Security issues with third parties.
After account approval, the merchant processing company or a bank would serve as a third party that keeps track of transactions, subtracts funds from the accounts of payers and adds the funds to the accounts of payees.
Obviously, such a third party would like to get paid for providing the service. The party would also typically have to comply with complex government regulations, meaning that the costs of doing business are very high and to be profitable, the company would have no other option but to pass the costs to the clients it serves, meaning the sellers and the buyers.
This is something that a lot of people not familiar with how businesses operate do not understand. Businesses do not pay increased taxes or increased compliance costs. Businesses either figure out ways to stay profitable or go out of business. In any business, profitability means that customers pay the business money and expenses of the business are less than what the customers are paying. If a company figures out how to stay profitable in a highly regulated industry, it means that it figures how to charge customers money and have something left. The money is always coming from customers. It simply does not have another source.
Another issue with using third parties to process payments is that the third party has a full control of the money. For example, if you are using PayPal, the service can freeze accounts of both payers and recipients of payments at the same time if it decides that it has a reason to do so. The final judgment about what happens with the money is up to PayPal, just like what happens with the money when a mom and pop store has an account with a merchant company are completely up to the merchant account provider.
What is even worse is that in the case with using such a third party account the ability to accept payments and make payments completely depends on the digital security of the third party.
Most third parties providing sellers and buyers with an ability to send money digitally do not block accounts without a reason. Some companies are stricter than others and may suspend accounts temporarily is they suspect fraudulent activity, but typically they have reasons for what they do and they will not just freeze an account out of the blue.
So, while having your account frozen or suspended and not being in control of your money can be a problem, it is not the biggest problem and it is not the problem that is likely to appear arbitrary out of the blue.
Security, however, is a much bigger issue. In essence, when you use a system such as PayPal or when you buy some from a website of a store such as Target you rely on these companies to process and store you information in a secure way.
Most people would assume that a large company would have great security and that their data would be safe, yet this is simply not true. The issue exists not with just financial providers and financial networks. You would often enter your financial information into an app on your smartphone or a web account. When you do so, you believe that this information is going to be safe, yet in reality it may be not.
One of the most recent security breaches was the breach of the Equifax, which reports credit scores and histories of the consumers. This breach could potentially enable hackers to open accounts in the names of identities they have stolen. In September of 2017, the company has announced that cyber criminals have accessed personal data of over 145 million residents of the United States, including full legal names, birth dates, driver license numbers, and even Social Security numbers. The identities of customers in other countries, such as the United Kingdom and Canada, have also been stolen. In 2018, Equifax has announced that attackers have gained access to 2.5 million more records that the company has originally reported. While the 2.5 million number does not seem big compared to 145 million, it is still a tremendous number.
Also in 2018, Under Armour has reported a hack of 150 million accounts of the users of its MyFitnessPal app. The company said that the hackers were not able to access financial information and only gained access to login identification information including passwords and email addresses.
The list of hacks can continue for pages. In 2014, Target announced that hackers gained access to 70 million customer records on its website. The hack has occurred around Black Friday weekend of 2013. Initially, Target reported theft of about 40 million records, but in 2014 has upped the number by 30 million. In the case with Target, hackers didn’t just get access to log in and password information. They have stolen names, and full credit card information, including credit card numbers, expiration dates and card verification value codes (also commonly known as the three digits on the back of a card).
Also in 2014, eBay was hacked with attackers gaining access to over 140 million records. All of these examples prove one simple point: people trust big corporations and governments to keep the data protected, yet this is simply not what happens and breaches happen on a regular basis.