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You're begging the false dichotomy here. Insisting on personal liability for a corporate account is equivalent to denying the account to the corporation. Bank

You're begging the false dichotomy here. Insisting on personal liability for a corporate account is equivalent to denying the account to the corporation. Bankers would prefer to have you sign away your first born children too (sounds like something out of Dickens). But we've made such practices illegal and there's no evidence that the money supply is suffering for it.

tptacek 14y ago
Help me understand. What you're suggesting is that, simply by having paid a couple hundred bucks to incorporate, regardless of my personal credit, I should be able to establish a merchant account?
- Silhouette 14y ago
  No, we're suggesting that if you're going to offer a merchant account to a company, your decision and terms should be based on the nature of that company. You might reasonably do a credit check on the principals, since someone running a company who has a track record of bad debts is obviously a warning sign. Likewise you can check them against the databases of people who've been kicked off payment services before. But in the end, you should be looking at whether a company has a credible business plan and people who are likely to execute it well. That's apparently good enough for other major financial transactions, including attracting investors and things like company credit cards for principals on the day you open a bank account. How come everyone else in the world can use common sense and make an informed judgement about risk, but merchant account providers can't?
  - tptacek 14y ago
    Ok, and now the answer to that question is, "No, actuarially, we cannot offer you a merchant account backed only by your corporation." Like I said before. Your response is... what? No merchant account for you?
    - marshray 14y ago
      No, I've outlined two other options: A. The bank offers a merchant account to a party they feel is worthy with the understanding that this party is going to use the account for the corporation. B. The bank re-evaluates their criteria for merchant accounts and/or develops new products with which to serve the demand for merchant accounts. But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss. Unless this person is connected to the right people in finance and banking, of course. Why shouldn't my local tree-trimmer be able to accept credit cards? Like Greece, imagine the uncaptured tax that results from this sector of the economy dealing instead in mostly cash. I don't think this the current system is optimal or fair.
      - Silhouette 14y ago
        But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss. And to add insult to injury, that kind of risk is entirely the fault of the payment industry itself, for failing to implement sufficiently robust security measures. And yet, the merchant typically carries the risk, not the payment industry. Perhaps any compulsory refunds should be classified as either based on fraud or based on dissatisfaction, and the card payment services should be required to indemnify the merchant against fraudulent ones provided that the merchant has followed the recommended security steps before completing the transaction. In fact, I've noticed recently that a few payment services are offering to eat chargebacks based on claims of fraud if an on-line transaction included a test such as Verified by Visa, so this situation may be starting to change, albeit rather slowly. For losses based on dissatisfaction, it's probably as fair as anything practical to make the merchant carry the risk, but it is extremely unlikely that this kind of chargeback would result in a sudden spike in refunds a long time after the initial payments. It seems reasonable to handle this case via a level of retained funds commensurate with the observed level of loss. That really only leaves catastrophe-scale events, such as a product having a fundamental flaw where everything dies at midnight on 1 January 2000. But in that case, either the business has the funds to cover the loss (in which case there's no problem and the card services can go to court if the merchant doesn't pay back what they owe) or the business is toast (in which case unless it's a very small business, probably no individual who gave a personal guarantee could do much to cover the costs anyway, and if it was a very small business, there's no substantial danger to the card service companies on the relatively rare occasions that they have to write the client off and eat the loss themselves). In short, to the individual a piercing agreement may be an existential threat to their way of life, but such agreements make little real difference to the card companies in cases where the problem is not essentially their fault anyway.
- marshray 14y ago
  Asking to see some personal references and a personal background check is one thing. But requring a 'natural person' to become personally liable for a corporate contract is basically equivalent to denying the corporation. So maybe the bank is willing to issue the merchant account to the individual with the understanding that it may be used by a corporation. But let's not call it something it isn't.
  - tptacek 14y ago
    You said it earlier: requiring a personal guarantee is indeed the equivalent of denying the account to the corporation. I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory.
    - Silhouette 14y ago
      I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory. Completely automatic is obviously silly because of the fraud risk, but a presumption in favour and/or formal restrictions on acceptable criteria for refusal aren't nearly as absurd as you're implying. We're talking about a very closed industry and a service that, in practice, directly affects people's ability to trade. We regulate service providers in other essential industries, and they can't deny provision to a customer just because they don't like them. It's part of the deal if you want to operate in those markets. And there are all kinds of laws to prevent or restrict one-sided deals that inhibit people's ability to trade. There are laws about monopolies and anti-competitive behaviour. The handling of non-compete agreements in employment law would be another obvious example in a slightly different context.
      - tptacek 14y ago
        The "service providers" in those other "essential industries" that can't "deny provision" because they "don't like them" have, as a general rule, been granted monopolies. This is a silly conversation. The system that works the way you seem to want it to is the subject the thread; it's Paypal.

tptacek 14y ago

Help me understand. What you're suggesting is that, simply by having paid a couple hundred bucks to incorporate, regardless of my personal credit, I should be able to establish a merchant account?

