The birth of Chargeback



    This article was the result of a small study of the differences in the development of the card industry in the USA and Russia. Although the aim of the study was to identify factors that gave impetus to the development of electronic currencies in our countries in volumes that are significantly ahead of the west, despite the fact that the ideology of building Visa / MasterCard is much superior to centralized virtual wallets.

    In this story, we will touch upon only one factor - the Russians' distrust of the cards. And the first detail that immediately catches your eye is Visa Zero Liability on the American Visa website, which states that “You will not be responsible for unauthorized use of your card. You are protected if your card is lost, stolen or used fraudulently. ” And below it is written in small letters “Covers only cards issued in the USA”. But dear reader, of course, knows that this rule is one of the basic rules of the IPU (international payment systems) and works just as well in Russia. Have you ever heard that at least one bank explained to you - “in which case we will refund your money”? Me not.



    Sometimes the situation even goes to the point of absurdity, when large reputable banks, such as Raiffeisen Bank, sell insurance against “unauthorized use of your card” for 190 rubles a month, you probably were offered something like that. Moreover, if a card is copied without this service, even with a PIN code (the chip is not copied), anyway, according to the rules of the Ministry of Railways, the bank will have to return the money. But most banks do not want to do claim work with us, for obvious reasons. Not so long ago, another fairly well-known bank actually “sent” my work colleague with a request to return a payment of 1000 rubles debited without authorization (by recaring) - “go write a statement to the police”.

    Along with the unwillingness to do unnecessary work, banks also practice the substitution of concepts. For example, almost all banks advertise 3D Secure technology to cardholders, which generally protects retail outlets, not cardholders, from fraud! Historically, after all, the risks for fraud lie on the acquirer bank and only then the acquirer bank transfers chargebacks to retail outlets. When contesting such payments, the MPS in most cases takes the side of the card holder. From here a new type of fraud Friendly Fraud was born - when the cardholder first buys, and then he himself disputes the payment. And it is 3D Secure that protects the acquirer / point of sale from chargebacks “the cardholder did not authorize the transaction” - SMS was confirmed, which means he paid. Ordinary card holder - he is not warm from 3D Secure, it’s not cold, and the carder will certainly not buy an iphone where you need to enter the code from SMS. Just as this technology protects primarily the issuers themselves - if you don’t support it, and the 3D Secure channel is already the issuer (Liability shift) pays for fraud.

    A bit of history. In the United States, credit cards (credit cards) were originally distributed by regular mail - sent in envelopes. In pursuit of distributing as many cards as possible, banks sent cards by phone books, sometimes it reached the point of absurdity - a young child or a pet could get a credit card. Naturally, cards were stolen from mailboxes, sometimes even by mail employees themselves. Banks suffered losses.
    This continued until 1970, when the US Congress passed a law prohibiting the distribution of cards without permission from the holder by mail. Moreover, most cases of fraud included the theft of cards from wallets, pockets, or by prostitutes from their clients.

    In 1970, the bill “ Title 15 US Code § 1644 - Fraudulent use of credit cards" The law was used to accuse defendants of using fake, redone, lost, stolen or fraudulent credit cards. But this did not reduce the number of card frauds.

    And finally, in 1974, Congress passed the Fair Credit Billing Act , which first legitimized:
    • 60-day period during which the cardholder can challenge the error in the payment statement.
    • If the cardholder finds an error, he must send a written challenge request to his issuer.
    • The cardholder is not responsible for using a lost, stolen card, or using the card without permission. In this case, just call the bank. Although the law establishes a maximum holder liability of $ 50 when using a Visa / MasterCard (Face-to-Face) card, this fee does not take. And when using a card by a fraudster online or by phone, the card holder is completely exempt from liability.

    Fair Credit Billing Act and is considered the progenitor of chargeback. Further, the law was transformed into the rules of the IPU, and the rules were overgrown with amendments.

    Cards (issue) came to Russia only in the 90s, banks had other concerns: securities trading, banking crisis, etc. So no one was involved in the promotion of cards as a “safe payment method”. One of the readers probably remembers how we started wallets in order to bind virtual cards to them and pay on the Internet.

    And the fact that in the United States has been formed for decades with the help of laws and rules, developing the card industry, we are quietly silent and not advertised.

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