[MUD-Dev] Buying benefits

[Peter Tyson]

According to Matt Mihaly:

> No, the merchant banks get fined too, if their total fraud rates
> go over X percentage. I believe it is a minimum fine of $100,000
> if a merchant bank's fraud rate goes over 3% for a month. That's
> what my merchant bank told me in any case.

(what follows is more than you ever want to know about card fraud
online!)

Well someone else on the list asked me the same question yesterday
so I called up a gambling technology ASP/vendor and asked them.

Word from their fraud analyst was that in general fraud rates
throughout the industry are probably higher than 2%-5. I think 5%
must be about average for the industry.

Fraud analyst said that all of the liability falls on them as
vendors/operators because the transactions are classed as 'card not
present' transfers. He said that card operators did not give a damn
if there was lots of fraud because every time there was they charged
the operator $25. Since the transaction is card not present, the
operator covers the cost for whatever is spent by the fraudulent
user. Combined with the fine to the operator and higher than
industry average transaction fees I am sure they make up their
$100,000 potential merchant fine (if it's applicable for card not
present transactions?)

...Ok, I just popped over the office and spoke to one of the
financial analyst guys and got what I think is the skinny on this.

While it is true that the merchant banks are likely to be fined for
high fraud you can be 100% sure they have already passed on those
expenses with transaction fees and the fraudulent transaction fee.

Depending on vertical market, age of business and so on your
transaction fees are adjusted so the banks make sure you pay them
enough to cover themselves.

If you are unable to get a high street bank to take you due to the
potential for a high fraud rate there are plenty of niche merchant
enquiry companies who cater for high risk ventures and charge them
appropriately high transaction fees. In a way it's just like getting
a loan, you can do it through the bank or through some guy out of
the paper called 'Vinnie' ;)

While I may still be missing some dynamic in all this it's still
clear that gambling vendors operate at a relatively high fraud, make
money and don't have merchant banks beating on them. Jedi mind trick
I say! (Hi Raph :)

Peter Tyson
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