It seems to me that there is demand for a service that would sell BTC instantly through credit card transactions. I understand this had been tried in the past and fraud ran these folks out of business. I'm considering giving it another go and am curious to get your thoughts. I'm not talking about a full exchange. Just credit card transaction -> BTC.
Here are some of the thoughts I have -- and a LOT of questions. If anyone can help I'd appreciate it. Most of these things are to help make the service less attractive to fraudsters. That means trading anonymity in a lot of these cases -- which I have mixed feelings about. Anyway, here goes:
* Which payment processor and banks are going to allow things related to virtual currencies? (Stripe is not able accommodate)
- some people are able to do this in virtual games now right?
* Any idea which laws would apply to this kind of a service?
* How effective do you think limiting the maximum transaction to 10BTC / account / day would be at limiting fraud liability?
* Phone verification?
* Blocking proxies? No tor or reverse dns with VPN in the name.
* Forcing 2 factor auth with a fob mailed to a physical address?
* Requiring address verification and cvv code with the payment processor.
* Verified by Visa already exits...
* Sliding scale commission based upon the current amount of fraud
* Limiting source ip and users to countries that will pursue fraud
* Why aren't the existing exchanges doing this?
I'm really interested to talk to anyone that tried this in the past. It would be great to have an easy way for someone completely new to BTC to sit down at a computer and within 10 minutes have their first BTC in their wallet.
Software wise it's a snap. Several years ago I was involved with a company that believed exactly the same way you do now.
Here is the truth of it.
You WILL run afoul of Visa & Mastercard regs from the get go, you can't convert credit to cash, you must use a "cash advance" type transaction which will require a "Know your customer", type of in person, present an ID along with a bank statement and a local utility bill type of transaction. (See Casino Cash) for one example of how this is done.
If your company is in the USA you will need to register with OFAC, and check your clients against the OFAC list. You can still take their money, but you must seize their funds and submit it to the treasury department. Otherwise you WILL be charged with money laundering/ supporting terrorism/ killing kittens.
You will also need to register as money service business.
Depending on the state you live in you will need to pass a background check, post a bond (typically $250,000 - $1,000,000) and register as a money transmitter or check casher. In most cases you will also need a physical retail location to even qualify as a money transmitter and thus local zoning laws will apply.
After all of that you will need to find a way to actually accept and process the cards.
This will require a merchant processor, willing to work with you. There aren't any in the USA that will touch you with a 10ft pole. The ones I've dealt with have all been foreign and instituted significant rolling reserves regardless of your actual chargeback rate. If your chargebacks exceed 15% you will be dropped, if you find another processor and exceed 15% you will be banned from ever handling Visa/Mastercard transactions again.
Chargeback rates on first time transactions using credit cards were around 20%, that means 1 in 5 transactions are fraudulent.
Your rolling reserve will be at least 35%, so unless your profit margin can account for that you're basically hosed.
Bitcoins once given out can't be taken back.
We were fortunate in the pre-bitcoin days. I was part of a service that was very much like paypal or dwolla.
Most of our transactions were for merchants whose merchandise took several days to order, arrive, re-pack & ship. So we could notify merchants that the funds were no good. You won't have that luxury. Plus chargebacks can occur up to 180 days after the transaction, for ANY reason.
Even after all of that we were put out of business in < 2 years due to the high costs of banking and regulatory compliance.
