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Author Topic: Just another attempt to sell mobile coins  (Read 2653 times)
elendir
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April 17, 2012, 03:22:29 PM
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Hello everyone! I have developed an Android app that lets you buy coins via direct carrier billing (purchase is charged to your phone bill). I did it primarily for fun and because I wanted to explore bitcoin and Android billing platform from a coder's perspective. I've learned a lot and I'm quite satisfied at this point. However I would still like to see the app in the market, but I can't do this just by myself as there are many questions arising from the nature of bitcoin itself. I don't even know if it's legal. What is your opinion? Anyway if anyone would like to participate in this, please just let me know. If noone's interested, I'm ready to quit and move on.

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April 17, 2012, 03:44:32 PM
 #2

There are no issues of legality.  Selling Bitcoins shouldn't be seen much different than selling game credits or Facebook tokens.

The two major issues are:
a) fraud.  now with direct billing "black fraud" (stolen account) is likely going to be very low but "friendly fraud" (account owner buying product and then lying to reverse charges) is still going to be a massive problem.

b) markup.  My understanding is that developer is paid 70% of purchase price.  Right?  That makes your prices less attractive to legit buyers and increases the % of scammers.

BTC:USD ~$5.  You would need to sell it for $7.15 for cover the 30% vig.  That isn't very attractive but might be interesting in small amounts.  However that is 0% fraud, 0% profit.  Lets say you want  a 10% profit margin and think you can hold fraud at 5% (if it is more than that carriers are going to block you).  You selling price is now ~$8.50.

Pretty high price to make only 10% and honestly <5% fraud is going to be tough to pull off.
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April 17, 2012, 08:12:37 PM
 #3

Sadly we dicontinued our SMS service for the UK market, the fraud risk is simply too high. Sad I hope you have better success though!
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April 17, 2012, 10:54:39 PM
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Here are two SMS vendors in operation today:

Quote
What countries is the service available in?
Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Indonesia, Ireland, Israel, Italy, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Ukraine, United Kingdom, United States of America
- https://blockchain.info/wallet/sms-phone-deposits

And
 - http://en.bitcoin.it/wiki/Btc-Direct

DialCoin was doing this but stopped temporarily, apparently:
 - http://www.dialcoin.com

elendir
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April 18, 2012, 07:41:11 AM
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Thank you all for your comments.

As for the friendly fraud - are you refering to a situation when the platform provider refunds the user after you've sent the coins and makes you pay for it? In Android you never get a refund for in-app purchase from Google. Such refund must be handled by developer himself - it's up to the developer to decide wheter it's fradulent or not. Would that help?

Markup is a big issue, you are absolutely right about that. 30% goes to Google and you also need to make profit. This disqualifies the service from becoming a regular fiat-to-btc channel. Targeted audience: ppl who just need to burn their prepaid/company phone minutes or require anonymity or need coins asap. It might be enough to make it viable, but you never know until you try.

I tried to learn as much as possible from SMS vendors. I found that nearly all of them were gone in a couple of months. Even the http://en.bitcoin.it/wiki/Btc-Direct doesn't work anymore. https://blockchain.info/wallet/sms-phone-deposits looks alive but they charge way more than 40%. Everyone else is gone, why? My favourites:
a) Fraud, as mentioned above.
b) Every sms-billing platform provider prohibits selling currency. Selling btc might have been considered a violation of this policy.
c) Average sms-billing commission is about 40% worldwide which kills the business.
Seems to me that Android (more or less) helps you with these 3 points.

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April 18, 2012, 12:42:46 PM
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As for the friendly fraud - are you refering to a situation when the platform provider refunds the user after you've sent the coins and makes you pay for it? In Android you never get a refund for in-app purchase from Google. Such refund must be handled by developer himself - it's up to the developer to decide wheter it's fradulent or not. Would that help?

Lolz you don't really believe that do you.  Customer disputes the charge and the bank TAKES the money.  Your belief that you have complete control over which refunds occur is ... naive.

I am not saying "don't do this" hell we need more options for buying BTC but you need to be ready to fight the fraud which inevitably will come.
elendir
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April 18, 2012, 01:39:52 PM
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As for the friendly fraud - are you refering to a situation when the platform provider refunds the user after you've sent the coins and makes you pay for it? In Android you never get a refund for in-app purchase from Google. Such refund must be handled by developer himself - it's up to the developer to decide wheter it's fradulent or not. Would that help?

