Originally Posted By: jchuzi
On a related note: I phoned B of A today because of a fraudulent charge made to my checking account via my debit card. It is being cleared up but people should realize that banks not only withdraw these funds from the merchant who got snookered, but they also charge a fee to that merchant when they do so. So, banks have little or no incentive to actively fight fraud because they make money every time a fraud is perpetrated.


Yep. A lot of folks wrongly assume that the bank covers the amount of loss, but that's not so; the merchant does. To the ank, chargebacks are actually a source of profit (and a significant one; millions of dollars a year at the very least).

When credit card fraud occurs, the merchant loses twice. Not only does the merchant lose the merchandise, but then the bank charges the merchant a chargeback fee, which can be quite significant--anywhere from $35 to $90, depending on the bank. Since fraud is a significant revenue stream for the bank, of course they have little incentive to police it. They do the minimum they feel they need to to keep the trust of the consumers, and no more.

I recall reading a Consumer Reports article a few years back which argued that from a bank's perspective, the maximum theoretical profit comes when every one of their customers has their identity stolen and all their credit cards maxed out about once a year. More often than that and customers start moving to different banks in enough numbers to offset the profit from chargeback fees; less often than that and the banks lose the revenue stream from the chargeback fees. So from a bank's perspective, the ideal fraud prevention is just enough to keep people's credit cards from being stolen more than once a year.


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