Online Chargeback Fraud Merchant Pays

As a consumer, you’ll probably get frustrated when you spot something on your monthly credit card statement that means nothing to you. Or your credit card is stolen, you inform your card company but still eroneous charges appear on your statement.

Obviously you are a victim of credit card fraud. No worries you think. Just call your credit card company and everything will be fine. After all they are nice people and they’ll simply credit your account with all those fraudulent charges because that’s what they do.

But have you ever thought of who really pays for the fraud? Most people probably believe that the credit card companies or the bank pays for this. After all, they make billions of profits per year so why not? They can easily swallow this and really it’s their fault.

It’s the banks fault because:

• they designed the cards
• they accepted the charge from the merchant in the first place
• they design all the anti fraud systems

But actually the bank never pays. In fact they make a profit on each fraud transaction and here’s how.

Whenever a consumer reports a fraud the credit card company issues a chargeback against the merchant - ie: the company that supplied the goods and took the original transaction. The merchant then is offered the chance to provide evidence that the consumer received the goods or products (although with some banks they won’t dispute any online transactions).

9 times out of 10 the merchant loses. So guess what? The bank charges back the original transaction to the merchant. ie: the merchant or shop has provided the goods, took the credit card payment in good faith using the banks’ own systems, but the credit card sale is reversed by the bank so the shop loses money.

On top of that most banks also charge an admin fee for the convenience of charging you back the sale in full.

So, credit card fraud is seen as the fault of the merchant or shop. Just by using systems provided by banks the merchant never knows if the card charge taken is fraud.

The banks have introduced a type of online “chip and pin” called 3D secure (although why they didn’t simply use chip and pin only who only knows). This shifts the responsibility onto the bank. But also reduces conversions because this is a new scheme and a new password to be remembered by consumers.

Really, the banks should take all fraud. If they process the charge they should pay and not charge bank to the merchant.