Lolz you don't really believe that do you.  Customer disputes the charge and the bank TAKES the money.  Your belief that you have complete control over which refunds occur is ... naive.

You are right, I did this once or twice myself (when I was scammed). But I believed (well, till now) that only applied to purchases that were billed to your bank account. This service uses direct carrier billing, which means it is charged to your phone bill. Of course you can dispute this one as well (not with Google, but with your carrier), but I thought it was much harder because you had to prove you've been scammed by the app (and that's when the developer's opinion on the transaction comes to play). But I admit I do not have enough information about this and therefore I might sound pretty naive. That's why I'm asking here...and it works :-). Thank you for that, really!

So basicaly you're telling me that even this channel is prone to that kind of fraud?

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April 18, 2012, 01:55:49 PM
 #8

No problem.

Yes any digital good is particularly vulnerable to "friendly fraud".  All business suffers from friendly fraud but in physical delivery to billing address you at least have a fighting chance (and yes some customers thieves will still try to defraud you).   Digital goods are tough on sellers because the sale is impossible to prove (banks don't know or want to know about the blockchain).   Bitcoin is even tougher because the sale is irreversible (most digital goods aren't).

I don't have an answer but:
a) friendly fraud isn't friendly.   It will be the primary attack vector against your enterprise.
b) limit tx size AND # of txs per device (not just per CC)
c) learn everything you can about friendly fraud on Adroid platform (check developer sites/forums/etc), find out what others are doing about it
c) start small.  be willing to cap your number of sales each month (and wait to see the fraud rate)
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April 18, 2012, 01:58:48 PM
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Hi Elendir,


I really like ur Idea and it`s good you ask before trying that..

Your idea to nail the customers because they charge their carrier and not Google Play for that matter is pretty intresting..
I know for sure in Germany and some other european countrys that if you fail to pay your carrier or dispute the charges on your phone ur pretty much fu**ed ...many people mtry this if they`ve had too much phonesex for example..


Thats why many phone scams work this way and also many services  build on this..


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Herodes
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April 19, 2012, 02:12:31 PM
 #10

Yes, the problem is that an attacker can do fradulent purchases of bitcoins, this can be done in several ways, then when it's time for the operator to pay out to the bitcoin service, it's the bitcoins service that will be out of pocket.


1. An attacker get's credits attached to a cell phone number illegally.
2. He buys bitcoins.
3. Time goes by....
4. Fraud is discovered.
5. Operator does not pay out to payment processor.
6. Payment processor does not pay to merchant.
7. Merchant has lost bitcoins and has received no funds.

I've developed a solution that interfaced with Impulsepay in the UK, it gives you coins instantly when texting a code.

You can read more about it here: https://bitcointalk.org/index.php?topic=64793.20

However, we have discontinued the feature.

The idea was to make bitcoins easily accessible, but while texting to get a ringtone is ok, the incentive to cheat (get free money) is simply too high when dealing with bitcoins. To cover the losses from fradulent purchases and to pay fees charged by operators and payment processors, the surcharge gets ridiculously high. And to prevent fradulent purchases, we could put various restrictions in place, but it would defeat the whole concept of 'easy of use'. Since we don't know for 45 days after a purchase was made whether it was legit or not, it's very hard to know how much of a loss we're sitting on.

There could be methods for verifying a customer, but the more hassle it is to become verified, the harder it becomes to get those coins in the first place. After all, if you just want a bitcoin, would you really scan your passport and an utility bill just to get one by texting ?

In the end I guess it's a matter of holding the pros and cons against each other, and determine which level of risk is acceptable, and how much customers can be inconvenienced without hurting sales too much.

Another point is that there are several other methods that are a lot cheaper when purchasing bitcoins, so making SMS purchases just as elaborate as a few other methods while the whole point was 'easy of use', this coupled with the fraud risk, makes sales of bitcoins for mobile payments essentially dead.

Currently, it's possible to use https://blockchain.info/wallet/sms-phone-deposits (I'm not associated with that one).

They're limiting number of purchases to 1 pr. customer pr. month. In my view this goes against 'ease of use', as it's a great way to get somebody introduced to bitcoin, but if you need more than one purchase of coins, you're out of luck.

