Into the Black Hole

Every now and then a merchant would get in touch with us who would explicitly ask for a set-up with Verified by Visa and MasterCard SecureCode, which is known as 3-D Secure merchant account. Sometimes they would do that, even if a non 3-D service was available for her business. Most of the time, these are international merchants doing business in some high risk industry or other, who have previously used both types of merchant accounts and have had less than satisfactory experience with the non-3-D version. The biggest failure they cite, as ever, is that the non-3-D type had failed to protect them from chargebacks that weren’t their fault. 3-D solutions, in contrast, had helped them keep chargebacks low and their merchant accounts in good standing.

So, if a 3-D Secure merchant account is better at minimizing chargebacks, why would a merchant want to use anything else? Indeed, why is 3-D Secure type the exception (at least in the U.S.), rather than the norm? Well, the biggest reason is that the 3-D protocol makes the check-out process much more convoluted and cumbersome than it otherwise is, as it requires customers to go through an additional procedure to verify that they are authorized users of their credit cards.

And this procedure is not as simple as entering a card’s security code or your ZIP code, but it involves registering the card with Visa or MasterCard and creating yet another user name and password in the process. Many cardholders are understandably unwilling to go the extra mile and the end result is that a 3-D solution may cause a merchant to lose up to 30 percent of her transaction volume. Yes, it that big of a difference!

So what type of a merchant account should you choose for your business? The answer is “it depends”. Most of you would be better served by a traditional, non-3-D, merchant account. If, on the other hand, you do have a really big problem with fraud-related chargebacks, you would most likely benefit from a 3-D solution. Otherwise, you may well have your merchant account shut down. If you happen to go for a 3-D Secure, here is what you need to know about Verified by Visa. I will cover MasterCard SecureCode separately, for the sake of clarity...

The cryptocurrency crowd is amazing. First they developed a currency which no one but drug sellers, money launderers and other selected criminal types use, then they promptly proceeded to steal as much of it as they could form one another while all along promising an imminent demise of the world financial order as we know it. Of course, to be replaced by Bitcoin or something like it.

But the most amazing part is that they just refuse to learn from reality, history, economics or anything really that is not related to the purely algorithmic aspects of cryptomoney. We’ve dealt with these issues often and at length before and I will spend no more time on them here. But I do want to quote Paul Krugman’s short comment on the Mt. Gox heist back in February, which is pretty much how I see the cryptocurrency guys:

Bitcoin was, of course, created in part to cater to libertarian dreams — to provide a way to store your wealth where governments can’t steal it through taxation or currency debasement.

And it’s true! Thanks to Bitcoin, you can instead have your wealth stolen by private hackers.

That’s all there is to it. Now, you would have thought that the disappearance of six percent of all bitcoins in circulation would have led to some soul searching among the crypto guys, or at least to some questions about the viability of their system. Well, you would…

In the real world, the Bitcoin crowd just kept on telling us how their awesome currency, free of any central-bank-type meddling, will, eventually, conquer the financial world and consign fiat money, credit cards and many other tools we currently use in our daily transactions to the annals of history. It is quite a spectacle to observe, if you have the time for it.

A case in point is the infographic below. Just behold and marvel. I will say nothing more…

MasterCard’s Excessive Chargeback Program (ECP) sets the rules that all acquiring banks (also called acquirers or processors) must comply with in their efforts to monitor the chargeback performance of their merchants and to determine when a merchant has exceeded or is likely to exceed monthly chargeback thresholds...

So you’ve just received the dreaded termination notice from your merchant account provider. You may have even seen it coming if your transaction activity has been heavily scrutinized for the past week or two and no indication has been given about the status of your payment processing account. Alternatively, it may all have come out of the blue — for example, your processor may have suddenly decided that it would no longer serve businesses in your industry, for some reason or other.

Whatever your processor’s reasons for shutting you down may be, the important question is what you should do now — how do you find a new payment processor, one which would be unfazed by whatever may have happened with your previous merchant account and offer you reasonable terms of service? Well, servicing the high-risk end of the payment processing industry as we are, you may not be surprised to learn that at UniBul we get to work with terminated merchants all the time. What we’ve found over time is that re-enabling businesses to accept credit cards is mostly dependent on the merchants’ willingness to do what is necessary. More often than not, merchants are not following our suggestions, diminishing their chances of success in the process. Oblivious to the new reality, they wrongly believe that what worked in the past would work again. Well, you can follow their example and end up with no merchant account at all or do what I suggest below and start taking cards once more. The choice is yours...

Every time the Federal Reserve surveys the public, it finds that consumers consistently rank security as the most important characteristic of payment methods, Joanna Stavins from the Boston Fed reminds us in a new paper. Yet, just as consistently, when they analyze the actual consumer payment use patterns, the Fed’s researchers find that security is not as significant as other payment characteristics, such as cost, convenience and record keeping.

Trying to explain that puzzle away, the Stavins digs deep into the data and finds that security concerns create an obstacle to the adoption of some types of bank account-based payments, such as debit cards, online banking bill pay and bank account number payments, but once adopted, the security rating has no significant effect on the use of those payment instruments. However, the reverse is found to be the case with more established payment methods, such as cash, checks and credit cards: consumers’ perception of security has no influence on adoption, but it does affect the actual usage of these payment types.

But debit cards present a particularly interesting case, because debit transactions can be processed in two distinctly different ways. On the one hand we have signature-based debit, which uses the same infrastructure, which is used to process credit card payments. On the other, we have PIN-based debit, where transactions are processed via specialized debit networks. And it turns out that consumer attitudes toward the security of two debit types are markedly different and once again, the actual usage patterns do not always reflect the professed attitudes. Let’s take a closer look at what Stavins finds...