They're supposed to provide a reason to their issuing bank. If they outright lie and say it was an unauthorized charge, there isn't a lot stopping them. The only thing that might prevent a card holder from doing this is -
- they will get a bad reputation with their issuing bank if they request multiple chargebacks
- if they feel the merchant will be tough in pursuing them to recoup chargeback fees. If you have valid contact details of the customer, they may feel they have less chance to get away with it.
Depending on the type of card you have (visa,mc,jcb,amex, disc) your bank may have a reaction. Visa has a 100% cardholder not liable clause in their agreement with all banks. This means whatever the cardholder says goes.
Now if the felon knows what he is doing, then he will know exactly how to deal with the CSR who answers the phone so that he can keep the merchandise and not pay the bill. All he has to do is produce a statement that would be concurrent with the correct chargeback discreption...ie reason codes: 23, 61, 75, and 83.
All these chargebacks are no questions asked, 100% chargedback to the merchant. Meaning lose of merchandise and payment, not to mention a nice fee from your bank
You can protect yourself though...Its not 100% on all cards.
Verified by Visa will protect you as merchant on all Visa's regardless of cardholder enrollment. This protection applies for all fraudlent reasoncodes, which I speceifed above. It won't protect you on all chargebacks though, but if you back up all your shipping/ordering information you will always win the appeal if there is chargeback.
What Verified by Visa protects you most importantly on are the chargebacks where you lose the merchandise and the payment, without the option for an appeal. Any other chargeback you do recieve will be easily appealable and you will either get paid or recieve your merchandise back.
Mastercard's SecureCode does the same except it only protects on enerolled cards, and by the end of this year they should be offering the same 100% guaranntee as Visa. The largest online merchants have been running these programs for almost 2 years now. 2004 is the year Visa is trying to approach all of its merchants with a very reliable and affordable version of the software. Amex's beta version is almost complete, Discover's program is in the works, and JCB's is already finished. Visa's primary vendor will bundle all of these programs into one application for you as a merchant.
The 3-D Secure programs are incredibly beneficial to merchants.
Our company provides Verified by Visa, MasterCard SecureCode and JCB's J/Secure. Merchants who implement these three initiatives typically see a 70% drop in their chargeback levels. This saves them 1.) the cost of chargebacks fines, usually $15 each 2.) the cost of lost merchandise 3.) the loss of revenue from the sale. We have large merchants who process $10M in sales a month, and small merchants who only process $100K per month. The program benefits large and small equally.