Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

Vinetrade has the kind of business model that scares banks and card payment providers. We trade high value goods (prices in the region of £1.5-20k) that are rarely delivered to the buyer (they're stored in remote warehouses).

I love virtually all startups and wish for their success. That said: I'm thinking that when every bank in Creation was saying "We won't take CC payments for that. No, no, you simply can't convince us that is a good idea." they were actually being appropriately conservative about legitimate operation risks uniquely incurred by this business model.

If you don't have a Fraud Guy, I respectfully suggest either hiring or training a Fraud Guy very, very soon, preferably before enabling any form of credit card payment. Your Fraud Guy is going to have some recommendations, including recommendations which meaningfully interfere with the product team's ability to meet user demands. If you do not listen to your Fraud Guy's recommendations (or, regrettably, even if you do), you may eventually get an expensive lesson in why both BigCo and startups in related fields eventually have to hire a/several/an entire department of Fraud Guys.

One of your Fraud Guy's first questions is going to be "Is there any pathway by which I can take a credit card and turn it into cash using this service? If so, what is the timeline on that?" I am not a Fraud Guy, but I count two ways to cash out credit cards, just reading the website FAQs. If you are discovered by the adversaries to be the weakest link in the UK financial system with regards to cash outs, you can expect heavy, dedicated adversarial interest.

This is an extremely important message. Fraud is very easily the thing that can sink many small companies that aren't used to the levels of fraud that you will see on the Internet. And because there are so many ways to defraud a merchant that isn't obvious, merchants need to be extremely careful and educated on the process. And handling chargebacks will become a full-time job for someone in your company, once your company becomes big enough. I work at a payments company, and fraud is something that ends up being a headache, although we are at lower-than average industry norms.

It seems relatively easy for someone to turn credit card payments directly into cash, by making a trade and then extracting cash through the bank account. And the gap between your withdrawal policies and the chargeback policies of credit cards are pretty wide. I would be very careful about this. Forcing users to enter bank accounts make it a bit harder for average people to defraud, but not a motivated fraudster. Also, allowing people to take delivery of wine through the purchase of a credit card, and then being subject to a chargeback will be extremely painful, although I'm not sure how easily chargebacks are fought in Europe. If you do suffer a lot of chargebacks though, even if you successfully fight them all, be prepared to be dropped by your credit card processor.

I think your business is actually very interesting, but I'm surprised that credit card companies would allow you to accept credit cards at all, since I would think they would lazily lump you in as a form of brokerage site. Not that I believe this, but it seems like an easy translation to stock brokerages, which don't accept credit card payments, but force you to transfer real cash into your accounts before you trade. Then once you have money in a brokerage, they can extend margin, but they maintain their own risk by monitoring the margin levels, etc.

Good luck though, I read through your site and I think it's a very neat idea!

Thanks! Our preference was actually to take debit cards only - but regularly got told that it's all (credit cards too) or nothing.

There were two big problems with the banks:

1. A number of wine investment companies took card payments but never bought the wine. So the bank was liable for the money lost in those situations - and as a result that put a blanket ban on all fine wine companies. We were able to talk Barclays around on this.

2. Storage of wine would be handled by a third party warehouse. If they screwed anything up (e.g. broke the case, had a fire, and insurance refused to pay out), there was a chance that buyers could get the money back through their bank if they paid by credit card.

and for us when we did accept this:

3. Getting the fees to work with our model - we wanted to offer a fixed fee for trading cases, but all banks / payment services wanted to take a percentage, including for debit card payments (hence my point about doing more work to get the model to work payment charges).

Obviously fraud is a major concern, and is something that we do a lot of work on as we scale up (e.g. at the moment we're manually processing all orders, taking ID for anyone buying more than £10k total etc). It's not something that we're naive too and we're definitely not going to launch a completed automated system without adequate processes in place.

2) If you're talking about chargebacks, it would be YOU that the buyers would be charging back the money from, not the warehouse, since you were the merchant that accepted the payment.

And am I right in that you are basically saying that the buyers take on all risk of storage at the warehouse facility? If so, you should probably outline that as well, including what the insurance policy of the warehouse, covers, etc.

I should have been more accurate - the bank would be liable if the customer charged back and couldn't reclaim the money from Vinetrade (e.g. we'd ceased trading).

There isn't huge risk for the buyers - all wine in the warehouses is insured at full replacement value. It's more of a hypothetical "what if" or worst case scenario.

Have you looked at 192Business from a fraud/authentication perspective?

From the Vinetrade site:"Secure and trustworthy. Your transactions are encrypted."

Step 1: Start posting username/pwd to your server over HTTPS and start delivering signup & login forms over HTTPS.

At the moment, both of these happen in plain text so I don't see how you can say you take security seriously if you can't even get the low hanging fruit.

Yeah. Paypal was in that boat early on. They survived only because they were able to solve some very tough fraud problems. Otherwise it would have sunk them. I don't remember who was talking about it - maybe it was Thiel - but he said that at first it didn't seem like a big problem (in terms of how much it was costing the company), but someone at Paypal noticed that it was growing exponentially and if they didn't address it quickly they would not survive.

Max Levchin in Founders at Work, iirc.

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