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Comment by mkull | Hacker News Reader

wrong.. if someone steals the card number, the merchant who accepts the fraudulent transaction is on the hook. Not AMEX

That sounds awful. Credit card fraud is mostly paid for by merchants??

The card issuer has two parties they can stick the charge to, one is the merchant, the other their customer.

The merchant is the easy way out, they're not going to cancel their connection with the card issuer because that's their bottom line. Sticking the charge to the customer is harder because the customer will cancel.

Follow the path of the least resistance: stick it to the merchant.

Now if they did the right thing, they'd fix their acceptance rules and a bunch of security issues and eat the remainder of the charges.

Fat chance of that happening any day soon.

In the USA, by law, they are not allowed to stick it to the customer for more than $50.

If they ate the charges, they are afraid that a lot of merchants would deliberately ring up fraudulent purchases for the guaranteed profit.

Those two facts force them to the current system. And the fact that merchants are not allowed to charge customers different rates for different cards gets rid of incentives for merchants to charge customers for the poor security practice that the credit cards have.

There clearly are merchants who do that today. Last time we have a card stolen, we got tons of random bullshit merchandise in the mail (weird cosmetics and such), presumably for the affiliate money.

You are clearly arguing from the perspective of a 'good' consumer.

But think about it for a second, those charges were inflicted on good merchants, the affiliates are not the merchants, they're in the same boat that you are in, except they lost their goods, the affiliate pay-out and a chargeback fine on top of that.

This is actually sensible, since it shifts the responsibility for verifying the customer's identity onto the merchant, and lets merchants figure out exactly how much trouble they want to go to in order to do this. Some places will demand a photo ID to go along with your credit card transaction. On the other hand, some places like Starbucks don't even make you sign the receipt -- they figure the small number of coffees which get charged to stolen credit cards are well worth the ability to keep the line moving.

Per the merchant agreements, they cannot deny you the sale if you don't want to show your ID. Also, the credit card companies no longer require signatures for purchases under $20 (possibly $25?) which is why Starbucks doesn't require you to sign any more.

This is sensible, until you realize it sucks for internet sites. Listen, the banks don't care. You can have the card holder call up, and tell the bank to cancel the chargeback, and they won't do it. I know, I've heard the conference call with my support staff try and do it. The customer was really apologetic, too.

Fraudulent and colluding merchants are a huge part of the fraud problem. You mean to suggest that in a perfect world, Amex wouldn't stick it to good-faith merchants. But for the most part, there are only good-faith customers, so they clearly aren't eating charges, and having Amex eat charges raises price for everyone.

The only party that has access to the information required to do proper scrubbing are the issuers and the banks.

The bona-fide merchants have to make decisions about charges being fraudulent or not in the absence of this information.

If they guess wrong they end up paying or lose a sale.

Malafide merchants don't care one bit, they'll be up and running under a new identity next week, so they never get stuck with these charges, the simply fold and play it again, and in that case the card issuers do eat the chargebacks.

A bona-fide merchant is a sitting duck, and trust me, this comes to a lot of money on an annual basis. Consumer fraud exists and it is a serious problem.

Yup, merchants don't just end up paying for the actual credit card fraud via chargebacks, they often lose tons of money on fraudulent chargebacks. In those cases the merchant will win the dispute and get the money they were owed, but will be out various non refundable fees ($20 per instance with the last dozen accounts I've worked with).

If you're lucky and a bunch of fraud cases happen in a month of low turnover you could even lose your merchant account.

Not to mention you're usually out the actual merchandise as well.

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