Can someone expand on this a bit as to why this is true? "Businesses which take money from party A and pay some portion to party B are basically viewed as kryptonite crossed with rat poison by the banking sector."
It's because of how the industry's risk assessment and fraud protection systems are structured.
If a merchant processes a fraudulent transaction their processor/merchant bank gets charged for the entire transaction, which they in turn charge the merchant.
More precisely the transaction doesn't have to be fraudulent. The buyer just has to be unhappy enough that they call their bank and issue a charge-back.
So to reduce the chances of that the processors have a risk assessment department that determines the probability of these kinds of transactions occurring. If the probability is high, they just won't work with that merchant.
Now let's say the merchant wants to take money from Party A and give it to Party B. In this case Party B is probably the merchant as they're getting paid for something. But Party B didn't go through the processor's risk assessment process and they may have a much higher probability of causing charge-backs. This basically moves control from the processor/merchant bank to the merchant opening up a possibility for money to siphon out of the processor/bank and potentially never be recovered.
That's why it's very difficult to get approved for something like this. For more info read up on Third Party Payment Aggregation.
In my case I will probably wind up needing to hold a 50% reserve at all times. And that's with Paypal. Banks won't even talk to me until I have established turnover in the tens of millions.
If a merchant processes a fraudulent transaction their processor/merchant bank gets charged for the entire transaction, which they in turn charge the merchant.
More precisely the transaction doesn't have to be fraudulent. The buyer just has to be unhappy enough that they call their bank and issue a charge-back.
So to reduce the chances of that the processors have a risk assessment department that determines the probability of these kinds of transactions occurring. If the probability is high, they just won't work with that merchant.
Now let's say the merchant wants to take money from Party A and give it to Party B. In this case Party B is probably the merchant as they're getting paid for something. But Party B didn't go through the processor's risk assessment process and they may have a much higher probability of causing charge-backs. This basically moves control from the processor/merchant bank to the merchant opening up a possibility for money to siphon out of the processor/bank and potentially never be recovered.
That's why it's very difficult to get approved for something like this. For more info read up on Third Party Payment Aggregation.