The scammers who targeted Val Brusylovsky’s small business, Boutique Retailer, were calculated and insidious.
The criminals staggered their suspicious orders over many months, Brusylovsky told ISB. They made multiple orders from the same card, each shipped to different addresses across countries. They purchased high-end boots in bulk, when most customers bought just one or two pairs.
And then they wanted their money back – and Brusylovsky was powerless to reverse the thousands of dollars in chargebacks. In just six months, Boutique Retailer lost $20,000, and he had learnt an expensive lesson.
“We still think about it and lose sleep over it,” the business owner told ISB. “It’s a lot of money for any small business.”
Brusylovsky had to make a significant investment in fraud detection tools and a brand new platform to stop the attacks. His business has been left alone since then – but chargeback fraud is only getting worse.
What are chargeback scams?
Chargeback scams are a type of crime where customers falsely claim fraudulent transactions to get their money back, costing businesses revenue and time.
Chargebacks are an unfortunate part of operating for many, but they can cost a business thousands – and they’re on the rise, according to Professor Michael Townsley, a criminologist at Griffith University.
“Bad actors have kind of shifted to other parts of the channel, and returns are becoming more of a big feature,” Townsley told ISB.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson has also seen a marked increase in small businesses approaching his office for help with chargebacks.
When chargeback scams happen, it’s often very difficult for business owners to recover their losses, he told ISB.
“In many cases, despite having evidence of delivery…[the business] is told by the platform that the customer hasn’t received the goods, and the platform has initiated a chargeback,” he explained.
A major part of the problem is systemic bias towards the customer – by both banks and online marketplaces. Banks naturally side with their customers during chargeback disputes, while platforms like Amazon and Etsy prioritise customer satisfaction to drive demand, according to Townsley. If customers are happy, they’ll flock to the platforms – and business owners will have no choice but to follow.
“Sellers become commodities – they’re largely interchangeable and replaceable,” said Townsley. “The more demand, then the more supply, and the better supply, right? So that’s why Amazon and eBay and Etsy are all sort of on the side of the customer.”
Criminals or lazy customers?
Chargebacks aren’t always the work of organised criminals. They can also be the work of lazy or forgetful customers, according to retail expert and consultant Mal Chia.
Chia told ISB that customers can quite often forget they have ordered from your business – or not recognise the charge in their bank statement – and mistakenly order a chargeback as a result. On the other hand, some customers request a chargeback because they’re too lazy to return their item, or because they’ve been hit by buyer’s remorse.
“Say someone makes an impulse purchase and then they get buyer’s remorse – but they don’t want to return it,” Chia explained. “These one-offs now seem to be on the increase, I would say, because of the cost of living. People are making very impulse purchases and changing their minds.”
How can you prevent chargeback scams?
Brusylovsky, Townsley, Billson, and Chia offered practical tips for reducing the risk of chargebacks. Here’s how to protect your business:
- Invest in fraud detection tools: Brusylovsky mentioned Kount, which screens customers and identifies risky purchases.
- Don’t send out suspicious orders: If it looks unusual – or if it’s been picked up by your fraud detection tool – don’t risk it.
- Use multi-factor authentication: This can prevent customers from claiming unauthorised transactions.
- Collect solid delivery evidence: Photos, signatures, and tracking help back your case.
- Make your returns process as frictionless as possible to discourage lazy customers from requesting a chargeback.
- Ship quickly: Slow delivery can induce buyer’s remorse, according to Chia.
- Stay in touch with customers: Chia suggests sending updates and usage instructions post-purchase to reinforce trust.
If you’ve been targeted by a chargeback scam and are having difficulties getting your money back, here are some places to call:
- If you feel your payment provider hasn’t fairly handled the issue, contact the Australian Financial Complaints Authority (AFCA).
- Your small business commissioner, or the ASBFEO’s office, can also provide guidance or get involved.
