How $100 + Fraud = -$535.00

A merchant selling TV's on an E-Commerce platform like Shopify, sells a TV for $100. The transaction goes through and the TV is shipped to the shipping address. The merchant made a $100 sale.  

Two months later, the merchant receives a notification from his processor regarding a chargeback that was filed by the cardholder for that very same transaction. 

The funds for the TV are removed from his account and held until the chargeback process is complete. 

At this point, the merchant is no long in possession of the $100 TV, nor the $100 from the transaction, and receives a fee from the processor for $15, just to notify the merchant of the chargeback. 

The Merchant responds to the chargeback, and another $15 fee is assessed for processing the response. 

The merchant is notified that the cardholder maintains their position that the transaction was fraudulent and the processor assesses another 15 dollar fees from the merchant. 

The merchant then sends a second response, reinforcing their initial defense. Another $15 fee is assessed from the merchant by the processor. 

The cardholder still maintains that the transaction was fraudulent, and now the chargeback enters into "Pre-Arbitration and requires arbitration by the issuer to decide who wins or loses the dispute. The loser is charged $275. 

The issuer determines that the merchant has not provided sufficient information and closes the dispute in favor of the cardholder. The processor assesses the $275 fee and the chargeback is now closed with no chance of being reopened. 

At this point, the merchant has lost $535 on this single transaction, and there's more.... 

$535 + x, where X represent operational costs necessary to acquire, market, store, sell, process, fulfill, labor, etc. in order to sell the TV. 

$100 equates to a $535 loss when you do not have an effective fraud prevention strategy in place. 

You don't wait for a car accident to get insurance, do you? 

Don't wait to develop your defense against fraud.