No Chargebacks; All Transactions Final: Won't Fly.

[BittBurger]

I posted this on the Bitcoin Foundation Forums tonight.  Figured I'd post it here too, to get more feedback.

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Consumer protection is a huge issue in the world of merchants processing payments.  I am a merchant with about 30,000 customers.  Thankfully my mother raised me right, and I never seek to defraud a customer.  But I do have disagreements with customers.  Often.  Bitcoin in its current state, rendering consumers with no recourse in a dispute, puts consumers at risk.  I hate chargebacks.  The system in place by Visa and Mastercard is appalling, offensive, and downright unethical.  The burden of proof is never put on the customer, even though they are the ones making the claim, and nothing I do to dispute a chargeback matters.  The money is forceably removed from my bank account, on their whim, without telling me, and without my permission.  Yet still, there is the other side of the coin, and despite seeing this issue raised several times, nobody seems to address it.

Bitcoin puts all the power in the merchant's hands.  Obviously that can be a bad thing.  More importantly, nobody is going to allow it.

Sometimes customers deserve to get their money back:  Yes, customers can contact me directly to request a refund.  But what if I disagree with them?  What if the merchant is dishonest?  There are plenty of mom and pop shops out there who don't answer to anyone.  What recourse does the consumer have?  

"All transactions are final" is short-sighted, and its going to come back to bite Bitcoin in the rump.  Soon.  Regulators will be the first to ask this question.  They may even ask it on Monday.  I believe this is Bitcoins biggest weakness.  As much *positive* as there is about Bitcoin, if we want to send consumers running the other direction, tell them they're toast if they ever need to get their money back.  Do we want to alienate the consumer public?  This issue is the only thing about Bitcoin that gives me pause.  More importantly:  If we don't think the banks, the media, and those who stand to lose the most aren't going to jump all over this *very* issue, then we are sadly mistaken.  Zero consumer protections is not acceptable to anyone with a rational mind.  This topic needs to be thought about, and a solution needs to be provided.  

Disclaimer: if there is already a solution, please feel free to make my entire post moot, and correct me with it.

Kevin

[AndrewWilliams]

This is a non-issue, already been discussed.

[DeathAndTaxes]

How do you do a chargeback on cash?  Bitcoin closest equivelent is cash not VISA.

How exactly would you force a chargeback system on cash?  Simple answer is you can't.   This doesn't mean that someday VISA couldn't operate on top of the Bitcoin network. Stealing your money when customers lie about not receiving a product.  You can opt in to such a system.  I am 100% sure they will arrive eventually but VISA can't make cash tx irreversible.  They never tried.  Instead they built a higher level network ON TOP OF the existing cash banking network. 

If you want chargebacks that roadmap is the only way possible in a cryptocurrency.

[sangaman]

I believe there is already a solution and your post is moot.

Chargebacks are not an inherent feature of fiat currencies. Rather, chargebacks are a feature provided by services like Visa and PayPal. There's no chargebacks with cash. There's no reason that payment processors or credit cards can be made for bitcoin and offer chargebacks, it just wont happen on the blockchain.

[BTCtrader71]

Suppose you as a merchant choose to use Coinbase (or BitPay) instead of Visa or MC. You (the merchant) have an account with Coinbase, which controls your BTC wallet. The consumer calls Coinbase (instead of Visa/MC) and claims they never received your product. Coinbase agrees and sends the proper amount in BTC from your account to the customer.

How about that?

[flyguy]

I own a business in the US that does about 60% of sales outside the US.  Avg. ticket price of items around $5,000.  I ONLY accept bank wire as transfer on international orders for my protection.  Bank transfer is 99% final with nearly zero chance for the customer to reverse the charge short of filing a lawsuit.  I see BTC as working in the same manner.  I'd gladly take BTC over a bank wire as currently I have to pay about $35 per incoming wire.   So... for me, I see no difference with regard to chargebacks.

[callem]

Non issue: Don't want to use bitcoin? Just use your credit card, Paypal, etc.

Bitcoin is no different than cash (or wire transfer, as noted above) with regard to settlement finality.

[cdog]

A lot of places dont accept credit cards for this very reason. Cash Only.

In the future Im guessing they will be Bitcoin and Cash only.

[ab8989]

Which exactly is the law and regulation that currently is in place related to chargebacks? As I understand it is currently only available for credit card customers but not on cash deals. The fact that it does not exist for cash customers makes me doubt that there exists any regulation regarding this situation that could apply to bitcoins.

I do not live in US but I know for almost 99% fact that there exists no laws in my country related to chargebacks and they are just a service that credit card companies are offering all by themselves as a service because they WANT to offer them to customers.

