[1337Coder]

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]

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

[solnyshok]

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

[dougk16]

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.

[1337Coder]

Oh yes you are correct.

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

[dminor]

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

[drusenko]

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

[ceol]

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.

[kelnos]

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

[bwooce]

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.

[icebraining]

The cost of re-obtaining the product is $7k, which were already accounted for. Marginal administrative costs are negligible.

[rmc]

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

[kelnos]

Sure. I objected to the assertion that the merchant lost $17k, which is a gross exaggeration.

[ceol]

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.

[brass9]

$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]

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.