Why are electronic payment systems such a wreck?

Photo: mlaaker
Every time we pay for something over the internet – as anyone who loves technology and gadgets surely does – many of us still shrivel with fear inside. Some are just aware of identity theft and the army of fraudsters lurking in the system. Some may have established and maintained internet merchant setups, and know how byzantine and self-serving that system is. In the last day or so, two seemingly trivial discoveries made me cringe. 1. PayPal asks for a bank or credit card number before letting you close a PayPal account. PayPal then takes $1.50 out of that bank account, so that you can prove it's yours by reporting to PayPal the secret code it leaves in the transaction details there. PayPal will then refund the money within 24 hours – to the PayPal account you just shut down! 2. At the Authorize.net payment processor, if you try to refund two payments for the same amount from the same customer (for example, recurring subscription payments from sequential months), the system frequently thinks you're trying to refund the same transaction over and over again, and refuses to cooperate. Two trivial events, for sure. And they're not even the kind of thing that consumers are likely to ever confront. But they're perfect examples of how half-arsed and error-strewn the business of taking people's money online remains in 2007. Consider that these companies now manage the transfer of colossal sums of money. Banks and credit card companies complain publicly about intermediaries like PayPal and CC processors. The truth, I suspect, is that they rely on them to soak up legal liability inherent in the messed-up world of card-not-present electronic transactions. When you (either merchant or customer) get done over, who do you blame: shifty fraud-encouraging transaction skimmers like eBay and PayPal, or the banking industry types, such as VISA and Mastercard, which maintains the obsolete system that facilitates it all?

About Rob Beschizza

Rob Beschizza is the Managing Editor of Boing Boing. He's @beschizza on Twitter and can be found on Facebook too. Try your luck at besc...@gmail.com  
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9 Responses to Why are electronic payment systems such a wreck?

  1. chroma says:

    revolutionmoney is creating an alternative payment network and has the backing of a few well-known individuals.

  2. Rob Beschizza says:

    No, it’s 2007!

  3. bwcbwc says:

    The FBI would probably take a “wire-fraud” interest in interstate transactions, assuming you can pry them away from anti-terrorism duty.

  4. Anonymous says:

    In Canada here we have something called Interac Online, which is about the best online payment system. When you click on the ‘pay’ link, you’re directed to your bank’s online banking site where the transaction is completed. You choose the account to pay from, and authorise it with your online banking password.

  5. Anonymous says:

    having dealt with ecommerce processing for years, the biggest problem in my mind is the credit card companies themselves. many times we were presented with clear evidence of a crime (fraudulent purchases) AND the address of the residence to which the items were shipped, yet the companies simply choose to do nothing about the problem. they don’t get involved in making their product safer. the only way to get a conviction is for the victim (usually in another part of the country) to contact the police in the jusrisdiction of the criminal, and hope for them to take some interest (also very rare). it’s a mess and nobody’s doing anything about it.

  6. tobergill says:

    On the Mobile Money post. Doesn’t that mean that anyone who has your phone can charge whatever they like to it?

  7. dainel says:

    Over here in Malaysia, there’s this thing called Mobile Money http://www.mobile-money.com/ It seemed to be a great idea. Launched a couple of years ago, it still has not taken off. Basically, the idea was to eliminate credit card fraud by tying transactions to your mobile phone.

    When you apply for your “credit card”, you register your mobile phone number. You then get a 6 digit one-time-use PIN via SMS. There’s no physical card, the phone is your card. To make a purchase, give the shop your PIN. They phone Mobile Money’s IVR, keys in your PIN, and the computer tells them if the transaction is successful. You then get SMS notification, and a new PIN. Web transactions works the same way.

    There is another mode of operation. You give the merchant your mobile phone number. Mobile Money SMS you for approval, and you reply yes or no. The IVR then calls the merchant to tell them the transaction has been approved.

    This eliminates many problems with credit cards. The merchant does not have to have a credit card terminal. They just use the telephone they already have in the shop. This is also great for one-person web stores that have low transaction volumes. The customer cannot repudiate the transaction. For the merchants, “chargebacks” will be thing of the past. Because it is more secure, Mobile Money can afford to charge the merchant a lower % than normal credit cards (especially for online transactions).

    For the customer, the merchant cannot make multiple charges to your credit card once they have your credit card number, and they cannot charge whatever amount they like. And you get SMS notification on every transaction.

    It’s a pity it didn’t catch on. Seems like a good idea. Mobile Money isn’t dead yet, but it isn’t going anywhere. Not even in the tiny Malaysian market, much less world wide. There are two big problems. They are competing against big established players like Visa and Mastercard. It’s not built on top of existing credit cards, but as an alternative to them.

    It’s also a chicken-and-egg problem. The big merchants are not signing up because there are not many customers. The customers are not signing up because the big shops are not supporting it. Just a very long list of small stores. Though they managed to sign up two big banks, their parent company does not have enough muscle to push it through to get wide adoption.

  8. bardfinn says:

    Rob: It’s 2008.

    “… business of taking people’s money online remains in 2007.”

  9. knifie_sp00nie says:

    I don’t really get the big freak out over online transactions. As long as you double-check who you’re sending money to, it’s safe enough. My credit card has never had a problem taking of bogus charges. It sucks that it happens, but I’d prefer computers handle the transactions over people.

    We all gasp at the thought of online theft but will gladly hand over our credit card info to a human. When I did some phone work and took payments I could have been writing down a personal copy of the number, ask for the verification code, and then the address from the computer. Where’s the outcry against humans?

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