[MUD-Dev] Buying benefits

[Matt Mihaly]

On Tue, 12 Jun 2001, Peter Tyson wrote:
> 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.

Throughout the online gambling industry possibly. Definitely not
throughout the online industry generally. I suppose they could just
be paying astronomical fees. I saw a company once with 15% fees on
your transactions that would take pretty much anyone but convicted
felons.

 
> 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?)

You're wrong there actually. Mastercard/Visa care about keeping
fraud down _a lot_. I know _tons_ of people who simply refuse to use
a credit card online because of the fear of their information being
stolen and used fraudulently. Nevermind that they don't even get
held liable. People just don't like it and Mastercard/Visa's success
is massively dependent on the trust of cardholder.

> ...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.

Yes, they do. However, above a certain point, and you're
screwed. Trust me, we had a number of close calls when we were
smaller. Would have put us effectively out of business too.

 
> 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' ;)

Even they are under strictures from Mastercard/Visa. My merchant
bank told me that they are required to stop processing the cards of
companies that exceed a certain fraud rate for 3 consecutive months.

 
> 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 :)

Well, they obviously keep operating, so they must pull it off
somehow I suppose. Likely they have access to certain liberties that
a smaller company like mine does not.  

--matt

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