By Robert Smith
If you are selling anything on line via credit card, this is
information you must know.
Have you noticed TV commercials lately by Visa and MasterCard
telling you how safe it is to use your credit cards on-line? It is
true, as a credit card holder you are almost 100 percent safe using
your credit card on-line.
Your card-issuing bank protects you against fraudulent and
unauthorized charges. In addition, you have an implicit 100%
satisfaction guarantee on products you order on-line. Using a credit
card on-line *IS* the safest way to buy anything.
If the product you ordered does not arrive, if you don't like it,
or even if you change your mind after it arrives; all you need to do
is contact your bank and the charges will be removed and the purchase
placed in *contest*. This is a free service offered to you from your
Sounds great doesn't it. At first glance, this seems it is very
nice of the banks to do this for us.
Now Lets Put The Shoe On The Other Foot.
Now you are the merchant; now your rights are very different.
For example, lets assume you sell a product via credit card for
$100. That product costs you $75 dollars to acquire. You operate at a
25 percent profit.
Next, assume your customer knows that all they have to do to get
that product FREE is to call the card issuing bank and request the
charge be put into contest, for any reason what-so-ever. The
customer's account balance is reduced automatically and that amount
is deducted from the merchant's balance.
Nevertheless, the merchant who paid $75 to make a $100 sale loses
$100 because he looses the product as well. In the fine print of
every merchant's account the merchant has given the bank that right,
otherwise he would not have secured the account in the first place.
The merchant has no choice in the matter.
The banks make the rules, and they do it in their own best
interest. The merchant's bank does not lose a cent. In fact, they
deduct an additional $10 to $35 dollars directly from the merchant's
bank account a in the form of a "Charge-back Fee" for every contested
sale. Charge-backs are yet another source of profit to the merchant's
At this point the merchant is out $110 to $135. It will take 4-5
normal sales at 25 percent profit just to make up for that one lost
In most cases, it is almost impossible for the merchant to
recover. Bottom line, the merchant must produce a receipt with the
cardholder's actual signature in order to have any real recourse. The
merchant cannot even get support for getting the product returned.
Internet Crime - Law Enforcement
Internet crime is now the number one growing criminal activity in
the United States. I don't want to say too much about the many ways
the criminal element profits from this situation. They are doing well
enough without my help.
Recently a "run" was made against my merchant account. I was able
to trace the source of the fraudulent activity to a specific IP
address (internet ISP & user account) I documented each sale in
Much to my surprise, the local and state police told me they did
not have the "man-power" to investigate Internet crime. The FBI said
the merchant must be able to prove 7 million dollars in fraud from
one documented source in order for them to investigate. I could not
make this up!
I brought the case to my merchant bank - the same bank I pay over
$50 per month for 100% automated transaction processing. They say
fraud not their problem either, I should take it up with law
The Bottom Line
Selling goods and services on line is MUCH more risky business
than running a fraudulent credit card scam. As a merchant, without a
physical receipt with your customer's signature you have no right to
The merchant can lose their merchant's account at any time
charge-backs exceed 2% - 3% of sales. On-line if you can't accept
credit cards you are out of business.
If you signed a 48-month lease for Merchant's services in many
cases, you may still owe the monthly fees on your lease. I recommend
merchants purchase real-time transaction services monthly whenever
possible or at least understand the terms of any lease.
Bottom line, the merchant's bank actually earns more money on
fraudulent sales than on regular sales because they charge the
"charge-back" fee for every contested sale.
Where is the risk to the merchant's bank? How can they justify
earning so much money on automated electronic data transfer? The
banks don't play the game - they just make the rules.