Silhouette 14y ago
No, we're suggesting that if you're going to offer a merchant account to a company, your decision and terms should be based on the nature of that company. You might reasonably do a credit check on the principals, since someone running a company who has a track record of bad debts is obviously a warning sign. Likewise you can check them against the databases of people who've been kicked off payment services before. But in the end, you should be looking at whether a company has a credible business plan and people who are likely to execute it well. That's apparently good enough for other major financial transactions, including attracting investors and things like company credit cards for principals on the day you open a bank account. How come everyone else in the world can use common sense and make an informed judgement about risk, but merchant account providers can't?
- tptacek 14y ago
  Ok, and now the answer to that question is, "No, actuarially, we cannot offer you a merchant account backed only by your corporation." Like I said before. Your response is... what? No merchant account for you?
  - marshray 14y ago
    No, I've outlined two other options: A. The bank offers a merchant account to a party they feel is worthy with the understanding that this party is going to use the account for the corporation. B. The bank re-evaluates their criteria for merchant accounts and/or develops new products with which to serve the demand for merchant accounts. But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss. Unless this person is connected to the right people in finance and banking, of course. Why shouldn't my local tree-trimmer be able to accept credit cards? Like Greece, imagine the uncaptured tax that results from this sector of the economy dealing instead in mostly cash. I don't think this the current system is optimal or fair.
    - Silhouette 14y ago
      But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss. And to add insult to injury, that kind of risk is entirely the fault of the payment industry itself, for failing to implement sufficiently robust security measures. And yet, the merchant typically carries the risk, not the payment industry. Perhaps any compulsory refunds should be classified as either based on fraud or based on dissatisfaction, and the card payment services should be required to indemnify the merchant against fraudulent ones provided that the merchant has followed the recommended security steps before completing the transaction. In fact, I've noticed recently that a few payment services are offering to eat chargebacks based on claims of fraud if an on-line transaction included a test such as Verified by Visa, so this situation may be starting to change, albeit rather slowly. For losses based on dissatisfaction, it's probably as fair as anything practical to make the merchant carry the risk, but it is extremely unlikely that this kind of chargeback would result in a sudden spike in refunds a long time after the initial payments. It seems reasonable to handle this case via a level of retained funds commensurate with the observed level of loss. That really only leaves catastrophe-scale events, such as a product having a fundamental flaw where everything dies at midnight on 1 January 2000. But in that case, either the business has the funds to cover the loss (in which case there's no problem and the card services can go to court if the merchant doesn't pay back what they owe) or the business is toast (in which case unless it's a very small business, probably no individual who gave a personal guarantee could do much to cover the costs anyway, and if it was a very small business, there's no substantial danger to the card service companies on the relatively rare occasions that they have to write the client off and eat the loss themselves). In short, to the individual a piercing agreement may be an existential threat to their way of life, but such agreements make little real difference to the card companies in cases where the problem is not essentially their fault anyway.
marshray 14y ago
Asking to see some personal references and a personal background check is one thing. But requring a 'natural person' to become personally liable for a corporate contract is basically equivalent to denying the corporation. So maybe the bank is willing to issue the merchant account to the individual with the understanding that it may be used by a corporation. But let's not call it something it isn't.
- tptacek 14y ago
  You said it earlier: requiring a personal guarantee is indeed the equivalent of denying the account to the corporation. I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory.
  - Silhouette 14y ago
    I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory. Completely automatic is obviously silly because of the fraud risk, but a presumption in favour and/or formal restrictions on acceptable criteria for refusal aren't nearly as absurd as you're implying. We're talking about a very closed industry and a service that, in practice, directly affects people's ability to trade. We regulate service providers in other essential industries, and they can't deny provision to a customer just because they don't like them. It's part of the deal if you want to operate in those markets. And there are all kinds of laws to prevent or restrict one-sided deals that inhibit people's ability to trade. There are laws about monopolies and anti-competitive behaviour. The handling of non-compete agreements in employment law would be another obvious example in a slightly different context.
    - tptacek 14y ago
      The "service providers" in those other "essential industries" that can't "deny provision" because they "don't like them" have, as a general rule, been granted monopolies. This is a silly conversation. The system that works the way you seem to want it to is the subject the thread; it's Paypal.