buy the contract and take on the risk myself. If the market works (which is a big if), it should become an efficient transfer of risk to companies that are experts in evaluating it. Very interested to hear more of your thoughts though, as you're obviously part of the target audience at your dayjob!
brandonb 10y ago
One company that does this is Forter: https://www.forter.com/ https://www.forter.com/

wiwillia 10y ago

Unfortunately this wouldn't really work. If you're selling insurance, you're going to have a strong incentive to play it safe. If you run a business, you're going to be furious if legitimate customers are rejected (which is unavoidable at some level, but no matter what level that is you're going to make the business furious when they discover a legitimate charge being rejected).

mhluongo 10y ago
I think a different model could align incentive while still providing the same service. Maybe "We get X% in payment processing that's not charged back" or similar.
Artemis2 10y ago
There is a new, quite stealthy startup that does this (not sure if I can give away their name when their website doesn't say what they actually do). They guarantee every payment they accept against fraud. The tradeoffs are pretty obvious to merchants when they compare their authorization rates between processors and look at the revenue the lose, either through fraud or through false positives.
justinsb 10y ago
I wasn't thinking about outright rejecting any charge, but rather that you would price some charges more expensively than others. As a seller of insurance, you're going to price above your estimated percentage, to give you some profit and compensation for the risk, but if you price too high you have no revenue. It also becomes a much more interesting market if there are multiple competing providers of insurance that bid against each other (just as ad networks work, for example). As a buyer of insurance, I would always have the choice to not buy the contract and take on the risk myself. If the market works (which is a big if), it should become an efficient transfer of risk to companies that are experts in evaluating it. Very interested to hear more of your thoughts though, as you're obviously part of the target audience at your dayjob!

brandonb 10y ago

One company that does this is Forter: https://www.forter.com/ https://www.forter.com/