That is a regulation problem. If a card was used fraudulently, but the restaurant correctly delivered the order, then the restaurant shouldn't be held responsible for the fraud. The bank, or Visa, should be.
Refund the customer, let the restaurant keep the funds, have Visa take the fall.
By the way fraud at current levels are covered by like a few of 0.25% IIRC
I imagine that whatever app isn’t using 3D secure like it should be, cuz then the bank/card processor is liable in fraud cases. But this is far from a new problem in principle.
This is home delivery. Why isn't there an AVS layer to acknowledge fraud risk? Or 3DS to better authenticate payments? If either fail, let the restaurant refuse it.
Taking trusted payments can't be this hard. It's bad for everyone.
Does your credit card give you 1-3% in cash-back? Because mine does.
That cashback is why the merchants are paying 3%.
This literally only benefits CC companies, who take more profit. This is why it's illegal in most other countries.
In fact, many merchants do do that. Typically, I see surcharges at governments, utilities, large commercial supplies merchants, etc.
But general retail/restaurant merchants have calculated they make more money from people spending with credit cards, so they want to incentivize it even though the processing costs are higher. Otherwise, there’s no reason HomeDepot or Dollar General or the grocery store doesn’t charge an extra 2% for credit card purchases. But they know people paying with credit cards will spend more, canceling out the card processing fees.
I was actually surprised to see Aldi, the famous low cost grocer who used to only accept debit cards and cash start taking credit cards. The only reason they would have done that is if they figured that they will earn more money accepting credit cards even after paying the processing fees.
More specifically, yes, I get it, customers pay for cashback - but if I don't use my credit card for a purchase, I don't get a discount at the till.
So my options are to subsidize other people's cashback with my money, and get nothing - or use a credit card, and have other people subsidize my cashback with their money.
This isn't a difficult decision.
This is exactly what I'm talking about: CC companies use this to 'force' people from cash to CC, and many stores and merchants have to accept it because they would lose revenue by not accepting it.
It a classic example of the CC companies abusing a https://en.wikipedia.org/wiki/Collective_action_problem for their own benefit.
In the EU we also have credit cards but they simply banned this practice.
But you seem to think you're winning with retailers needing to put prices up to pay you cashback. Great system.
However that’s not how it works in credit card processing. The merchant always eats fraud charges unless you’re doing 3DS or chip processing.
Standard “type your card number in” will always see the merchant taking full responsibility for fraudulent transactions.
Let's change that, then.
I think it is an equivalent example that if no business was responsible for the risk of accepting bad notes, convenience stores would have a policy of not investigating and actively hindering prosecution on obviously counterfeit notes.
That's not how the incentives align. If Visa is responsible for eating fees from fraudulent charges, they're going to start removing vendors with higher than usual fraud charges from the network. Businesses will still have an incentive not to allow fraud, because they won't be able to process credit cards otherwise. This already exists for chargebacks, and businesses hate them because too many chargebacks increases the percentage the processor takes.
Counterfeit notes are different. There is no information asymmetry. What makes a dollar bill a dollar bill is widely published, so validating the authenticity of one is rather easy. There are tons of companies that make machines that will tell you if your dollar is real or not.
Credit card charges are different in that there is a huge information asymmetry. Your credit card network knows who you are. They have your address. They have a copy of your usual spending habits. They know who lives in your house. They have a ton of information they can look at to see whether a given charge makes sense. They can add additional security measures.
You know what your merchant knows about you? That you want to buy X, and you're paying with Y credit card. They don't have any meaningful information to make a judgement about whether this purchase is legitimate. I struggle to think of how a merchant legitimately has the option to stop fraud. You can pay one of those anti-fraud sites, but at that point you're really just paying so you can get access to the same information that the credit card processor already has.
Some of the CC processors even already have an anti-fraud service. It sure seems like they're the best poised to offer it, they just want to be able to charge you more for using it and still avoid any liability for fraudulent charges that do occur.
Issuing banks are the entity (in the US at least) that know about the cardholder.
The merchant bank is the entity that the merchant runs cards through.
Visa connects the merchant bank to issuing banks. You'll notice that Visa already uses different rates to govern fees assessed on a merchant banks' transaction with an issuing bank based on details about how the transaction occurs, and where:
https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...
You'll notice nothing relating to chargebacks per se; the assumption being higher risk transactions are more likely to be refunded or canceled, so each one "costs" more for the merchant bank to issue in the first place.
The merchant bank sets the rate for the business type based on the fees it expects to pay for the transaction mix the merchant will bring.
Merchant banks will almost always roll on an issuing bank requesting a charge back from a customer because customer retention is their highest priority (because you can charge the consumer interest), whereas the merchant knows it's a pain in the ass or existential to stop using them and switch to another processor, so they know you'll eat it.
The merchant bank has a lot less to lose than the issuer bank, so it's not like they're going to go to bat.
Visa does govern the agreements between Merchants and Issuers using their services, and they get to decide certain features of Issuer's cards with Visa logo trademarks. But they can't tell them how to run their fraud operations, for example.
That's why Visa doesn't really enter into the equation here.