Finance

“Chargebacks are sending our business broke”: Business owner calls on banks to crack down on customer fraud after losing $10,000 this year

Dominic Powell /

A New South Wales-based small business owner is calling on banks and financial institutions to take action on fraudulent credit card chargebacks, claiming customers who abuse the system are sending his business broke.

Dean Piazza, owner of online treadmill and fitness equipment stores Home Gym Equipment and Endurance Treadmills, told SmartCompany his businesses has been hit with what he believes are five fraudulent chargebacks already this year, costing upwards of $10,000.

“You expect to get some chargebacks as an online business but we’ve gotten quite a few this year,” Piazza says.

Read more: Why this SME owner called it quits over a bad debt and is warning others about ‘merchant chargebacks’

Piazza claims the recent chargebacks issued to the business are examples of fraudulent activity by customers. He believes these cases involve a customer receiving an item but then going to their bank and claiming they either didn’t receive it or didn’t order it in the first place. The customer then receives their money back in the form of a chargeback.

“Customers are using their friend’s credit cards or stolen credit cards to order treadmills, and then claiming to the bank they never made the order,” Piazza says.

“All the bank does is follow a little auditing procedure, where if the card’s address doesn’t match the customer’s address, they get the money back and we front the costs.”

“These banks are charging businesses thousands in merchant fees, but when it comes to this they just wipe their hands and tell us to contact the police.”

Piazza says he provided his banking provider Westpac with a number of documents proving the delivery had been made to customer who had ordered the items, including courier receipts and a copy of a signed delivery form.

“These people have home addresses, they’re in the White Pages. It’s so obvious what they’re doing, they’re stealing from us,” he says.

Chargebacks causing cashflow issues

The money lost from the chargebacks so far have started to cause cashflow problems for Piazza’s businesses, and he says it amounts to $10,000 he could have spent on something else.

“I would have much rather pumped $10,000 into advertising, it’s a whole year’s advertising spend,” he says.

This isn’t the first time a business has been stung by dodgy chargebacks from customers, with a Melbourne sports equipment company left over $2000 out of pocket in December when a customer claimed they never received an item that the business says was delivered.

While Piazza is currently following up the issue with local police, he isn’t holding out hope, believing it’s a “low priority” for them. Instead, he’d like to see financial institutions take more responsibility for charge back issues.

“The [banks] need to look into it more. If we can prove this item has been delivered, and that the person who bought it lives there and has signed for it, then they should be going to the police,” he says.

“When us as a business have done our due diligence, the credit card companies need to do their bit.”

Given he is not hopeful that will happen, Piazza has taken things into his own hands and implemented measures to try to reduce the amount of dodgy customers.

“After the first few times it happened I now implement a check where I ring the customer first before delivery,” he says.

“I know we can’t stop chargebacks from occurring, but if customers know they can just use a friend’s credit card and get away with it, it becomes too easy.”

SmartCompany contacted Westpac for comment but did not receive a response prior to publication.

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Dominic Powell

Dominic Powell is a journalist at SmartCompany and a tech and music geek. When he’s not writing, you can find him reading or browsing record shops.

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  • Peter Michael

    This is a huge issue as you can lose so many $’s so rapidly. We changed to using PayPal. If you follow PayPal’s guidelines to the letter they guarantee payment. For us, it means
    1) that we can only accept payments from actual Paypal members [the component of PayPal in your check out can be optioned for this]
    2) PayPal does not allow click and collect – the goods must be sent out by courier.

    Good luck.

  • Garry

    Yet another example of the banks failing to do the job they are paid to do & making customers pay for the banks incompetence.

  • There are three key things you need to do to protect yourself and your business from this problem:
    1. Read and understand the merchant’s terms and conditions and the CC Issuers’ terms and conditions (for all card brands that you accept).
    2. Set up your fulfilment procedure to work within their guidelines and to ensure you can meet the standard of proof required when a charge back is initiated.
    3. Impose the necessary terms and conditions on your customers so that you are in the best position possible to deal with people that initiate a fraudulent charge back.

    Get your lawyer and web developer to work together to solve this for you – 98% of the problems can be removed with good implementation and documentation.

  • Rick Nixon

    It is interesting that Paypal is more business friendly than the banks.
    Are the banks now dinasaurs in the business world.

  • Nick Lally

    Dean Piazza, we can help fix the problem. Get in contact http://www.ravelin.com