How do Credit Card Companies get away with it?

Credit card companies are one of this year’s favorite bogeymen. I won’t recite any of the common threads that are widely reported in the media, but I will add a new wrinkle.

We obviously take credit cards. The credit cards companies analyze and authorize each transaction. They look for a few things. For example: do the street address and zip code entered in the shopping cart match what the bank has on file? If the transaction meets their criteria, the bank authorizes it. We pay a fee, anywhere from 3-5%, for the privilege of being able to take credit cards. I would have thought before that was the end of the story … if there was a fraud, then the bank would not charge the customer but also not withhold payment from the merchant. The idea is basically that we pay for a service and that once the bank authorizes the transaction and we ship the product that we should get paid. Well, apparently it doesn’t work that way. The credit card companies apparently get to charge consumers high interest rates and charge merchants a fee, but then don’t assume any of the risk, even though they are the party that facilitates the transaction and makes nice money in the process.

Recently, we had a fraudulent transaction (that we now know, based on hindsight). The transaction met the bank’s criteria so they authorized it. We shipped the product. A month or so later, the cardholder reported the transaction as fraudulent. In my mind, the bank should stand behind this, right? Isn’t that one of the things that we pay a fee for? Basically, the credit card told us that we are shit out of luck because the shipping and billing address didn’t match. Okaaaay. So, what are we supposed to do about gifts? Or, in the event that the billing address is a PO Box and FedEx can only deliver to street addresses. Basically, the bank is telling us that we are on our own. WTF?

It gets better (rather, worse). Over the weekend, we received a large order. A really nice order. The kind that we really like because there is a fair bit of profit in it. We decided to be proactive. The bank authorized the transaction, but we also checked to make sure that the billing and shipping addresses match. We looked at the address on Google Earth, we checked the white pages to see if their name on record matched the customer’s name … and we even called our credit card processor to see if there is anything else that we can check. Their answer was basically: It doesn’t matter … the credit card companies can back out of any transaction that they want.

How does that make any sense? I guess it makes sense because the main credit card companies have a practical monopoly. We have no choice but to ship the order … and take the chance. Can you imagine if we declined all the orders that didn’t have a shipping/billing address match? Our customers would be pissed. What are we supposed to do?

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