The number of bitcoin-accepting merchants is expected to grow steadily. Source: CoinDesk Q2 ReportSafahi’s ZipZap allows users to obtain bitcoin from kiosks around the world.
He said the issue of chargebacks comes down to a perhaps needless use of third-party trust. It’s important to remember bitcoin is a system that can eliminate the need for this sort of trust because of cryptography.
Safahi noted:
“Any time you have a group of people that don’t trust each other that need to trust each other, you need consensus and that’s what bitcoin and other digital currencies do really well.”
So, without third-party trust, how does a merchant know to trust a consumer and vice versa when using bitcoin?
Steve Beauregard, CEO of digital currency payment processor GoCoin, said that emerging peer-rating platforms can help lead the way to a new form of trust relationships between parties, explaining:
“With the advances in reputation systems like Yelp! and the peer economy created by services like AirBnB and Uber, you will quickly weed out the scammers from the legitimate consumers.”
Consumer perspective
There’s still not a large contingent of consumers paying for purchases in bitcoin – in part, of course, because many merchants do not yet accept the digital currency.
Tom Longson, CEO of bitcoin gift card startup GogoCoin believes that a strong community of bitcoin purchasers could emerge – similar to the strong enthusiast community that enabled bitcoin to get this far.
He said:
“Loyal customers are very important to small and large businesses. The merchants support the bitcoin ecosystem, and customers support the merchant in return.”
Longson echoed Beauregard, saying that the network effects peer recommendation systems could provide are an opportunity for overall growth.
“The community makes merchants who accept bitcoin better, both in spending power and [by] recommending their service to others,” he added.
The complicated process of a chargeback in one chart. Source: EmerchantbrokerThere is another alternative to peer-based systems as well. With bitcoin’s multi-signature technology, companies like Purse.io are building escrow bitcoin wallets to enable dispute resolution in the form of three separately held keys.
This would mean one key for the merchant, one for the consumer and another for Purse. When all parties agree, the funds are paid, but, in a dispute, Purse mediates. Such a system could be an alternative to the credit card chargeback.
Purse co-founder Andrew Lee says that consumers will need something like this in order to feel fully comfortable spending bitcoin:
“The world is full of fraudulent merchants. Consumers wouldn’t spend with the same confidence if they couldn’t dispute a transaction.”
Underlying bitcoin issues
It would seem the chargeback system to prevent fraud in credit cards is flawed, ripe for disruption.
That is exactly how GoCoin’s Beauregard sees it: “The removal of the chargeback mechanism finally equals the balance of power between the consumer and the merchant,” he said.
Universal bitcoin companies like Circle, Coinbase and Xapo will need some form of reversal or mediation mechanism order to ensure a degree of consumer protection.
Credit card companies see no alternative other than to develop competing digital systems to rival bitcoin. Amazingly, after working with payment technology companies like PayPal, the major players didn’t do a whole lot in this regard until bitcoin finally came along.
SnapCard’s Dunworth said:
“Given the success of PayPal so early on, then only recently seeing Visa and MasterCard open up their own digital wallet style services (V.me and MasterPass), that was a long time.”
Add to the fact that it is rumored Apple will be partnering with American Express for a mobile digital wallet on iPhone’s iOS 6 operating systems, and it is quite obvious the digital payments industry is expanding quickly.
It is still not clear exactly where bitcoin will fit into the big picture, yet the fact remains that the digital currency enables a rethinking of the standard fraud protection and dispute resolution models.
The big-brand card companies will desperately need to figure out a solution for all of this, especially given that digital and mobile payment efforts aren’t going too well for them.
This is evidenced by the vast majority of people still making in-person electronic payments through credit and debit cards and not the mobile wallets most bitcoin users embrace.
Dispute resolution for PayPal looks simple, but can take a long time to complete. Source: PayPal“I think Visa and MasterCard … they need to embrace it; find a way to work with it. If they don’t come on board, then merchants will start accepting bitcoin anyway,” said Safahi.
Credit Cards image via Shutterstock
Fraud
Original author: Daniel Cawrey