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Fading out my credit card

Posted by on 22.11.2014

Once upon a time there was no internet. When you went to a restaurant, you had to pay in cash. If you had no cash with you, you might have been lucky if the owner knew you good enough to think you were credit worthy. But what if you were in another city? Then some clever people invented credit cards. What they essentially did was telling the store owner that the person whose name was on the card was trustworthy, and that the credit card company would vouch for that individual. Obviously, owning such a card was quite a privilege. The companies issuing these cards didn’t want to pay the bills for people who would not pay them back, so they looked closely who would get such a card. But sometimes it happened, that the people spent more than they could afford, or they ran off. It also happened that people bought goods with stolen cards. So they introduced the handwritten signature as a security measure. As the fraud became a regular occurrence, the credit card companies, rather than just fight it, started to accept it as an inevitable part of their business. They calculated like insurance companies, and figured out that they could effectively make more money if they lowered the bar to entry. The honest users would just pay the bill for the occasional crook through the higher fees.

Then came the internet, and people wanted to buy stuff online. Because there was no appropriate payment mechanism, people just used what was available: credit cards. The combination of name, credit card number and expiration date was not sufficient against misuse. This information was on the front of the card, and every store owner where the card was used had the information. So they introduced a three digit number on the back of the card as a security measure. Criminals became cyber-criminals, and they liked this system very much. Now they could steal credit card numbers, and use them to buy stuff that somebody else would have to pay for. Credit card fraud became an even bigger issue. But the credit card companies don’t suffer from that as much as one would think. Customers can complain if something appears on their statement that they didn’t buy. The CC company then issues a chargeback, and demands the money back from the store. In essence, they charge fees for covering the risks, but don’t actually cover it themselves. For some retailers, those fraudulent chargebacks are a real issue.

Then came the internet of money. It is called BitCoin. Just like the internet in 1994, a lot of people are confused, and don’t know what to do with it. Just like the internet liberated and democratized information, BitCoin does the same with finance. The internet didn’t just replace the fax machine, but opened a wealth of possibilities noone had even thought about. BitCoin already now offers a wealth of possibilities not imagined before. And the BitCoin 2.0 space shows even more applications for BlockChain technologies. But for the moment let’s focus on online payment. BitCoin doesn’t need no trusted third parties who could charge disproportionate fees, or could even steal or confiscate the wealth flowing through them. Transactoins are final, so there are no fraudulent chargebacks. For scenarios where both parties don’t know each other and hence don’t necessarily trust each other, there’s an arbitration model already built in, in the form of MultiSig. The arbiter can be freely selected, not like with PayPal for example that always favour the buyer.

For me, the main difference between BitCoin and cash versus credit- and debit cards is this: Either I give the amount I determine, or I give the information to get from my account the amount they want. You surely saw people hand their open purse to the cashier in a store, so the cashier can take out enough money to pay for the goods. Most often these people are retarded, can not count or read the numbers. Why should we act as retards when we want to buy something online?

Just this week, I read an article about a couple whose credit card was charged by a hotel with a $156 penalty for a bad review. Even if this is part of their terms, most people (myself included) perceive this as outright theft. Now guess what, with BitCoin they couldn’t steal from their customers at will.

With all this in mind, and after reading about credit card breaches multiple times a week, I think the time is ripe for a change. For the last two years I frequently ask if I can pay with BitCoin when I buy something online. That is mainly to build awareness, and voice against excuses such as from Amazon stating they didn’t see customer demand for BitCoin payments. I am ready to shift to the next gear. I want to get rid of my credit card in a year. But I won’t just cut it in half, and then regret it. Instead, I give my best to find and use alternatives, that at least involve BitCoin, if it is not direct. I don’t really like buying gift cards for myself, but I’m willing to go that route if I have to, at least temporarily.

I received a new credit card last month, and my first passive step towards my goal was not to register it with every service where I used the old card. That includes Amazon, PayPal, SBB, SPOT, …

The first order online after that was with dealextreme. I asked them about BitCoin payments before. In fact many people did, and I had the feeling they started warming up last year. But after the Chinese government crackdown, they said they couldn’t do it. They accept PayPal however, and since I no longer have my card registered, I wired the money to a PayPal account at a Swiss bank in advance. It’s certainly a hit in convenience, but it’s more secure still.

Then I found out that Amazon doesn’t accept PayPal, but only credit cards. That’s strange, so far, I just assumed they would. So I will have to send some BitCoin to gyft.com or egifter.com when I want to order something from Amazon the next time. I don’t really like this, but well… Ah, there are also services like purse.io where you can submit your amazon wishlist and some BitCoin. Another user who wants to buy BitCoin can then order the items from Amazon and send it to you. This option looks better to me. I’ll try it for sure.

I’m not a big fan of the security I see with PayPal neither. On this blog I ranted about password based security many times. Unlike with the credit card, at least I can change the security element (the password in this case), If I suspect somebody could have sneaked it. Somewhere I thought I read something about two factor authentication with PayPal, but when I looked for it, I couldn’t find anything.

Not everything in this post is historically researched. Rather I just tried to outline how the different system work, and how they became how they are.

Update:

Here is another story worth reading.

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