How Banks Profit From Fraud

If you're selling online, you've probably wondered how so many customers are able to get away with charging back legitimate purchases. The reason for this will probably make you mad: Banks often make more money on a fraudulent transaction than they make on legitimate ones.

If you're finding that hard to swallow, let's look at the math.

Imagine you're the customer and you buy a $100 item. If your card's interest rate is 10%, you would have to carry that balance for an entire year just for the bank to make $10 worth of interest from that transaction. And if you pay it off sooner, which most of us do, they make even less.

But if you claim your card was stolen, you didn't like the item, or any other list of reasons banks can arbitrarily overrule a seller's return and refund policies, the bank will take the $100 back from the seller, refund it to your card, and charge the seller a "chargeback fee" of up to $25.

Banks love credit card fraud.

Which is the better deal for the bank: loaning $100 and making $10 over the course of a year, or taking their $100 back and making $25 right now from chargeback fees?

Banks collect roughly $25 billion per year this way, and it all came out of the pockets of sellers who were already ripped off by their customers. In fact, this type of fraud is such an important part of their revenue streams, they even have a special name for it -- friendly fraud. We aren't kidding. That's actually what they call it.

Fraud committed by buyers against sellers is a highly-profitable revenue stream for the bank, because they know there's nothing the seller can do about it.

We're here to help.

We can't do anything to stop the banks from siding with their customer or prevent a chargeback; but we can warn you if a customer has a history of charging back their purchases, so you can so you can avoid doing business with them.