Chargeback Scams: When Shoppers Turn Scammers

Most of the scams that happen usually involve a seller defrauding a buyer. This does not mean that shoppers are always innocent. The tables can turn and it can be the seller who ends up not getting paid for a product or service that has been provided. This is exactly the case with Chargeback Scams.

What are Chargeback Scams?

Chargeback fraud happens when a buyer calls their card issuer to cancel a card payment for a purchase that they made online after receiving the ordered items. The loser is always the merchant.

Customers can intentionally cancel the card payments for merchandise that they actually bought. Then, they get their money through the chargeback system while sellers are left to pay the fees for the service by banks! 60%-80% of all chargebacks are done by shoppers who went online and ordered something.  

How Chargeback Scams Happen

• A buyer orders something online and pays with their credit card.
• The merchant receives the order and dispatches the product for delivery.
• Immediately after the item has shipped, the buyer contacts their credit card issuer to cancel the payment citing a fake reason.
• The card issuer cancels the payment.

Meanwhile, the merchandise is en route to the buyer.  

The merchant realizes that the payment can’t be processed but the goods have been delivered. Inquiries lead to these excuses:

• The product is not as advertised
• The merchant sent the wrong item
• The package is broken
• The order was canceled but the seller shipped anyway
• The customer did not make or approve the purchase

Why Does Chargeback Fraud Happen?

The irony of the chargeback service is that it is meant to protect buyers from fraudulent sellers. However, it is so easy to get a chargeback that scammers can take advantage of the facility to defraud merchants! Here’s why:

• Buyers want free stuff and can successfully pull this scam on sellers.
• Card issuers have no time to investigate every single chargeback request to establish the facts. They simply approve the chargebacks with no evidence. The burden of proof lies with the merchant.
• Scammers use stolen credit card numbers to shop online. A card-owner who notices a transaction they do not recognize will immediately have the payment cancelled.

5 Common Chargeback Scams

Shipping Address Scam

The buyer gives an address that is not their own, say a neighbor’s address. They collect the package as soon as it’s delivered. The buyer then claims that it was not delivered and wants the bank to cancel the payment for it.

Another way this happens is when a wise merchant calls the buyer before dispatching delivery to get the right address. Delivery is done. The scammer calls their card issuer to claim chargeback under made-up reasons. Card issuer approves this chargeback. The merchant never gets their due payment. Delivery fraud is a common thing.

Wrong Item Delivery

The scammer claims that the merchandise delivered is the wrong item. They call the card issuer to claim a chargeback and it is granted. The merchant loses the item, pays for shipping costs, and is billed for chargeback fees by the buyer’s bank.

Chargeback or Refund Confusion

Some buyers take the chargeback route when they need to claim a genuine refund. Both routes can appear the same. They figure that it is easier and faster to get the bank to cancel a payment than wait for a merchant to give them a legitimate refund.

This is unfair to merchants because they get extra charges from the bank that buyers don’t know about. Merchants who communicate responsively will dodge this bullet. Rapid communications with customers boosts their confidence in the seller.

Cyber-Shoplifting

A buyer orders several units of the same product with the express intention of canceling the payment after their order is processed. After which, their card issuer charges back the money for the payment made. The merchant still delivers the order and waits for payment that will never come.

This scam is common on Amazon. Scammers usually claim the package arrived broken or damaged and so they canceled the payment.

Clever merchants will ask for evidence of the damage in photos. And then demand they ship the products back if they are damaged.

PayPal Overpayment Scam

A shopper intentionally overpays for a product online using PayPal. Then, they contact the seller to ask them to refund the excess amount.

The shopper then pulls the scam move of calling PayPal to claim a chargeback. The scammer can claim that they didn’t authorize that transaction. If the seller does not refund the excess, they are safe. If they do, they will lose their own money when PayPal does the chargeback.

Here are some more paypal scams.

How to Protect Your Business from Chargeback Scams

It is tough fighting chargeback fraud because the burden of proof lies with merchants who usually lose:

• Merchandise,
• Delivery costs,
• Money in refund fees by the bank that can be $20-$100. 

Here’s how to prevent chargeback losses:

• Always ensure that the right shipping address is taken. Call or email to confirm before dispatching shipments. Check that the “Bill To” and “Ship To” addresses match.
• Demand proof from buyers who claim the package was damaged. Ask them to send photos.
• Never refund excess payments on PayPal. Ask buyers to cancel it themselves.