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Comment by PeterisP | Hacker News Reader

There exists an opportunity to lose a lot of money serving these markets. All those other categories are very financially risky to serve due to reasons listed out in the nice article, as the acquiring institution will lose money on that.

If you accept a merchant that has a lot of fraudulent transactions and after some months get a lot of chargebacks, then you're out of that money if you've paid that money to the merchant already and they (usually) go insolvent at that point instead of returning the funds. If a particular market segment has even a small portion (depending on how high your fees are) of merchants doing this, the whole segment will make a loss for you.

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The way you lose money in credit cards is via chargeback.

The more government and companies like stripe push those businesses out of credit cards, the more mainstream the use of bitcoin will become.

The reason customers are eager to use credit cards online is because they actually can do chargebacks, so they don't really have to verify if every merchant is trustworthy.

The only place where irreversible transactions (i.e. bitcoin without escrow) make sense are those services that have almost no risk of needing a chargeback.

There are many businesses that I trust to pay them with bitcoin, but if chargebacks are a problem for a particular type of business, if they're getting a significant amount of chargebacks then those are the exact businesses for which the protection that chargebacks give me is useful, those are the businesses whom I would pay only with a creditcard but not with bitcoin, because paying them with an irreversible instrument and no easy dispute resolution likely to end in my favor means I'm likely to be taken for a ride.

Competitive merchants with good reputation will accept credit cards (because for them chargebacks aren't as big a problem), and if a merchant is explicitly telling that they won't accept credit cards because they don't like chargebacks, then they're de facto admitting that they're likely to screw their customers, that their other customers are not satisfied and request chargebacks.

I own a small web hosting company, and I'd like to tell you that it's more complicated than that. Nearly all of our chargebacks are the result of criminals paying with stolen credit cards, and then using the accounts as a platform for illegal activity. My company is the victim here, it has nothing to do with unsatisfied customers, but we're still punished by the payment processing industry.

We, like much of the hosting industry, fight back by denying new accounts to certain high-risk countries -- like most of Eastern Europe. The fraud rate from some of those countries is probably 75% or more! But that sucks, too -- it's not fair to honest people in Latvia that they're banned from the services of many small online businesses. That's where Bitcoin comes in, and it's actually been a Godsend to us!

Hmm, there are also some pretty sophisticated fraud detection tools available. Have you explored them at all?

It's not that simple.

Many (most?) chargebacks on porn and gambling sites are fraudulent. The wife sees porn charges and the husband pretends his card was stolen or the gambler loses his bet and pretends his card was stolen, etc.

Then there are sites that sell things which are easily fencable, say gold coins or foreign cash. Most of the chargebacks there are not because the merchant is fraudulent, but because the cards were stolen. Without an irreversible payment method, this whole class of product cannot be sold online.

there are many ways of load balancing chargebacks below the allowable threshold. ;)

there is also rolling reserves to help prevent the processor from holding the bag for bad merchants.

but yes, these are risky markets to play in and a few people have been left burned... but those that figured out correctly, are rolling in cash... epoch and ccbill are good examples.

You definitely can make money from risky merchants. However, the policies, processes, partner selection, pricing and marketing required to do that well are very different, and sometimes entirely opposite, from what you need to serve the normal businesses well and with low expenses.

If you're focusing on the general market, then all your internal business is ill-suited for doing that, and if you target the "risky markets" then you'll be ill-suited for handling the normal markets because e.g. you'll not be able to get as cheap deals (or any deals) from various institutional partners. Your comment about load-balancing chargebacks below an arbitrary "threshold" is a prime example of behavior which (or suspicion of which) alone would make some institutions to not deal with you, because gaming that threshold is costing them real money that is comparable or in excess of the fees they can earn from you.

If you can get and maintain a better reputation, then it directly translates to lower rates you can get, so a larger profit margin and/or more competitive prices for your customers.

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