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0 points1337Coder13y ago0 comments

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.

0 comments

13 comments · 2 top-level

pigou13y ago· 10 in thread

Aren't you double-counting here? On net the merchant only loses the merchandise. The net debit to the merchant's account is zero.

solnyshok13y ago

correct 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

dougk1613y ago

You 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.

1337CoderOP13y ago

Oh yes you are correct.

In this case the merchant only loses the cost to the vendor ($7,000). Good catch.

dminor13y ago

Typically there's also a fee imposed by the bank for having a chargeback.

drusenko13y ago

Standard is $25, but if you are a big merchant it could be lower.

ceol13y ago

I 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.

kelnos13y ago

But it's not. Getting paid $10k and giving it back is net zero.

bwooce13y ago

Not 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.

1 more reply

rmc13y ago

But the merchant is still down a TV. Those things aren't free.

1 more reply

ceol13y ago

Like 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.

brass913y ago· 1 in thread

$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

sokoloff13y ago

1. 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.

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0 comments

13 comments · 2 top-level

pigou13y ago· 10 in thread

Aren't you double-counting here? On net the merchant only loses the merchandise. The net debit to the merchant's account is zero.

solnyshok13y ago

correct 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

dougk1613y ago

You 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.

1337CoderOP13y ago

Oh yes you are correct.

In this case the merchant only loses the cost to the vendor ($7,000). Good catch.

dminor13y ago

Typically there's also a fee imposed by the bank for having a chargeback.

drusenko13y ago

Standard is $25, but if you are a big merchant it could be lower.

ceol13y ago

I 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.

kelnos13y ago

But it's not. Getting paid $10k and giving it back is net zero.

bwooce13y ago

Not 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.

1 more reply

rmc13y ago

But the merchant is still down a TV. Those things aren't free.

1 more reply

ceol13y ago

Like 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.

brass913y ago· 1 in thread

$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

sokoloff13y ago

1. Store buys TV. -$7000

2. Store sells TV. +$10000, subtotal: +$3000

3. Store pays chargeback. -$10000' subtotal: -$7000

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