I have been conducting due dilligence lately on the prospect of creating an e-currency exchange in Canada, taking in Canadian dollars and distributing BTC and other cryptocurrencies. However, I have found one detail which seems to bother the BTC community, and I see a lot of heated discussion about it, but no solutions, which is the problem of chargeback liability.

As I understand it, the process works like this: VISA/Paypal/Interac E-Transfers all have a basic feature which is that the customer cannot be held liable for 'unauthorized transactions'. These unauthorized transactions are the result of alleged phising or otherwise malicious use of the customer's payment system, resulting in a financial burden that, contractually, the customer has no liability for (and thus the vendor must accept).

I see a lot of people angry with Paypal here, but Interac E-transfers and Credit Cards have the exact same feature. However, I certainly do not believe that this is an issue that cannot be resolved.




As I understand it, when a customer wishes to make a claim that the transfer was unauthorized, i.e. was conducted by a party other than themselves and operated without their permission, (called a dispute in Paypal's terminology), an investigation is then launched by the payment service to understand whether or not this is a case of fraud (which is what is trying to prevented here of course).

Another phrase buried in PayPal's Terms Of Service is the phrase 'a purchase that did not benefit the customer' (I'm paraphrasing). I bring this up because I think it may be helpful evidence in creating a solution.



As I see it, a simple solution to our fear of facing an unrightful 'chargeback' (or at least being subjected to bear the pain of the fraud), is to cover our ass in terms of the 'unauthorized' in 'unauthorized payment'. I think certainly it would not be impossible to create a system, working with employees of Paypal/VISA/Interac, that proves identification and thus authorization of a payment. I do believe that if you could mount a strong case, built with verifiable evidence, that in fact the person who made the transaction was making it themselves and in a manner that benefitted them, that you could eliminate the fear of chargebacks.

For example, if you had someone designate a long-term Bitcoin address, that would serve as their only destination point for funds, and you as a vendor would accept transferring their funds to that address, I believe you could begin to find the outline of a secure payment system. Furthermore, if you used some type of video communication software to verify identity, perhaps coupled with a type of password/reference verification, that you could really start to lock up security. Even if you had a secure transfer of only $15 of CAD, and could verify the I.P. address, I think you could build a very strong case that it is in fact the person who they are claiming to be when they make larger requests in the future.


The point I am trying to make is that justice is in the eye of the beholder, and in this instance it is the payment processing companise. They want to eliminate fraud, but they also want to incentivize customers using Visa et al., and are therefore more than happy to reapropriate your funds to cover their customer's liabilities. However, if presented with a strong case, built on evidence and a system that was tailored to their needs/wishes, I feel that a solution can certainly be borne out of this present-moment issue of chargeback exposure. If we work together I am sure we can create a foolproof secure system that can cover us from the liability in these transactions.

Cheers,
Anthony