Credit Card Fraud on Cardholders

Update Rana Gohil

Credit Card Fraud on Cardholders

Hi Friends, 

You can see Credit card holders fraud all info in this in post. This is true for both card-present as well as card not - present scenarios. Many banks even have their own standards that limit the consumer's liability to a greater extent. It's interesting to note that cardholders are the least impacted party due to fraud in credit card transactions as consumer liability is limited for credit card transactions by the legislation prevailing in most countries.  


They also have a cardholder protection policy in place that covers for most losses of the cardholder. The cardholder has to just report suspicious charges to the issuing bank, which in turn investigates the issue with the acquirer and merchant, and processes charge back for the disputed amount

Impact of Fraud on Merchants

Merchants are the most affected party in a credit card fraud, particularly more in the card-not-present transactions, as they have to accept full liability for losses due to fraud. Whenever a legitimate cardholder disputes a credit card charge, the card-issuing bank will send a charge back to the merchant (through the acquirer), reversing the credit for the transaction. In case, the merchant does not have any physical evidence (e.g. delivery signature) available to challenge the cardholders dispute, it is almost impossible to reverse the charge back. Therefore, the merchant will have to completely absorb the cost of the fraudulent transaction. In fact, this cost consists of several components, which could add up to a significant amount. 

The cost of a fraudulent transaction consists of 👇👇

👉 Administrative cost: 

Every transaction that generates a charge back requires significant administrative costs for the merchant. On average, each charge back requires one to two hours to process. This is because processing a charge back requires the merchant to receive and research the claim, contact the consumer, and respond to the acquiring bank or issuer with adequate documentation.

👉 Loss of Reputation: 

Maintaining reputation and goodwill is very important for merchants as excessive charge backs and fraud monitoring could both drive cardholders away from transacting business with a merchant.

👉 Cost of goods sold: 

Since it is unlikely that the merchandise will be recovered in a case of fraud, the merchant will have to write off the value of goods involved in a fraudulent transaction. The impact of this loss will be highest for low-margin merchants.

👉 Shipping cost: 

More relevant in a card-not-present scenario. Since the shipping cost is usually bundled in the value of the order, the merchant will also need to absorb the cost of shipping for goods sold in a fraudulent transaction. Furthermore, fraudsters typically request high-priority shipping for their orders to enable rapid completion of the fraud, resulting in high shipping costs.

👉 Card association fees: 

Visa and MasterCard have put in place fairly strict programs that penalize merchants generating excessive charge backs. Typically, if a merchant exceeds established charge back rates for any three-month period (e.g. 1% of all transactions or 2.5% of the total dollar volume), the merchant could be penalized with a fee for every charge back. In extreme cases, the merchant’s contract to accept cards could be terminated.

👉 Merchant bank fees: 

In addition to the penalties charged by card associations, the merchant has to pay an additional processing fee to the acquiring bank for every charge back.

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