There are millions of other laws but in all the cases mandated by law I must contact the merchant directly to work out the situation and those laws would be no problem to apply to bitcoin based deals. The merchant just sends bitcoins back to customer just like the merchant gives cash back if the customer has sufficiently strong case against the merchant to present, no problem for bitcoins. Or the customer could sue the merchant and then the court orders the merchant to send coins to customer, just like cash.

However you are right in the sense that the "all sales are final" doctrine is not at all compatible with laws in place in here. However that is a totally separate issue from automatic chargebacks.

[mb300sd]

Leave it to the customer to decide, give a certain price for bitcoin, and 2-3% more for credit card. Let the customer choose whether they want the lower price and no chargeback, or if they want to pay the fee for that possibility. Its basically buying insurance on your purchase.

[GenTarkin]

to the OP.... for the greater part of humanity ... there has never been any such thing as chargeback or 'consumer protection' as you say. It wasnt till recent systems like visa / mc / paypal came into existence that offered this service. In further by doing so, theyve created a system that encourages lousy spending of ones ability to go into debt right from the get go.
In essence the only advantage visa / pp / chargebacks has given people, is the ability to become completely lazy, brain dead, irresponsible consumers who rely on 'others' to fix their problems.

So, in reality, even if people see this as a downfall of bitcoin .. so be it... bitcoin has uses for savers & responsible consumers ... meaning there will still be areas bitcoin will thrive.

[justusranvier]

Short answer: We're going to have consumer protection, and it won't require altering the Bitcoin protocol to include chargebacks.

[oakpacific]

If you don't want to be defrauded, why not use escrowing?

Better still, with Bitcoin you can do a no third party two-signature escrow, which means no one can withdraw the money without the consent of both parties, or a 2 of 3 one with a trusted party, which is in itself a revolutionary technology.  Have you looked into that?

[CliffordM]

Another aspect of bitcoin, is that it may mature into the low-level payment system for the planet, with a higher-level payment system (which has chargebacks etc) layered on top by financial institutions.  How does this work ?

Well TCP/IP , the protocol that runs the Internet delivers packets with a guarantee of delivery.  It's implemented by TCP layered on top of IP which delivers packets with no such guarantee.  It's technically hard to jump to the second layer in one go, much easier, more robust and flexible to build IP first, then add the TCP to produce a reliable system.

The real world of banking has a payment system.  In the UK it's mediated by the clearing banks.  It is not transactional, and has some pretty serious flaws in it (which the banks largely deny).  Bitcoin could be a feasible replacement for such a service.

This is not to say that bitcoin cannot do the higher-level work to, but at the bedrock of finance, a non-reversible, transactional system is essential.

[Pente]

There is also reputation. With the internet, everyone can find out how trustworthy a company is. I wired money to Bitstamp to buy btc because the forums considered it to be trustworthy.

In a libertarian/anarchist economy, reputation is an extremely valuable resource.

[doof]

Heres my story I've said a few times.

Ebay -> Sent things via courier -> Recipient signs -> Recipient then claims they didn't receive it -> PayPal Charges ME -> Puts Bank Account in over draft -> Bank charges me.


So.... Im down on ebay fees, paypal fees, paypal charge back, my item is gone and I've been fucked over by the bank.

Fuck ebay.  Fuck paypal.

[Jace]

Bitcoin puts stress on shops to build up and keep good reputation and credibility. Instead of having to put trust with random anonymous shoppers, who tend to screw you over bigtime (I feel ya, doof).

I think it's a good thing for everyone. Except for fraudulent customers.

Paypal, credit card, online banking, it's all royally fucked up.

Btw here in the Netherlands, the most popular way to pay online is "iDeal", some soft of instant payment thing using online banking. It's irreversible, as a customer you can't chargeback or cancel it. Did I mention it was the most popular payment method, much more so than credit cards?

[safeminer]

Maybe people using bitcoin will learn them that things that are too good to be true most likely are. Getting scammed has nothing to do with the currency, it has all got to do with you falling for it in the first place

[e4xit]

Leave it to the customer to decide, give a certain price for bitcoin, and 2-3% more for credit card. Let the customer choose whether they want the lower price and no chargeback, or if they want to pay the fee for that possibility. Its basically buying insurance on your purchase.

I think that this fee (2-3%) that you talk about is realistic now, where the majority of the customers for an online retailer are using (credit) cards.

If a large proportion of these users started to move to bitcoin, this fee would have to be increased to compensate for the lower volumes using card (which would also co-inside with presumably a higher fraudulent:honest ratio of transactions, as it woudl be harder to fradulently claim a chargeback with the other payment method).

This might further incentivise Bitcoin as a cheaper payment method...

[ixne]

Bitcoin is a protocol.  If you want to build a traditional online bank or payment service that does chargebacks on top of it, nothing is stopping you. If you want to be your own bank and not worry about chargebacks, you can do that too.

Discussion over.