Improving liquidity for small payments - collateral & chargebacks

[samadamsbeer]

This has probably been posted before, if so apologies, and please point me to the relevant answers.

I'm thinking about how to improve the ability for Joe Public to buy with Bitcoin but minimize his exposure to BTC complexity. For example could a Paypal-like service be started where the user buys Bitcoin with his credit card, but is limited in how much BTC he can purchase (say under $10) until he provides some collateral and/or identification measures - like say ACH bank linking to his account or something else that negates the need for all kinds of banking regulation?

How long does it take until a credit card user can no longer request a chargeback, i.e. what is the chargeback "statute of limitations"? The obvious problem if a company allows purchase of lots of BTC with credit card the user simply later requests a refund and keeps the BTC, thereby incurring losses for service provider.

EDIT: I know Bitinstant does provide some good services along these lines, but I'm thinking what it would take to allow a user to do this without withdrawing cash or going to any physical deposit location.

[Stephen Gornick]

For example could a Paypal-like service be started where the user buys Bitcoin with his credit card,

No, sorry.  PayPal's user agreement prohibits their payment network for use in currency transactions or exchanges.

How long does it take until a credit card user can no longer request a chargeback, i.e. what is the chargeback "statute of limitations"?

180 days.

EDIT: I know Bitinstant does provide some good services along these lines, but I'm thinking what it would take to allow a user to do this without withdrawing cash or going to any physical deposit location.

Dwolla works well, after you get past the 30-day probationary period for new users before those funds can hit a few high-risk accounts, such as those for Bitcoin merchants.

VirWoX accepts credit card purchases for Second Life Lindens (SLLs).  You can then trade SLLs for BTCs using their exchange.

 - http://www.VirWoX.com

Physical bitcoins are available with credit card:

 - http://memorydealers.ecomm-search.com/search?keywords=bitcoin

[DeathAndTaxes]

Probably not.

Chargeback is allowed for 180 days so unless you intend to limit the user to $10 every 180 days you are going to face chargeback risk.  Organized crime has no problem creating 1,000 accounts funding them $50 to $100 each and walking away with hundred grand of your hard earned money.  Want to know the insult to add to the injury.  After losing $100,000 of your capital the banks are going to slap you with 1,000 chargeback fees of $35 ea for another $35,000 and then close your account.

You are trying to combine an anonymous irreversible product with a trivially easy to spoof reversible payment system where the merchant takes 100% of the risk.  There are places where you can buy stolen identities with matching credit cards and bank accounts by the thousands for a few bucks each.  It isn't going to work.

[samadamsbeer]

Thanks guys. I am aware Paypal is a no-go via their TOS.

Just thinking out loud but what if you accepted credit cards to open a sort of custodial account with limited dollar amounts denominated in Bitcoin. The BTC would remain in custody of the service provider for 180 days (maybe less time within the same window would sufficiently reduce fraud). While the account was in custody of the service provider, the user could only by certain things (like digital products). After the custody period the BTC would be released to the user's account of choice.

Do you think that would improve liquidity speed, allow people to get started with Bitcoin, and reduce fraud from chargebacks? I have not used Dwolla in some time but doesn't it take some time to get your account funded, just with dollars, let alone Bitcoin?

Or is there something a user could provide as collateral, digitally, that would not hamper the speed of the transaction? Again I am thinking of making this quick and painless for first time users of Bitcoin.

[markm]

Are Liberty Reserve and Pecunix and other digital bullion systems reversible?

If not maybe they could use digital bullion as collateral or, even simpler, buy using digital bullion.

-MarkM-

[Stephen Gornick]

Or is there something a user could provide as collateral, digitally, that would not hamper the speed of the transaction? Again I am thinking of making this quick and painless for first time users of Bitcoin.

That's why Bitcoin is so revolutionary.  Bitcoin is this thing you are seeking -- the thing that is like cash (final, non-reversible transaction) that can be sent electronically.

Cash is the next closest thing, but you cannot send it electronically so that is why you would need to visit a bank or other intermediary to convert that cash into electronic form for the purchase of bitcoins.

If there are lenders who will grant a credit for use with a credit card then there will be lenders who will grant bitcoins on a promise as well.  There just haven't been too many of them so far, but that's probably going to be growing as a method that serves more and more.

Also, don't discount local trading.  If your friend has bitcoins and is willing to let you swipe your credit card through her Square dongle on her iPhone for payment, then your problem is solved, right?

[samadamsbeer]

Thanks folks. I know if folks already have Bitcoin, this is a non-issue. My concern is how to get users who have no Bitcoin, and may not even know what it is, to take a small step in using Bitcoin by getting small quantities easily, using today's systems. Most people know how to use credit cards and they are pretty fast to make payments. I know Paypal has clamped down on cc>BTC transactions and chargebacks are a risk for anyone accepting cc for BTC.

It sounds like the best methods are like game credit systems (Farmville, WoW, etc.) and just risk giving some limited BTC-credit in exchange for credit card payments, and expect some portion of chargebacks.

[samadamsbeer]

I just saw there are some services that allow purchase via SMS, which may work nicely. Quickbitcoins (accepts ccs) and the Openpay system also looks like it could be useful.