Curious, but why would Target care too much if the credit card was stolen? My understanding (which could be wrong) was the credit card companies or end users absorb the losses (depending on circumstances).

You would think so but no. Visa etc and the banks don't want that kind of trouble. To charge cards you need a special bank account called a merchant account.

A condition of this merchant account is that if someone issues a charge-back on their creditcard, if the merchant can't prove that the card owner brought the service/product then the funds are taken directly form their merchant account by the bank and then given back to the card-holder.

This is why anti-fraud systems are so important to merchants.

Case: I steal your creditcard, I buy a tv worth $10, 000. You notice this, and chargeback the merchant. The merchant has to pay you $10, 000 and he lost teh cost price of the tv he sold me (say $7, 000).

So by accepting your stolen card as payment, the merchant just lost $17, 000!

Source: I build payment gateways.

Aren't you double-counting here? On net the merchant only loses the merchandise. The net debit to the merchant's account is zero.

correct maths are: merchant gets 10000 then returns 10000 and still has to pay 7000 to vendor for the goods. net loss is 7K, not 17K

You could also say the total loss is 10K to the merchant, assuming he has a reasonable expectation of making that 3K profit...that is getting a little abstract about it though.

Oh yes you are correct.

In this case the merchant only loses the cost to the vendor ($7,000). Good catch.

Typically there's also a fee imposed by the bank for having a chargeback.

Standard is $25, but if you are a big merchant it could be lower.

I think they're counting the loss of the merchandise. So a chargeback for a $10,000 TV would be like losing $10,000 plus whatever the cost of the TV was for the store.

But it's not. Getting paid $10k and giving it back is net zero.

Not when you could have sold the TV for $10K. This is the shoplifting issue; the shop loses both the product and the potential profit on the product.

It gets a bit existential e.g. can you lose what you never really had? But even if you fall on the NO side of that, the cost of re-obtaining a product is not zero.

The cost of re-obtaining the product is $7k, which were already accounted for. Marginal administrative costs are negligible.

But the merchant is still down a TV. Those things aren't free.

Sure. I objected to the assertion that the merchant lost $17k, which is a gross exaggeration.

Like everyone else said, it's not exactly that. It's like getting paid $10k in exchange for a TV, then giving it back but not getting the TV back in return.

$17,000 figure is correct:

1) Store buys TV (COGS = $7K): -$7K

2) Sold TV for $10K. Realized P/L: $3K

3) $10K refunded (chargeback): -$7K

4) TV is gone as well. Inventory: -$7K

5) Potential profit loss: -$3K

Total loss: (7+7+3) = $17K

1. Store buys TV. -$7000

2. Store sells TV. +$10000, subtotal: +$3000

3. Store pays chargeback. -$10000' subtotal: -$7000

You can't double count the TV, and IMO, you can't count the potential profit loss either, as that's covered once the store buys a replacement TV for inventory. There are fees on top of the above, but the store is out the COGS and fees, not double the COGS, plus the margin.

The liability for the card holder is limited by law to something like $50. Whether the credit card company eats the loss or wether the merchant gives them the money back depends I believe on how much information the merchant collected about the transaction. My impression is that usually the merchant eats the loss.

it is almost always the merchant that 'eats' the loss.

edit: the credit card companies and merchant banks have the ability to 'reach back' for a number of months.

Target enjoys solving crimes. They have their own forensic lab in Minnesota.

As former manager of a hypermarket with 170 people team, I need to remind that shop is filming cash registers for many reasons. E.g. to resolve disputes about counting mistakes at the checkout, theft by cashiers, theft by customers.

The merchant is 100% responsible for these losses, which is why they care so much.

It's the merchant's duty to ensure that the person who is charging the purchase owns the credit card, which is why they'll often ask for ID along with the CC.

A stolen CC is useless if no merchant accepts it.

Target also keeps Segway-ish ATVs at their stores for chasing down shoplifters. They supposedly have a top speed around 60mph.