And what if a malicious individual breaks into the website of a cell operator and get access to customer accounts, usually he would be able to send SMS'es from there, thus purchasing a lot of coins from numbers he doesn't own. To avoid detection, this could even be done slowly over a period of maybe 30 days.  5 fradulent purchases a day for a month would add up to 150 BTC or 777 USD with current prices. So, there should be limitations at the bitcoin service, that would reduce the possible loss.

The only entity that I could see could run something like this successfully would be someone making a lot of money on other services, and that would be willing to take the risk with the SMS/mobile payment service.

Once malicious individuals finds a loophole to get free bitcoins, it's going to be exploited, you can be pretty sure about that.

I think the only services/digital goods that are suitable for SMS purchases are those that can be easily copied without a direct monetary loss to the operator. Example: I sell a certain ring tone, if somebody scams me and I don't get paid for 10% of all sales, it doesn't matter much as I have no direct loss of giving out 'free' copies of the ringtone. The ringtone itself is just some bits and can be copied indefinitly, however, a bitcoin cannot be copied, and once it's transferred, it's not possible to get back easily. The only way would be to contact the received and ask gently to get it back, good luck with that when a blackhat in Rio just robbed you for 500 USD. :\

So, as much as I'd like to offer bitcoin purchases over mobile payment, I've come to the conclusion it's not a viable business model, as bitcoin transactions are irreversible, while mobile payments are not.. It's for the exact same reason most people won't accept PayPal or CC for bitcoins.

And don't misinterpret me, I would love for it to be a viable business model to do mobile payments to get bitcoins, and I'm interested in all feedback in regards to this, personally I'm not willing to take the risk at the moment though.
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April 19, 2012, 11:14:42 PM
 #11

Selling Bitcoin via SMS is a losing proposition. Carriers/processors will charge you exorbitant fees while not carrying any risk themselves and offloading it all onto you. Think about it as selling bitcoins for paypal and/or credit cards by proxy and paying 10 times larger fees.

SMS are only good for selling useless tat, like Facebook credits, virtual sheep and ringtones. Those supposedly irreversible Canadian mintchips sound as a much better proposition for medium of conversion of fiat into bitcoins. It is until the mint discontinues it due to all the fraudsters rushing to convert all the stolen credit card numbers into bitcoins via mintchips.

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elendir
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April 20, 2012, 03:25:59 PM
 #12

Your idea to nail the customers because they charge their carrier and not Google Play for that matter is pretty intresting..
I know for sure in Germany and some other european countrys that if you fail to pay your carrier or dispute the charges on your phone ur pretty much fu**ed ...many people mtry this if they`ve had too much phonesex for example..

Yes, it works this way here in Prague as well. Someone bought sth with your phone => your problem. That's why I thought for a moment that it could work. But there is this feature in Android - it doesn't let you force customer to use carrier billing, in fact you're shielded from the transaction details so scammers can always select cc payment and cancel it later with their bank. That is a big drawback.

Also it's good to learn from someone who already tried that - thank you Herodes and everyone else. I still think it might be slightly different with Android (there are many ppl out there on the internet who really bought something by accident and yet they never saw their money again), but I also came to conclusion that this idea is not feasible at the moment.

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April 22, 2012, 03:20:53 PM
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You are welcome. I would be very happy to provide bitcoins for mobile payment if it could be certain that the payments were not reversable.

In the event the owner of the handset is always responsible, what if somebody breaks into his providers website, using his account to send sms or somebody steals his phone and loads it up with credits from a stolen CC, would the owner still be responsible ?

Also, the amounts stolen in each case would probably be very small, so the police would probably do nothing if somebody scamed a service out of 5 BTC.

If the service selling the bitcoins always could be 100% sure they would receive payment for every sale, then it wouldn't be a problem selling bitcoins for mobile payment.

As we've closed down our mobile payment service, payment from the payment processor is still pending, and we don't know how much of it will be non-paid yet. The main issue is that the incentive to get free coins is so high that if there's ways to get at those coins, somebody will do it.

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April 25, 2012, 06:11:58 PM
 #14

interesting conversation was looking into the same thing and came across a service that offered below.

My question is say on $15 worth of bitcoin they say there fee is $1.75  but I see the carrier fee there listed as an astrick of 53 percent so they are saying there is additional fee added based on the carrier? just confused ...

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April 25, 2012, 09:16:27 PM
 #15

Yes, operators takes often very high fees. Why, if it's because of greed or other reasons, I'm not entirely sure about, you'd have to ask them.
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