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Comment by Bratmon | Hacker News Reader

How are chargebacks resolved in this situation?

This is an important question- most of the costs of a credit card providers come from dealing with fraud and chargebacks. That's partially because, under US law, credit card companies have to eat fraudulent charges if they can't get the person or company that did the fraud to do so. (Funnily enough, this is one of two places where protections for average people in the US are significantly better than protections for average people in Europe).

But credit card companies can keep their costs low by making a business decision not to renew the accounts of frequent chargeback-ers or chargeback-ees (even if they never officially found those individuals at fault). If the government had to make a payment system for everyone and take on all responsibility for all fraud, that would create an incentive with massive second-order effects.

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You resolve it the same way you handle in-store cash purchases of products that turn out to be faulty.

There is no reason why fraud and contract violation must be handled by unelected and unaccountable payment processor, when the government has already set up a consumer protection system for disputes related to cash payments. The payment processor is best left as a dumb pipe that does what parties and (in case of disputes) courts tell it to do.

You have to consider the interest of the involved parties rather than the efficiency of a system.

Making a purchase is (still) voluntary for the customer.

For everyday purchases at physical stores, cards are convenient. You just swipe and maybe put your PIN. But other digital payment methods or cash can be just as convenient. You're never going to chargeback a coffee, a sandwich, or your groceries.

But for distance purchases such as online shopping, hotel bookings, flight reservations and such, trust is the most important factor, not convenience. Cards have fraud protection. Other payment systems do not. These "unelected and unaccountable" people can actually help you if you've been the victim of wire fraud. Much faster and much less of a hassle than going through the courts. And if they don't help you, you haven't in any way, shape or form abstained from your right to justice through a court of law.

If customers can have that security and ease of mind, then they are much more likely to make a distance purchase. Which means that the vendor can sell their product. If the customer can't have that ease of mind, then the vendor will not make a sale.

So vendors who want to make sales will gladly accept cards. Anybody foolish enough to try to sell without making it easy for the customer to pay in their preferred way will go out of business.

Another point worth mentioning is that cards work instantly across pretty much all currencies in the world. You can go from anywhere to anywhere and pay with your card and currency exchange is done automatically. And in the past 10 years, cards have given very good exchange rates.

> Cards have fraud protection.

This is only in US and it is needed in US, because US has very limited consumer rights regulation. EU has much stronger consumer rights (mandatory 14-day return windows for any reason, easy cancellation for subscriptions, mandatory 2-year warranties).

So the things that the (private) credit-card companies protect you from in US (via chargeback support and fraud detection) are things that laws protect you from in EU.

What you're writing is not true. The fraud protection is world wide, not US only.

The chargeback fraud protection of Visa and MasterCard is on top of every and any other consumer protections. It is not instead of other consumer protections.

This is extremely important, because if you as a customer are the victim of fraud, getting your money back from Visa or MasterCard is much faster and more convenient than making a police report, going to the courts, etc. And it is a very strong deterrent against fraudulent behaviour by vendors. If they keep defrauding people, they get kicked out of the card network.

Failing to get your money back through Visa or Mastercard, does not mean that you have waived any of your other legal consumer rights. If that method doesn't work, you can continue through the police and courts.

So, wait. Are you saying each transaction has to be individually approved by the account holder?

Because that would break the subscription-based billing model for a lot of businesses.

Here, this is standardized, and if a local subscription service provider wants to pull money from my account I explicitly grant them permission to do that, which I can revoke at a later point.

Customers can pay the credit card fee to get their chargeback insurance, if they choose, while others who can pay with cheaper instant payment rails can opt out. This is trivial with merchants able to surcharge credit card payments, as many merchants are starting to do (US mobile phone companies, US internet providers, Meta ad purchases, restaurants, etc).

> credit card providers

The article did an awesome job explaining what are the parties involved and you choose to use a generic term instead.

> dealing with fraud and chargebacks

A lot of that is offloaded to the merchant, which instead has to pay them on top of what they already pay to the issuer bank.

We manage it in Europe.

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