Digital Credit Card Coin Is Potential Consumer Nightmare

By Pace Lattin | Small Business

For some reason, the launch of startup Coin received enormous attention this past week, with news sites and blogs talking about all the cool things that this digital wallet could do. The press ate up the story of a startup using crowdfunding, in this case Kickstarter,  using the press release talking points to create article after article.

Soon after, a few blogs here and there questioned the product’s security and whether it was really feasible to create technologically. Even smarter writers looked at the possibility that the product would never be launched, because credit card issuers would never approve this method of transactions.

Still, no one has paid attention to the real issue: that consumers might be getting ripped off from the start.

It would be foolish to claim that the creator of coin, Kanishk Parasha, has any desire to scam consumers. He seems like a genuinely smart guy who is addressing a perceived problem of over-filled wallets.

Even if the product itself isn’t an enormous success, he could turn around and sell the technology to another technology for a hefty profit. It is likely that no matter what happens with this product, Mr. Parasha will be a rich man in the years to come.

Still, it begs to question why he is taking pre-orders of the product an entire year before he plans to launch it?

Here lies the real issue of this launch:  Mr. Parasha and Coin are asking thousands of people to put down fifty dollars via credit card, for a product that is only in the initial development stages. A year from now could see the product delayed, potentially for months.

What are consumer’s options when that happens? They could ask for a refund of the deposit. Maybe they will receive it, but without any clear terms and conditions on the website about refunds, we have no idea if Mr. Parasha will issue refunds if the product is delayed.

We can assume that if he is using this method to raise money, that his company isn’t exactly flush with cash, let alone enough to issue what could be a waive of refunds.

Still, many consumers when faced with a company that isn’t issuing a refund for products not delivered, turn to their credit card companies for help. Credit card chargebacks have long been a secret weapon in fighting bad or dishonest merchants.  When a merchant doesn’t deliver a product as promised and doesn’t care about their reputation, you can ask the credit card company to issue a refund and put the onus on the company who charged you to prove the charge was valid.

This is a great tool that makes credit cards so effective at forcing merchants to live up to their end of the bargain.

Still, this recourse is not fool proof. There are certain rules governing what a valid chargeback is. You can’t just do a chargeback because you don’t like a product.

Additionally, there are time limits in which you can contest a charge. Federal consumer law sets the minimum time limit at 60 days, but some card companies extend the ability to initiate a chargeback as long as 120 days and in some cases, for as long as eight months after the charge.

Still, most credit card companies limit the chargebacks to only a few months, believing that most consumers will take action on questionable purchases or charges after a month or two.

So this is the problem that more reporters should have looked at when writing their stories:  Here is a company that is taking, via credit card, deposits, for a product that wont launch for at least another year, if not more. When that year passes, and for whatever reason no one gets the product, what will happen? Most likely, everyone is out their fifty dollars.

I’m sure Mr. Parasha, being an expert on credit cards, is aware of this, right?

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