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Credit Card Fraud & Chargebacks

Who pays the bill?

     
2:06 am on May 11, 2010 (gmt 0)

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Hello everyone,

I have been running an ecommerce store for about a year now and I had some recent purchases on my website which I feel may be fraud.

I have been doing research into the best way to handle it and have got in contact with my merchant provider and gateway (authorize.net).

I was curious who eventually pays for fraudulent orders. If a customers card is stolen and someone buys something with it on my store, do I end up having to bite the cost and inventory? I try to capture as much information from the customer including their IP address to prevent fraud but in the end, I know you can't be completely protected.

Any advice would be greatly appreciated :)

Thanks!
2:28 am on May 11, 2010 (gmt 0)

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Unless you can find the crook, you're the one stuck with the loss.
8:26 am on May 11, 2010 (gmt 0)

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This rather overlaps the Verified by Visa thread.
12:22 pm on May 11, 2010 (gmt 0)

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Credit Card Fraud & Chargebacks
Who pays the bill?


Why that's easy to answer, the Bill Fairy of course. You put the bill under your pillow and when you wake up next morning you will find a wad of cash.

No, just kidding. Actually it depends on your contract with the merchant provider. Some contracts provide fraud protection - you pay a higher percentage and are protected from fraud to a certain extent. Others provide no protection at all and have lower fees.
12:46 pm on May 11, 2010 (gmt 0)

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Thanks for the information. I figured this and just wanted to get some more opinions :)
3:06 pm on May 11, 2010 (gmt 0)

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Don't forget to take it off on your taxes under "Bad Debts." Small comfort, but it's something.
3:17 pm on May 11, 2010 (gmt 0)

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Don't forget to take it off on your taxes under "Bad Debts."

Not if you reduce your revenue by the chargeback.
4:11 pm on May 11, 2010 (gmt 0)

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How much can chargebacks be?

In this particular case I'm hoping to avoid them. A couple orders have gone through and have been delivered however a few have not so I'm having them returned. Once returned I will be refunding the cards hoping to avoid the chargebacks.
8:10 pm on May 11, 2010 (gmt 0)

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Guess it's a quibble, but I would keep "Returns" as either returns or credits or refunds and not include the income lost in a chargeback. Then I'd put the chargeback fee under "Fees," and loss of the charge plus loss of the merchandise under "Bad Debts." Sometimes I get too absorbed in this trivia, though.
9:10 am on May 12, 2010 (gmt 0)

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Once returned I will be refunding the cards hoping to avoid the chargebacks.

I have seen reports of merchants getting chargebacks on transactions that they have already refunded. When you refund do make it VERY CLEAR TO THE CUSTOMER that you have credited their account.
7:30 pm on May 12, 2010 (gmt 0)

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Here's the dirty little secret most people don't know about charge-backs: banks make more money on them than they make on legitimate purchases.

Consider this: according to bankrate.com, the average credit card interest rate is 10.39%. That means on a $100 credit card purchase, the bank has to float that money for a year just to make $10.00. Pay it off earlier than that and they make even less.

With a chargeback, however, the card-issuing bank charges a fee to the merchant bank of anywhere from $10 to $25, and the funds are immediately returned to them. The merchant bank passes this cost along to you, which is why you'll pay a $25 charge-back fee at the same time the $100 for the purchase is sucked out of your bank account.

Most chargebacks happen within 60 days of the transaction. So if I'm a credit card company, which do I make more money on: loaning someone $100 for 60 days (if that), or giving them their $100 back and charging a fee to the merchant bank who processed the original transaction?

This is why all of the focus banks place on fraud has been about protecting the end-user at the expense of the merchant. They make money when honest merchants get screwed by their customers.
11:19 pm on May 18, 2010 (gmt 0)

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If you ship fraudulent orders, you lose money. And time. And hair.
1:48 am on May 19, 2010 (gmt 0)

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In my case, I didn't lose any hair. It just turned white.
9:26 am on May 26, 2010 (gmt 0)

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we recently got stuck with a chargeback on a totally legit order. the customer had taken delivery ok etc. and may have just not recognized the charge on his card statement so disputed it. for whatever reason we did not overturn the charge when we disputed it. chargebacks sure can be frustrating and suck up time...fortunately for us they are rare.
9:34 am on May 26, 2010 (gmt 0)

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It is easy to forget a transaction, especially if it is for something umnemorable like office consumables. I would have queried one the other week if the site in question hadn't provided order history on-line. (Also a good point about making customers create accounts!)
9:49 am on May 26, 2010 (gmt 0)

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>>I have seen reports of merchants getting chargebacks on transactions that they have already refunded.

well i guess different accounts are different, however for me this would be impossible, every single transaction has an id code (it's LONG), once it has been refunded it cannot be charged back because the value of the transaction is reduced to zero.
 

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