Topic: How do Chargebacks work? (Read 2907 times)

Yup.  Right now the cost of chargeback fraud is being assessed to the unfortunate merchant targeted by the scammer (as the merchant pays a fee that is over and above the return of the funds to the customer).  But the costs of this fraud (PhD's employed by Visa and Mastercard writing scam-detection algorithms are expensive) are also subsidized by all the merchants together too -- currently about 3% for most retail.

But as Bitcoin and other cash payment methods (e.g., Dwolla) take share, the fraudsters will continue using payment cards with the chargeback option -- thus making it so the payment networks need to bump up their rates as a response.   And that forces the remaining merchants to further press their customers to pay with Bitcoin or other cash methods, and so on ... resulting in the payment networks forced out of the market for their most profitable transactions.

haha probably I'm sure people would sign up. You only pay a small fee if you get successful chargeback verdict

You would probably be rich overnight. 

Starting to think of opening a service that allows people to post chargebacks automatically upon purchase lol....

I'm actually shocked this isn't already happening.  My company has a lot of experience dealing with credit card processing on the merchant side, and I can tell you that the chargeback situation is getting worse and worse for merchants every day.  People are figuring out that you can, in fact, go on a big shopping spree and then charge it all back.  If you consider the incentive structure involved, you can see that it is likely to only get worse:

* Any customer can initiate a chargeback on any purchase.  Whether he received the merchandise, signed for it, or even bought it in person and provided a copy of his photo ID along with a signature does not matter.  His card issuing bank will accept the chargeback request and immediately deduct the funds from the merchant.

* The merchant will have an opportunity to provide the customer's card issuing bank with supporting evidence that the customer's claim is without merit.  What is accepted as evidence is arbitrary and subjective.  (I can provide you lots of specific examples that would make you really angry at the injustice of this system.)

* Statistically, card holders who dispute a charge are more likely to default on their credit card debt.  Card issuers lose money when consumers don't pay their credit card bills.

To put it more concisely, the bank who gets to decide whether or not to uphold the chargeback will tend to lose money by finding in favor of the merchant.  Banks will always choose the course of action that makes them the most money, not what would be seen as fair or ethical to honest men.

I'm absolutely amazed that everyone isn't charging back every purchase all the time.  Perhaps we'll get to that point once people realize there's nothing stopping them.  The situation reminds me of a line from George R.R. Martin's Game of Thrones: "Power resides where men believe it resides...[power is] a shadow on the wall."  If people start to realize en masse that there's nothing stopping chargebacks on absolutely everything, other than a "shadow on the wall", all hell could break loose for credit card payments.

Here's something I posted a couple years ago about some of the other problems with credit cards for merchants:

https://bitcointalksearch.org/topic/the-horrors-of-credit-card-processing-36729

It won't show that the cardholder received the item, and that's what you need to prove in order to refute a chargeback claim. It's not good enough to prove that somebody received the item - that somebody could have stolen the card. Physical delivery to the cardholder's address is good enough proof, but is vulnerable to the scenario I mentioned earlier, and if there's no physical delivery, you've can't prove that the cardholder is the recipient.

Credit card fees are high because it is a closed network and merchants have little negotiating power.  Accept the rate or lose customers with credit cards.   Credit card company loses nothing to card not present fraud.  They take the money from the merchant AND charge the merchant $35 or more to cover their cost of determining the merchant can't prove they are honest.

Amazing if you think about it. I suppose this is why credit card fee's are so much.

Most likely you are wrong about proving it.   Just about any proof you think you have a scammer has figured out a way around it. You don't have proof, you only think you do and thus will lose the chargeback.

This scenario ^^ but I can prove it.  Now, it will be a point where they won't bother doing a chargeback since it will be so obvious ( actually, the cardholder will see it themselves that is the case ) . I'm assuming it won't stop all chargebacks I was just curious.

But I hear what you are saying D & T.

Ok one last time:

they say "I didn't receive it" and you can't prove they did.

OR

they say "I have no idea what this is I didn't buy it" and you can't prove otherwise.

Remember the person making the final decision is the card issuer.  The cardholder NOT YOU is their customer.  Unless your proof is absolutely air tight they are going to side with the customer.


Unless you intend to explain how you believe you can PROVE the cardholder made and received the purchase with specific details it is like asking "how can people get away with murder?"  Kinda a useless question.

Simple version IF (notice the key word IF) you can prove the purchase was made by the cardholder AND the cardholder received the product then you will win the chargeback.  Most likely you THINK you can prove it but you can't and thus will lose the chargeback.

No,no I'm not talking about someone claiming to be the cardholder  I mean just in general chargebacks. Someone claiming they never received the product x WHEN clearly it will be evident they did.

Once again how EXACTLY will you show the CARDHOLDER not someone claiming to be the cardholder received something.  Please be specific.  If you just use vague terms like "show they received" well the answer is "you didn't convince the card issuer and they side the with cardholder".

okay so I've been through the chargeback process on both sides and here is how it works:

person files a claim with their credit card company or bank.  The funds are immediately withdrawn from the merchants account and placed into a temporary holding account.

the merchant is mailed a letter from the customer's cc company with space to reply with a written rebuttal.  If the charge back is fraudulent, the merchant will provide evidence like a signed proof of delivery or a merchant slip with the customer's signature on it.  If those things are located, then the merchant does have a chance to argue against the chargeback and have his funds recovered

It all depends on if there is a service being used around the transaction like Amazon, paypal or ebay.  People who lose on chargebacks  involving those companies have lost because it was expressly prohibited to offer the sale of those types of goods according to the terms and conditions set forth on the website and thus the seller typically has zero recourse.  

Yes, not speaking to ID fraud that is different more so "friendly fraud".  I mean you are saying some will claim a chargeback on product x  even though it will show they received the item?

Yeah I agree with this.

Hopefully someone here can shed some light on those safe  guards.

What proof?

Remember there is two types of fraud
a) identity fraud where someone OTHER than the cardholder uses the car without the cardholders permission
b) so called "friendly fraud" where the cardholder pretends that either scenario "a" occured or they never received the product.

Please explain how you can prove:
a) the person using the card is the cardholder
b) the product was deliver to the cardholder

How about if the product isn't being shipped its a virtual product that has a proof they've gotten it all documented.

No, but they can get away with returning the product while claiming it is defective, and they can obviously prove they returned it. They get their money back and you get your product back, so everyone's even. Except for your bitcoins, of course, which you'll never see again. Oops.

I figured everyone would do chargebacks on ANY product right away if it worked everytime. There must be some safe guards since I've never done it either.