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Comment by tansey | Hacker News Reader

Can we get some more information? What are they doing better? What kind of fee structure are they selling?

Also, one big concern in my startup is chargebacks. Does this service help me with chargeback protection at all?

More generally: how will they make my life better?

Have you actually gotten a lot of chargebacks? I've heard that the industry significantly exaggerates the amount of chargebacks that actually occur.

We haven't launched yet, but we're a digital goods marketplace and my intuition is that our niche audience may have a high chargeback rate. We're looking for any additional protection so we don't stumble out of the gate.

Use Clickbank then. Everything you mention is what they've been doing for a decade.

Thanks. I had never heard of Clickbank before now. However, a quick look at their terms is a non-starter. They want 8.5% + $1 + 50% to the affiliate. On top of what we would charge, our sellers would be getting something like 30% of their sales.

It's also not exactly the type of product we're selling. There are some subtle (but important) differences between Clickbank's target product and our product.

Chargebacks are such a pain in the ass that any number of chargebacks is a lot, in my book. One of the reasons I chose PayPal when we were switching providers a while back was to get better, and finer-grained, anti-fraud capabilities. It's still an issue, but it's manageable now.

Interestingly, adding a really expensive product (about $1000) to our store provided a nice mechanism for catching fraud. Nearly 100% of our fraudulent orders purchase the really expensive product right off the bat, while most of our legitimate purchasers of that product buy a less expensive one first, and then upgrade to the more expensive version later. So, I automatically flag orders for the most expensive product, and interact with the customer personally before letting the order go through. This is also a pain in the ass, but it does reduce the number of chargebacks.

We were thinking of doing a similar approach, basically verifying people's ID upon first purchase. However, we thought it might significantly decrease the number of customers. I suppose there's no free lunch here... verification will sacrifice volume.

You may run afoul of the credit card companies if you try to verify ID on purchase.

How so?

In some states in the US, it's illegal to ask for id for a credit card purchase. In all states, the credit card companies don't like it. Here's a good set of google answers about the issue:

http://answers.google.com/answers/threadview?id=71792

This is all to say, credit card processing is incredibly complicated. Here's another quote, directly from the federal government [1]:

"MasterCard wants to hear about merchants who break their rules. Send the name and address and an account of what happened to MasterCard International, c/o Radio City Station, P. O. Box 1288, New York, NY 10101. The merchant's bank will get a stiff letter, ordering it to investigate and bring the offending store into line - or pay a $2,000 fine.

Visa enforces the same rules as MasterCard. "When we hear about a violation, we ask the bank that signed the merchant to get together with the merchant and see that the practice is stopped," Visa representative states. To report a merchant, send a letter to the bank that issued your Visa card.

American Express also prohibits merchants from asking for IDs. "All a merchant is supposed to do is take an imprint, make sure the signature matches and swipe the card through the terminal, to get authorization."

[1] http://www.in.gov/dfi/2554.htm

Aren't Visa & MasterCard owned by the same company? I thought that's why they always dump on Discover in the advertisements.

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