Into the Black Hole

Much has been written about Bitcoin — the world’s best-known virtual currency — over the past few months. However, most of the media’s attention has been focused not on Bitcoin’s viability as a medium of exchange, but rather on the meteoric rise and then fall of its value against the dollar and other central bank-backed currencies. People, it turned out — presumably to the horror of the currency’s anonymous creators who have been getting god-like treatment in absentia — viewed Bitcoin not as an alternative currency, but as an investment — a way to make money in the form of dollars, yen and euros — the very rigged currencies the digital newcomer was meant to replace.

And then came something I’ve long been expecting to take place — the Department of Homeland Security launched an investigation of Bitcoin’s biggest exchange (named Mt. Gox) and served a warrant upon Dwolla — a mobile payment processor — with respect to accounts used for trading with the exchange, in effect freezing the accounts. I think that the accounts in question may never see daylight again and believe that there will be a lot more governmental action to come, and not just in this country. A couple of months ago I wondered how “an online gambling transaction may be considered illegal in the U.S. if conducted in dollars, but if you converted the dollars into Bitcoin, it would all be OK.” Of course, I could have chosen to use in my example a transaction involving illegal drugs, nerve gas, enriched uranium or nuclear waste, but my point was that the U.S. authorities were bound to act, as are their counterparts in Europe and elsewhere. And now the question that interests me the most is whether there is any future for Bitcoin as a currency. While I am not quite ready to write it off completely, I am highly skeptical of the currency’s prospects...

This is an issue I’ve often glanced over on this blog, but to which I have never quite dedicated the time it deserves. Moreover, it is a question that often arises during my initial conversations with merchants, long before we’ve even established whether or not we’d end up going forward with any kind of an application process. Interestingly, whereas as you might expect there are many merchants interested in exhausting all domestic possibilities, before exploring the less favorable offshore ones, there are many others who tell us that they prefer offshore ones, even if they could qualify for a U.S.-based solution. Now, whereas most of the time the merchants which fall into the latter category demand what they do for all the wrong reasons, in many instances there is a solid case to be made for choosing to go offshore, even if you can find a domestic processor.

For a high-risk business, this a fundamental issue, which could easily have serious implications for the merchant’s long-term credit card processing prospects. On the one hand, choosing to go offshore when you can stay domestically would lead to paying much more in processing fees, which no one likes doing. On the other hand, however, staying domestically and enjoying all of the resulting benefits may easily prove a transient feeling — it could only last for as long as your processor could tolerate the risk level associated with your industry. And the thing is that U.S.-based acquirers, on the whole, have much lower risk tolerance than the type of offshore ones we use for our high-risk merchant accounts. So making the choice at issue involves a trade-off and the decision is best made after all available information is carefully examined. Below I’ll offer some basic guidance...

“The forces of change in the U.S. payments system have never been more plentiful”, Kansas City Fed economists Fumiko Hayashi and Richard J. Sullivan remind us in a recent paper. “Payment card fraud is on the rise. Mobile banking is on the rise. Payments through new social media are swelling. Bank regulations have changed. Lines of competition in the payment card industry have been drawn and redrawn.”

The two economists have focused their attention on two “separate areas of change” — crime and competition. More specifically, Hayashi and Sullivan have looked into the evidence for fraud trends in countries where computer-chip cards have been adopted and have examined the proposition that recent debit card regulations will promote competition for merchants within the payment card industry, as well as the effects of regulations on consumer welfare and payments system efficiency. For my part, I will focus on the authors’ findings on the link between EMV adoption and fraud. Let’s take a look at what they have to tell us...

Over the past six months or so at UniBul we’ve been getting an ever increasing number of inquiries from merchants providing online tech support services to U.S. consumers. In fact, at present such inquiries account for close to a quarter of all inquiries that are coming our way. Predominantly, these are merchants based in India, but not an insignificant number of the ones which reach out to us are domestic, although even then the call centers themselves are actually situated in India or elsewhere in Asia.

Now, I have to admit that I had not been familiar at all with the business model of online tech support providers when the stream of inquiries began — frankly, for whatever reason I’d never encountered them before. Moreover, at first I was quite skeptical about these merchants and simply ignored the first few inquiries, without as much as giving them a thought. However, as the inquiries kept coming and the stated volumes in some of them were quite respectable, I decided to investigate their potential. Well, it turned out that online tech support wasn’t all that different from most other high-risk industries — the majority of the inquiries were not worth following up on, the majority of those that remained ended up going nowhere, but those very few that made it through the process and ended up processing with us more than justified our effort. So I thought I’d share what I’ve learned and give tech support merchants and idea or two about how they can improve their chances of getting a merchant account...

A couple of weeks ago I wrote about my troubles with developing a solution for an international telemarketing merchant, which needed merchant accounts for its several businesses. There were some questions about the validity of the merchant’s documentation, which slowed down the process a bit, but I wanted to expand on something else, which I briefly glanced over and which I think is very important.

The thing is that despite the issues with the paperwork, I was able to get a solid acquiring bank to process my merchant’s volume within a week of initiating the application process, which is not bad at all. I have been doing business with the acquirer in question for some time and have been enjoying it. However, the merchant didn’t like it — friends of his had done business in the past with acquirers in the same part of the world as mine and hadn’t liked the experience, I was informed. So he turned down my proposal — a very good one, I might add, which he is unlikely to be ever offered again — and we moved on. But this is where the troubles began and led me to think about the importance of the first high-risk merchant account approval. I’m sure that my merchant will think very, very carefully, and then think some more, before ever again turning down a proposal in such a cavalier fashion. And if you operate a high-risk business, so should you...