How is a credit card transaction "risky"?

Fraud can happen on either side of a transaction perpetrated by the buyer or the seller. This blog is for merchants so we will focus on fraud committed by sellers.

In our local area, a few years ago, a fellow sold football tickets on eBay. Many buyers sent money to the seller but none of them received football tickets. The supposed seller took the money and ran to Florida. He was caught a few months later (and is in jail today) but many would be buyers did not get their money back. MasterCard and Visa protect cardholders from fraudulent merchants. Those who used their bankcards for the transaction got their money back. Those who wrote checks did not.

The card associations (MasterCard, Visa and others) scrutinize the merchants allowed to use their payment systems to weed out the evil doers. They are obligated to protect cardholders using the payment system. But even good merchants can have angry customers. Some industries are more prone to having dissatisfied customers than others and merchants in those industries may pay higher discount rates for the prevalence of risk in their industries.

Transactions that are done over the Internet or on the phone (card not present) where the buyer cannot see the actual product or fully understand the service are more likely to result in a charge-back than transactions done face-to-face.

The way it is...

B2B merchants pay higher payment processing fees because most of their transactions are done on corporate credit cards.

Bankcard (credit, rewards, check, corporate, government, debit) transaction usually fall into one of three possible certification levels, they are:

1. Qualified - Consumer card present at point of sale. The merchant pays about 1.7% of the sales amount for this type of transaction.
2. Mid-Qualified - Consumer card NOT present at the point of sale. These are transactions done on the phone or Internet and the merchant pays about 2.7% of the sales amount for this type of transaction.
3. Non-Qualified - Corporate or Government card. The merchant pays about 3.5% of the sales amount to process these payments.