It was my understanding that in the current system merchants tend to eat the cost of fraud under our current system (see charge backs, rolling reserves, etc.)
> It was my understanding that in the current system merchants tend to eat the cost of fraud under our current system (see charge backs, rolling reserves, etc.)
1) A significant portion of the cost of chargebacks is administrative, especially for small transactions. The banks at least nominally attempt to prevent customers from defrauding merchants, even if they fail more often than not, because if they didn't even try it would get a lot worse fast. But that costs money, and the money it costs is proportional to the amount fraud/chargebacks and not linearly proportional to the purchase price. Having to go through the chargeback process over a nickel is not something they're about, hence the minimum transaction fees. They also sometimes lose the money because it's not possible to recover it from the merchant for some reason.
2) If you're trying to become a payment processing system with low transaction fees which people can transfer money into using their credit cards, the "merchant" who eats the cost of fraud is you.
I believe that merchants are not responsible for fraud for certain kinds of transactions, like credit card transactions that use chip-and-PIN.
On the other hand, there might be higher responsibility for card-not-present transactions (i.e. someone entering a CC number into a web form over the Internet, or merchants deciding to accept a CC transaction while their machine is down and can't swipe, entering the transaction later as a card-not-present).
Not an expert on this.
One remark I'd share is that many crypto systems, in their basic transaction form, remove all consumer protections like that exist in the form of chargebacks. This can be a good thing if the merchant or marketplace is reputable and can be trusted to do the right thing. It could be a bad thing for consumer protection broadly though. The fact that you can easily charge-back a transaction provides a sort of lubricant that makes consumers more willing to spend online. You know that if a subscription company makes it really a pain in the ass to cancel, then you have the nuclear option to fall back on.
(OTOH, there's no such thing for subscription payments for blockchain. You'd have to build that custom as far as I know.)
1) A significant portion of the cost of chargebacks is administrative, especially for small transactions. The banks at least nominally attempt to prevent customers from defrauding merchants, even if they fail more often than not, because if they didn't even try it would get a lot worse fast. But that costs money, and the money it costs is proportional to the amount fraud/chargebacks and not linearly proportional to the purchase price. Having to go through the chargeback process over a nickel is not something they're about, hence the minimum transaction fees. They also sometimes lose the money because it's not possible to recover it from the merchant for some reason.
2) If you're trying to become a payment processing system with low transaction fees which people can transfer money into using their credit cards, the "merchant" who eats the cost of fraud is you.