Heads up! The Freakonomics duo – Stephen J Dubner and Steven D. Levitt – will be exploring Identity Theft in their New York Times Magazine column this coming Sunday, March 11th.
I for one am looking forward to reading the column Sunday morning. I'll let you know what I think. In the meantime, read the Freakonomics blog post here.
What do Levitt and Dubner conclude? That MERCHANTS are the ones paying for Identify Fraud through chargebacks (as many of you merchants out there well know).
Who cares about Identify Theft – Individuals?
The answer would also seem obvious: You, the potential victim. But
according to the Javelin data, people probably worry way too much about
identity theft. Seventy-three percent of victims incur no out-of-pocket
expenses whatsoever; the unlucky minority loses, on average, $2,000 —
hardly chump change but far less than the scare stories would have us
believe. And in more than half the cases of identity theft, the thief
is not a stranger at all but rather a relative, friend or co-worker.
Who cares about Identify Theft – Banks and Credit-card Companies?
Surely, then, it is the banks and credit-card companies that are
desperate to stop the problem? Sgt. Robert Berardi, who runs the Los
Angeles County Sheriff Department’s ID Theft Task Force, has found
otherwise. “The banks are in conflict between security and making a
profit,” he says. In an industry that is reluctant to add even an ounce
of friction to a customer’s purchase, Berardi says identity theft is
seen as simply the cost of doing business. Indeed, a recent report by
TowerGroup, a research firm owned by MasterCard Worldwide, noted that
“banks are not yet ready to dedicate resources to solving any ID theft
Who cares about Identity Theft – Merchants? YES!
So if the banks, the consumer and the police aren’t sufficiently incentivized to stop identity theft, who is?
merchant. That is what Peisner, a 44-year-old veteran of the
credit-card business, has discovered. “Let’s say one of these hackers
takes the information they find in a chat room,” he says. “He goes to
the Sony Web site, buys a laptop computer for $1,000, and a month later
the actual cardholder gets the billing statement. He calls up his bank
and says, ‘I didn’t order a computer from Sony.’ At that point, the
credit-card issuer, let’s say Citibank, sends a ‘chargeback’ through
the interchange system to the acquiring bank, and that $1,000 is taken
right out of Sony’s bank account, and they also get hit with a $25
chargeback fee.” So the merchant has lost the money from the sale (as
well as the laptop) while paying the chargeback fee, other bank fees
and processing and shipping costs. “If you’re a merchant,” Peisner
says, “you have all the liability.”
Read the Sunday New York Times column here.
By STEPHEN J. DUBNER and STEVEN D. LEVITT
Sunday New York Times Magazine
Published: March 11, 2007