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While I think it's wrong to add additional risks beyond the loss of value itself (i.e. raised fees for too many charge backs.) I would rather the merchant stay

While I think it's wrong to add additional risks beyond the loss of value itself (i.e. raised fees for too many charge backs.) I would rather the merchant stay liable for the loss itself. I think it is an equivalent example that if no business was responsible for the risk of accepting bad notes, convenience stores would have a policy of not investigating and actively hindering prosecution on obviously counterfeit notes.

curryst 6y ago
> I think it is an equivalent example that if no business was responsible for the risk of accepting bad notes, convenience stores would have a policy of not investigating and actively hindering prosecution on obviously counterfeit notes. That's not how the incentives align. If Visa is responsible for eating fees from fraudulent charges, they're going to start removing vendors with higher than usual fraud charges from the network. Businesses will still have an incentive not to allow fraud, because they won't be able to process credit cards otherwise. This already exists for chargebacks, and businesses hate them because too many chargebacks increases the percentage the processor takes. Counterfeit notes are different. There is no information asymmetry. What makes a dollar bill a dollar bill is widely published, so validating the authenticity of one is rather easy. There are tons of companies that make machines that will tell you if your dollar is real or not. Credit card charges are different in that there is a huge information asymmetry. Your credit card network knows who you are. They have your address. They have a copy of your usual spending habits. They know who lives in your house. They have a ton of information they can look at to see whether a given charge makes sense. They can add additional security measures. You know what your merchant knows about you? That you want to buy X, and you're paying with Y credit card. They don't have any meaningful information to make a judgement about whether this purchase is legitimate. I struggle to think of how a merchant legitimately has the option to stop fraud. You can pay one of those anti-fraud sites, but at that point you're really just paying so you can get access to the same information that the credit card processor already has. Some of the CC processors even already have an anti-fraud service. It sure seems like they're the best poised to offer it, they just want to be able to charge you more for using it and still avoid any liability for fraudulent charges that do occur.
- foolmeonce 6y ago
  It obviously depends on what "change this" means, but I would expect anything meant as a pro-merchant reform to first take current discretion to discriminate away from visa and merchant side processing.
- fl0wenol 6y ago
  I think part of the confusion here is that Visa's role in fraud detection / prevention is not well understood. Issuing banks are the entity (in the US at least) that know about the cardholder. The merchant bank is the entity that the merchant runs cards through. Visa connects the merchant bank to issuing banks. You'll notice that Visa already uses different rates to govern fees assessed on a merchant banks' transaction with an issuing bank based on details about how the transaction occurs, and where: https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in... You'll notice nothing relating to chargebacks per se; the assumption being higher risk transactions are more likely to be refunded or canceled, so each one "costs" more for the merchant bank to issue in the first place. The merchant bank sets the rate for the business type based on the fees it expects to pay for the transaction mix the merchant will bring. Merchant banks will almost always roll on an issuing bank requesting a charge back from a customer because customer retention is their highest priority (because you can charge the consumer interest), whereas the merchant knows it's a pain in the ass or existential to stop using them and switch to another processor, so they know you'll eat it. The merchant bank has a lot less to lose than the issuer bank, so it's not like they're going to go to bat. Visa does govern the agreements between Merchants and Issuers using their services, and they get to decide certain features of Issuer's cards with Visa logo trademarks. But they can't tell them how to run their fraud operations, for example. That's why Visa doesn't really enter into the equation here.

curryst 6y ago

> I think it is an equivalent example that if no business was responsible for the risk of accepting bad notes, convenience stores would have a policy of not investigating and actively hindering prosecution on obviously counterfeit notes. That's not how the incentives align. If Visa is responsible for eating fees from fraudulent charges, they're going to start removing vendors with higher than usual fraud charges from the network. Businesses will still have an incentive not to allow fraud, because they won't be able to process credit cards otherwise. This already exists for chargebacks, and businesses hate them because too many chargebacks increases the percentage the processor takes. Counterfeit notes are different. There is no information asymmetry. What makes a dollar bill a dollar bill is widely published, so validating the authenticity of one is rather easy. There are tons of companies that make machines that will tell you if your dollar is real or not. Credit card charges are different in that there is a huge information asymmetry. Your credit card network knows who you are. They have your address. They have a copy of your usual spending habits. They know who lives in your house. They have a ton of information they can look at to see whether a given charge makes sense. They can add additional security measures. You know what your merchant knows about you? That you want to buy X, and you're paying with Y credit card. They don't have any meaningful information to make a judgement about whether this purchase is legitimate. I struggle to think of how a merchant legitimately has the option to stop fraud. You can pay one of those anti-fraud sites, but at that point you're really just paying so you can get access to the same information that the credit card processor already has. Some of the CC processors even already have an anti-fraud service. It sure seems like they're the best poised to offer it, they just want to be able to charge you more for using it and still avoid any liability for fraudulent charges that do occur.

foolmeonce 6y ago
It obviously depends on what "change this" means, but I would expect anything meant as a pro-merchant reform to first take current discretion to discriminate away from visa and merchant side processing.
fl0wenol 6y ago
I think part of the confusion here is that Visa's role in fraud detection / prevention is not well understood. Issuing banks are the entity (in the US at least) that know about the cardholder. The merchant bank is the entity that the merchant runs cards through. Visa connects the merchant bank to issuing banks. You'll notice that Visa already uses different rates to govern fees assessed on a merchant banks' transaction with an issuing bank based on details about how the transaction occurs, and where: https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in... You'll notice nothing relating to chargebacks per se; the assumption being higher risk transactions are more likely to be refunded or canceled, so each one "costs" more for the merchant bank to issue in the first place. The merchant bank sets the rate for the business type based on the fees it expects to pay for the transaction mix the merchant will bring. Merchant banks will almost always roll on an issuing bank requesting a charge back from a customer because customer retention is their highest priority (because you can charge the consumer interest), whereas the merchant knows it's a pain in the ass or existential to stop using them and switch to another processor, so they know you'll eat it. The merchant bank has a lot less to lose than the issuer bank, so it's not like they're going to go to bat. Visa does govern the agreements between Merchants and Issuers using their services, and they get to decide certain features of Issuer's cards with Visa logo trademarks. But they can't tell them how to run their fraud operations, for example. That's why Visa doesn't really enter into the equation here.