just wondering how would you expect or how do other companies currently avoid fraud. The costs associated or added with constantly investigating fraud would almost seem like a deterrent in making a system useful.
The problem here is Visa/MC/Amex etc. Since you almost have to accept credit card payments these days, you're stuck with their terms. Since the banks all provide credit through these card providers, there's very little competition.
There are numerous ways to virtually eliminate CC fraud but the card providers aren't interested in taking those measures, and neither are the big retailers. They are happy to accept the ~5% loss on chargebacks, because credit card users spend something like 30-40% more per transaction than cash payers.
What we need is a competitor that disrupts credit cards altogether, not just merchant processing. Eliminate VISA and MC, who are basically skimming 2.5% off our retail economy. Cards are obsolete anyways. The processing side is obsolete, we don't need terminals that dial into a central processing machine, we can use the internet. The credit side (banks provide the credit line you get on your card, not Visa/MC) will take a bit more work, but we can combine it with the rise in peer to peer lending: you seek a credit line from a crowdlending site, not Chase bank.
But the OP is NOT the merchant... PayPal is. I do not think that the fundamental problem in this case is the credit card system. (Although there certainly are OTHER problems with the credit card payment system that make it tempting to disrupt - but nearly impossible to disrupt because of entrenched powerful interests.)
Not only that, they are making it extremely inconvenient to have any sort of communication with them
As soon as a payment touches any of the existing networks, it's at risk. The only way to fix it completely (or at least significantly improve the situation) is to have a system that's completely isolated and properly secured; i.e. every payment authorization requires true multi-factor authentication.
I wouldn't mind so much if consumers were actually advised of their ability to use these chargeback facilities, but apart from Direct Debits it seems almost no-one gets told about this here in the UK. Certainly no bank or credit card service I used had ever told me before I started running businesses and seeing it from the merchant's side. The one time I got screwed as a consumer and a chargeback would have helped because it wasn't really worth the time/hassle of figuring out the courts' small claims procedure, I didn't know I could do that so the merchant won by default anyway.
So right now, the do-I-have-it-or-don't-I question over funds is a huge burden for merchants here, yet the supposed protection it offers to consumers here is mostly illusory as well. Nobody wins from this kind of arrangement. The entire payment services industry needs to die and be replaced by something fit for the 21st century, where you simply can't transfer money electronically without robust proof of who you are, and you can't accept money electronically without robust proof of who you are, but given such proof transfers are final as soon as they are confirmed. Is this really such a crazy idea?!
This claim doesn't make much sense. For example, an economy with RGDP 150,000 units, of which 2.5% go to Visa/MC, is not worse off than one of RGDP 130,000 units, of which 0% go to Visa/MC.
Now, nearly everyone has and uses multiple visa or mc branded credit or debit cards, yielding trillions in transactions, making billions for Visa/MC.
In short, they've grown much more profitable due to their scale and none of that has value has been returned to businesses or consumers in via rate reductions, AFAIK.
I don't disagree with this at all. But I don't read the comment I was responding to as having come from the thought process of
"If Visa/MC charged a 1.5% cut instead of 2.5%, the economy would be 1.5% more productive than it is now, which means that, compared to that more enlightened hypothetical world, the non-Visa/MC portion of the economy is only 97.5% what it should be."
If you think credit is related to the size of the economy (and I do), you need to ask, where did that 2.5% number come from? Saying that Visa's entire fee represents nothing but a drag on the economy is very much of a piece with the historical loathing of merchants and usurers, who, as anyone could see, did not create value.
In my example example, cutting fees to 1.5% (from any level at all, interestingly) requires the economy to expand by 1.5%. That's not a coincidence -- cutting fees to 0.1% would require the economy to expand by 0.1%, except that that's completely implausible; cutting fees further should cause the economy to expand more, not less.
With that in mind, it might make sense to measure against the hypothetical where credit card companies offer their services for free, but even then there is no obvious relationship to the current level of their fees. I have to stand by my assessment that saying Visa/MC are skimming 2.5% of the economy doesn't make sense. How'd we get that number?
Still, money handling/cheque handling has costs as well.
Cheques are much more prone to fraud, money has some fraud cost (% of fake money, not sure how it is, but it's not that big) and costs of handling and moving the money (hence, cashback reduces this cost)
Is that workable? Quite possibly. Is it probable? Probably not.
Edit: Spelling
Of course, there are other ways to stop fraud which you'd want to do as well.
They could charge for "Verified by Facebook" services. Hell, they could replace eBay and PayPal while they're at it, not to mention AirBnB, CraigsList, etc.
They're stumbling around looking for a business model as it is, I don't know why they don't get into this. Sure, easier said than done maybe, but if anyone can do it, it is Facebook. Becoming the one site that has the single largest repository of known internet identities within it is the hard part.
So bizarre to me they don't move into in a serious way. ecommerce