Chargeback Scam Impacts Small Businesses—How Well Are YOU Prepared?

Credit card fraud happens.

When it does, we often hear about how it affects individual consumers, but what about the merchants who get slapped with the resulting chargebacks through no fault of their own?

After one such scam, reported by online news outlet My Business, small business owners discovered all too quickly that they were on their own when it came to fighting fraudulent chargebacks.

Delivery fraud: a growing problem for small business owners

In this scam, a number of small businesses in Australia were the victims of delivery fraud.

How does that work?

Simple.

Thanks to the wonders of online shopping, some opportunistic individual uses a stolen credit card to order a product and have it delivered. That individual then disputes the charge, saying he did not place the order and never received the product.

What happens next?

The merchant gets hit with a chargeback fee and loses money—and valuable product—as a result. In some cases, the seller is charged even if the recipient signed for the delivery, as was the case with one of the businesses involved in the Australian scam.

And here’s where things get complicated…

One of the key financial institutions involved in the scam, Westpac, denied any wrongdoing and has done nothing to address the retailers’ concerns. Instead, Westpac insists it is the credit card providers’ job to investigate and reimburse fraudulent transactions since they are the ones who make the rules regarding chargebacks.

Affected business owners have voiced their frustration in response to the story, many of whom believe banks like Westpac are exactly who should be responsible—and that they should insure themselves to avoid situations like this. The investigation is ongoing, but one thing is certain: the merchants are the real losers in this story. Over time, fraudulent chargebacks like this can wreak havoc on a small company’s bottom line.

One more thing you should know about chargebacks: Chargebacks were initially created to protect cardholders from unauthorized payments, which is great if you’re a cardholder and an actual victim of fraud, but not so great if you’re a merchant. In the case of a chargeback, it’s up to you, the seller, to prove the charge was legitimate—and even then the outcome may not be in your favor.

Unlike larger corporations with the time and resources necessary to dispute fraudulent chargebacks, smaller businesses are at a disadvantage and often struggle to keep pace with the big guys in the vast online marketplace. Chances are you may be able to relate—having either missed your window to respond to a chargeback or simply didn’t have the time for all the paperwork involved.

Think all those fees will protect you? Think again. As a business owner, it’s naïve to think fraudulent chargebacks can’t or won’t happen to you. Likewise, if you think the banks or credit card providers are going to protect you, they probably won’t—even though it seems like all those fees that add up on your merchant account should go toward safeguarding your bottom line from scams like this one. Ultimately it’s you, the merchant, who will likely pay the price when it comes to fraudulent chargebacks, so you’re smart to be prepared.

At Merchant Broker, we specialize in helping small businesses save time and money by providing superior chargeback support. You may not realize it, but in many cases implementing the right safety measures can prevent chargebacks from happening in the first place. But when chargebacks do happen, fighting them successfully depends on multiple factors: fraud, how the transaction was processed, the merchant’s refund policy, product quality, and customer service.

Merchant Broker will review your policies and contracts and make sure you have an effective system in place to deal with chargebacks and help prevent future loss of revenue. Ready to get started? Contact us today at info@merchantbroker.com.

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