Random Bytes

All Things Internet™ since 1999


The VISA Shakedown

I think VISA* might hate its merchants.

Get this.

When someone uses a stolen credit card to buy something from a merchant, the actual card holder will usually dispute the charge with VISA. VISA will then credit the card holder and charge the merchant a processing fee (usually about $10 or so).

At this point the merchant is out of pocket for any merchandise they shipped, plus the $10 handling fee they have to pay to VISA.

If this happens often enough, VISA will levy a fine against the merchant. This could be tens of thousands, and in the worst cases, hundreds of thousands of dollars. If the merchant doesn’t pay, their ability to accept credit cards will be revoked.

Thing is, VISA is the one that approved the purchase in the first place! They have no real safeguards in place to ensure that the person requesting the transaction is the actual cardholder. They’ve implemented a few half-hearted attempts to provide cardholder security in the past – chips and PIN numbers, but their basic security model is so fundamentally flawed that it is almost trivial to circumvent.

VISA is very slow to move away from changing their model because the current process is all upside for them – they make a huge profit from the transaction and processing fees and carry very little of the risk themselves and put the real burden of security on the cardholder and merchant.


*Mastercard and AMEX are no better.

  • Imanonymous

    Would using something like paypal or google checkout be any different?

    • Not if the customer is using a credit card. If they are using Paypal proper, then yes – VISA is cut out of the loop.

      • jude

        PIN Debit is the way to go – you enter your pin number, fraudsters don’t know it, and Interchange is 30 basis points lower.  Ross – I didn’t know you were a payments junkie.

        • remind me some day to tell the story of how we almost launched a payment processing network of our own :-)

  • Judeaugusta

    That’s low for a “chargeback” fee.  I’ve seen $25, even $200 (for shady products
    like male enhancement pills, etc. where chargebacks are expected).

    Also – don’t forget the merchant is also getting screwed on
    the cost of shipping (which they also have to 100% eat) and any insurance.