A small business owner in Melbourne has questioned the role of financial institutions in credit card chargeback scams, as reports emerge of increasing numbers of Australian retailers being hit by the fraudulent activity.
The online scams involve customers purchasing and receiving items, sometimes even signing for delivery, and then declaring to their credit card provider they had never received their order.
The ABC reports one Melbourne business found itself more than $2000 out of pocket when a customer issued a chargeback on an item the company had personally delivered to his door.
Nick Waterman, the owner of boxing equipment retailer Jim Bradley Speedball Company, told SmartCompany his business had dealt with two fraudulent chargebacks in the last two months.
A customer had purchased a piece of sports equipment worth $1000 online, and after Waterman’s delivery team had delivered the item, the customer claimed he never received it.
Waterman originally used online payment provider Shopify, but says he switched to payment provider Stripe after customers were confused using credit cards through Shopify’s interface.
“When you get a chargeback problem, Stripe just passes it straight on to Visa or MasterCard and takes the money out of your account,” Waterman says.
“You then have to apply to dispute the chargeback through Stripe and provide any evidence for the bank to use, and you only get one crack at it.”
Waterman said he had never experienced any issues with chargebacks when using Shopify, which the company had linked with a PayPal interface to let customers input credit card details. The business has since cancelled its Stripe account.
SmartCompany contacted Stripe for clarification about its policy on chargebacks, but did not receive a response prior to publication.
Waterman says dealing with chargeback scams wasn’t about the money, but about “standing up for yourself”.
“We won’t stop selling online just because we got ripped off. We’ve just absorbed the blow, but that’s not right,” he says.
Financial institutions “playing God”
Waterman notes banks and credit card providers often side with the consumer, and questions why financial institutions are “suddenly judicial”.
“Why should financial institutions play God? They just do whatever’s easier and whatever will keep consumers happy.”
Executive director of the Australian Retailers Association Russel Zimmerman told SmartCompany the ARA is aware of these issues occurring across a number of online industries.
“It’s happening across the board, it’s very evident in cosmetics, electronics, and clothing and footwear,” Zimmerman says.
Zimmerman advises businesses to use tools like registered post tracking and signature on delivery to ensure proof of delivery, and also recommends forms of two-factor authentication to confirm purchases.
“When customers buy an item you can have it so they receive a code to their mobile phone that needs to be entered online to confirm the purchase,” he says.
“This can eliminate some issues and help with chargeback disputes.”
Waterman took his case to the police who are currently investigating the incident, however he’s “not expecting” any returns. Zimmerman says while the police are the best authority to seek help from, they “probably have a lot of other things on their mind”.
Keep a record
For businesses hoping to not get stung by fraudulent chargebacks, commercial lawyer at TressCox Lawyers Alistair Little advises “watertight” records.
“It’s important for businesses to keep extremely good records of deliveries. Track the goods leaving the warehouse, being put into the hands of a courier, and get a signature on delivery where possible,” Little told SmartCompany.
“If you can’t get a signature, make sure the consumer knows you are entitled to leave the item at a post office for them to collect.”
“As long as you have sufficient evidence that an appropriate delivery system is in place, that will be enough for police to go on.”
However, Waterman advises some old fashioned face-to-face deals.
“When you personally talk to someone it makes for a much better transaction. It’s the basis of all business deals,” he says.
“We deal with every boxing company in Australia, and they all pay on time.”