Good and Bad in Credit Card processing

Credit cards are good for online purchases. Everybody knows that. They’re popular, they’re fast, they’re convinient for the client. A lot of Payment Service Providers are dedicated mostly to credit cards only.

But actually, for merchants, credit cards are the worst and least secure method for online payments.

  1. The authentication is week
  2. Third party (the “MasterCard itself”) is in the loop
  3. It’s quite costly for a merchant.

Let’s go through those points in details

 

Weak authentication. 

Credit card owner need to supply only an openly known number – the credit card number (sometimes with another openly known number – CVV code). Not even a password! That’s why there are so many fraud with credit cards. In Europe, some Credit Card issuers trying to add a simple password authentication – 3-D Secure. But it’s still just a password, and it’s weak.

Third person in a loop – Credit Card Acquirer

A shop always work with a Credit Card Acquirer. In fact, you can say that it’s “MasterCard” or “Visa” itself. It’s a person, who’s handling the money. Shop gets it’s money from an Acquirer. And later, it’s a problem of Acquirer to get the money from a customer. This is the main idea of the credit cards.

Let’s image you’re selling fish on a North Pole and your customers come to you without cash, but only with credit cards. How do you know, that they survive the next storm to pay you for your products. You don’t. But you’re sure, that MasterCard survive. And pays you this money. 

Sounds actually quite positive, why did I put it as a negative point. A huge rich person, working as a intermediate with your money transactions – this can’t be good, and I’ll show you in a moment why.

Credit Card transactions cost money

Of course, responsibility gives power and power brings money. Credit Card Acquirers ask for a lot (relatively)  of money for their services. It’s almost always a percentage, 2-3% of the value of the transaction. It’s much more than costs for more modern iDEAL for example.

 

For this money a Credit Card Acquirer takes responsibility for the money and ensures, that debts are paid, no matter what. And we’re talking about a very unpredictable debtors – remember weak authentication? A lot of credit cards are stolen, there is a huge possibilities to cheat.

If you’re a Chinese hacker with a computer virus and got your hands on a bunch of credit cards from the Internet? You can buy a plasma TV or a lot of books from Amazon. Or, you can spend all those money in a e-shop of your friend. Your friend and you gets pure cash (MasterCard pays for all stolen cards).

What can MasterCard do with it? Of course, it’s illegal, and police can find it and prosecute the bad guys. But Mastercard has millions and millions of shops around the globe, how it can work in this environment. It can’t.

That’s why they change the rules. Only “Good e-shops” are allowed accept Credit Cards from their customers. “Bad e-shops” are not allowed that. What are a “Bad e-shop”? It’s a shop where a lot of goods are bought with stolen credit cards. Sounds like the e-shop is a victim, not a criminal. Doesn’t matter, we’re not in a court yet, we’re in business. In business there is no presumption of innocence. If you’re “Bad”, Master Card doesn’t want you.

So, actually, the responsibility for the money is now with the e-shop! MasterCard of course makes advices on how to protect your shop against fraud. For example, don’t accept strange transactions from Chinese IP-addresses with credit cards, issued in USA, etc

A big rich dept collector is not responsible, merchants are. It’s good to be big and rich!

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