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Why Retailers Always Win Chargebacks

A common question asked about chargebacks is why retail stores always seem to win and Internet merchants always seem to lose. A common misconception is that credit card processors don’t care about Internet merchants, most likely because most of them are small and don’t make any real money. This is untrue.

The reason why retail stores don’t have chargebacks issues is due to the circumstances under which the transaction is conducted. If a retailer is able to swipe a credit card through their terminal and have the customer sign the receipt they are protected against chargebacks and here’s why. It is assumed that at the time of purchase the these four conditions are all true:

  1. The merchant is present
  2. The customer is present
  3. The merchandise is present
  4. Both the merchant and customer are satisfied

It is assumed that if there was a problem the customer would not allow the purchase to be completed. By allowing their credit card to swiped and providing a signature the customer is saying they are satisfied with their purchase and the circumstances under which it occurred. As a result, they cannot claim any of the following:

  1. The did not make the purchase
  2. The merchandise was unsatisfactory

They can still claim fraud but the merchant is still protected against this (the card issuing bank eats the cost for this).

Internet merchants cannot swipe a credit card or get a customer signature. As a result they can offer any verification about the transaction. Thus no protection.

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