Melbourne business accuses financial institutions of “playing God” over customer chargeback scams after losing $2000

Dominic Powell /

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.”

Dominic Powell

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

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  • Michael Ratner

    Sad but true … so now how do we solve it.
    Surely one way might be that anyone who has a credit card and asks for a charge back has to be monitored … that is up to the institution.
    These people most probably have repetitive requests for charge back and it has to ring a bell. There has to be a visible pattern.
    Most transactions are done by ethical people on both sides, that’s buyer and seller and the waters are being muddied … detrimental to everyone and the industry.
    Unfortunately everyone is going to be reduced to the lowest common denominator.
    My first question to the credit card provider which should require answering is “What previous history has your customer got of previous claw backs?

  • unhappy merchant

    We have lost over $2500 in the last few months due to chargebacks for “fraud”. As posted above, the banks will side with their customer, and despite having detailed records of everything recommended above, as long as the customer maintains the charge was unauthorised you have absolutely no hope of winning as a merchant. We now use a chargeback insurance provider and pay 1% of all our online orders for them to “guarantee” the payment. If they refuse to guarantee as they deem it high risk, we don’t ship it. Due to chip and pin cards credit card fraud has moved online to an environment where the fraudsters don’t have to put in a PIN and/or can claim they didn’t use the card or didn’t receive the goods. The fraudsters know the banks will side with them and the merchant always has to pay 🙁 I think this issue needs more light shed on it, most consumers seem to think the banks are guaranteeing their credit card payment and dont seem to know that it is the poor old merchant who ends up out of pocket. Lost goods, lost money.

    • Oracle

      If you have some reasonable (any) proof that the order was delivered, make a complaint to the Financial Ombudsman Service (the EDR scheme for all the big banks and PayPal). It’s free and you’ll likely get some or all of your money back.

  • Online retailer

    This is the number one problem for online retailers in Australia. The banks, and credit card providers are not doing a good enough job protecting the merchant who always ends up paying the price for chargebacks. Given that they issue the cards in the first place they need to introduce more safeguards to protect the consumer and the retailer. Until something happens like a class action brought against the banks by the retail community they won’t bother upgrading their security measures.

  • Graham Lacey

    I have my own debt collection agency and surprisingly we get very few chargebacks even though we are considered “high risk” by the banks. We have had only one in recent years, but because we had a signature from the payer their chargeback was rejected by the bank. We use Westpac, and if they get a chargeback they send you a letter giving you two weeks to prove why the chargeback should not be approved. The only thing to stop the chargeback is a signature from the payer, which in this case we had. I suggest always getting a signature, even if they fax, post it, email or a digital signature.

  • TryingtoSolveIt

    Ditto Westpac (never thought I’d be happy with a bank!) – and we use eway for ccard processing, which has good records. Similarly startrack tracking system. Paypal and anything to do with it is a bitch, they just freeze your accounts, support the customer at all costs and you never see the $$ again…..

    • Oracle

      See my post above. PayPal is no different than a bank in Australia — they trade at the discretion of ASIC who issues their Australian Financial Services Licence. A complaint to the Financial Ombudsman Service to which PayPal is a member as part of its licensing conditions will soon sort them out. PayPal like you to think they have all the control, which they probably do in the US, but not here in Australia. It’s also worth noting that once you lodge a dispute with FOS, PayPal is legally prevented from taking any punitive/enforcement action against you, for example freezing your accounts, etc.

  • Zhompo

    A while ago I had bought a voucher from a voucher provider, who was clearly underwater who had a credit agreement with a merchant. The voucher provider hadn’t provided that credit so the merchant wouldn’t honour the voucher. The merchant told me to complain to consumer affairs about the voucher provider. Which would cause me to probably go into a line of never-to-be-paid-back unsecured creditors? Screw that. I did a charge back.

    At the end of the day with the money merrigorounds, it has to be banks who become more responsible about their lending practices and/or we need better financial laws so people can’t just phoenix companies or transfer assets to their partner and escape creditors. I’m sick of cowboys getting away with murder while small businesses pay.

  • Diane Graham

    This goes both ways. As a consumer, i was ripped off recently by a plumber who helped himself to $1650 of my money. He left my house without having fixed the problem and it took a further six days of no toilet or shower before someone finally came and fixed it. It was a simple job that should have taken about an hour to fix, and cost around $280, but he grabbed my money and ran. I’ve gone to Consumer Protection but if that doesn’t work, I’ll take him to the Magistrates Court which will cost more money but regardless of whether they are business owners or customers, people should not be allowed to get away with theft or fraud of this kind.

  • Oracle

    There’s a fairly simple way for merchants to claim back the “god-like” power the banks and PayPal wield in these matters. As Financial Services Licence holders in Australia, the banks and PayPal must be members of an External Dispute Resolution Scheme (EDR) such as the Financial Ombudsman Service or the Credit Ombudsman. If you threaten to lodge a dispute with one of these bodies in relation to an unfair chargeback, you’ll likely get a better response from the bank or PayPal. Why? Because when you lodge a complaint with an EDR, it costs the bank/PayPal a minimum of $300. They never get that back. You pay nothing, even if you lose the complaint. You have a fair chance of winning your complaint because an EDR looks at everything impartially, not just from the bank’s perspective. In most cases, the EDR will recommend to the bank/Paypal that they simply pay you the lost money back to close the complaint. Even if you don’t get everything back (and chances are you will), you will at least get some payment to offset your loss.

  • Brn Fst

    I spoke with ASIC and they confirmed that Stripe is not registered with the Financial Ombudsman Service Limited (FOS) or the Credit and Investments Ombudsman (CIO). They need to be registered with one of these External Dispute Resolution Schemes in order to for you to lodge a dispute against them. Something is not right here.