Credit cards + cross border transactions are broken: bitcoin is the solution

This summer I decided to splash out on a new road bike for my family's summer cottage in Brittany, France. I found what I thought was a good deal online, and placed my order. So far, so good: I used my credit card to pay, and after confirming the transaction via Verified by Visa, my order went through. Not as simple as it could be, but fairly painless.

Little did I know however, that what I was doing was a highly unorthodox and probably fraudulent act! At the time of my purchase I was on holiday in Portugal, so my purchase was registered with a Portuguese IP. My delivery address was - shock horror - in France. And the cherry on top of the cake: the credit card was Finnish, where I am currently resident. So I was using a Finnish credit card whilst in Portugal, with a delivery address in France: sacré bleu!

The online bike store (bikester.fr) sent me a rather curt email telling me that I was a fraudster, and basically told me to piss of. Even after emailing them PDFs of the transaction receipts from my web bank, they obstinately refused to deliver the bike. Their rather Kafkaesque financial department had made their decision and that was that. I was a fraudster.

Basically I was being punished because of the generally high level of fraud associated with credit card transactions. The store had obviously decided to treat possible cases of fraud with the utmost paranoia: so much so that that reality itself was of little interest. Even though the transaction had been confirmed via Verified by Visa, this seemed to be of little interest, which begs the question: what is the point of all this elaborate security? For a fraudster to have completed the transaction they would have needed, in addition to my credit card details, my online bank user ID, my online bank PIN and the correct single use transaction code to confirm the transaction. In other words, they would have needed all the details needed to gain full access to my online bank account.

So cross border credit card transactions are broken. The parent company of the store I attempted to purchase the bike from runs around 10 other stores in Europe, so this isn't a small anomalous web shop. Probably this is best practise in many online shops.

Credit card transactions are so horribly broken because of their reversible nature: the dreaded chargeback. Often the chargeback arrives over a week or more after the transaction date, which leaves a good chance that the shop may end up out of pocket. In one online shop I am involved with, chargebacks sometimes amount to 10% of the months revenues. This is what leads to such paranoid anti-fraud behaviour.

The beauty of Bitcoin is that transactions are irreversible. Store owners don't need to worry about fraud with bitcoin transactions: fraud is impossible from the store owner's point of view. Once you receive the money it is yours, there is no going back. This is perfect for the Internet, because it means stores can get rid of their paranoid anti-fraud department. Stores are not generally very good at this kind of thing, and shouldn't have to be. If you are selling bikes you should concentrate at being great at selling bikes, not fighting fraud. Leave fighting fraud to banks and credit card institutions. Ultimately this also mean lower prices for consumers: stores can slim down their financial departments and reduce their chargeback costs to zero.

Obviously in the real world fraud still exists, Bitcoin just moves the fraud burden from the retailer to the consumer. At first this sounds absurd: surely the consumer shouldn't be burdened single handedly with the fight against fraud! But I think it actually makes a lot of sense. What we will see is a whole ecosystem grow up of secure wallets that will battle each other in being more secure than the next. We can imagine wallets that have different security requirements depending on the size of the transaction. So to send 1 bitcoin would be a simple affair but sending 100 would require extra security (obviously it would make sense to track the total sent in a given timeframe so an attacker can't make a million transactions of .01 BTC with low security). Ultimately we will see wallet services that we feel as secure using as we would our online bank (if not more).

If you still aren't convinced that non reversible transactions are a good thing, think of bank transfers. If I send you some money, and type an extra zero, all I can do is hope that you will return the extra cash. Typically the bank will not help you get your money back if you send too much by accident. This is exactly how Bitcoin functions, and we all use bank transfers today and accept their non-reversibility. We accept it because we trust the banks security mechanisms: this is one of the main reasons we keep our money in banks and not under the mattress. We trust that there is only a very tiny chance that anyone will hack into our account and withdraw all our cash. And if it does happen, the bank will reimburse us for the losses.

So what we need to fix cross border Internet transactions is Bitcoin in combination with wallet services that we can trust 100% to be secure. Maybe then I could get my bike delivered by next summer...

Oh and don't shop at any of the Bikester shops. They suck.