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You would think so but no. Visa etc and the banks don't want that kind of trouble. To charge cards you need a special bank account called a merchant account. A
by 1337Coder 13y ago
You would think so but no. Visa etc and the banks don't want that kind of trouble. To charge cards you need a special bank account called a merchant account.
A condition of this merchant account is that if someone issues a charge-back on their creditcard, if the merchant can't prove that the card owner brought the service/product then the funds are taken directly form their merchant account by the bank and then given back to the card-holder.
This is why anti-fraud systems are so important to merchants.
Case: I steal your creditcard, I buy a tv worth $10, 000.
You notice this, and chargeback the merchant.
The merchant has to pay you $10, 000 and he lost teh cost price of the tv he sold me (say $7, 000).
So by accepting your stolen card as payment, the merchant just lost $17, 000!
Source: I build payment gateways.
- pigou 13y agoAren't you double-counting here? On net the merchant only loses the merchandise. The net debit to the merchant's account is zero.
- 1337Coder 13y agoOh yes you are correct. In this case the merchant only loses the cost to the vendor ($7,000). Good catch.
- ceol 13y agoI think they're counting the loss of the merchandise. So a chargeback for a $10,000 TV would be like losing $10,000 plus whatever the cost of the TV was for the store.
- kelnos 13y agoBut it's not. Getting paid $10k and giving it back is net zero.
- bwooce 13y agoNot when you could have sold the TV for $10K. This is the shoplifting issue; the shop loses both the product and the potential profit on the product. It gets a bit existential e.g. can you lose what you never really had? But even if you fall on the NO side of that, the cost of re-obtaining a product is not zero.
- icebraining 13y agoThe cost of re-obtaining the product is $7k, which were already accounted for. Marginal administrative costs are negligible.
- rmc 13y agoBut the merchant is still down a TV. Those things aren't free.
- kelnos 13y agoSure. I objected to the assertion that the merchant lost $17k, which is a gross exaggeration.
- ceol 13y agoLike everyone else said, it's not exactly that. It's like getting paid $10k in exchange for a TV, then giving it back but not getting the TV back in return.
- solnyshok 13y agocorrect maths are: merchant gets 10000 then returns 10000 and still has to pay 7000 to vendor for the goods. net loss is 7K, not 17K
- dougk16 13y agoYou could also say the total loss is 10K to the merchant, assuming he has a reasonable expectation of making that 3K profit...that is getting a little abstract about it though.
- brass9 13y ago$17,000 figure is correct: 1) Store buys TV (COGS = $7K): -$7K 2) Sold TV for $10K. Realized P/L: $3K 3) $10K refunded (chargeback): -$7K 4) TV is gone as well. Inventory: -$7K 5) Potential profit loss: -$3K Total loss: (7+7+3) = $17K
- sokoloff 13y ago1. Store buys TV. -$7000 2. Store sells TV. +$10000, subtotal: +$3000 3. Store pays chargeback. -$10000' subtotal: -$7000 You can't double count the TV, and IMO, you can't count the potential profit loss either, as that's covered once the store buys a replacement TV for inventory. There are fees on top of the above, but the store is out the COGS and fees, not double the COGS, plus the margin.