Where have all the Chargebacks gone?

Two of the most commented posts I’ve written were my posts on chargebacks. It’s a fascinating discussion because it’s a problem that all retailers have, and it’s a problem that most consumers either don’t know about or don’t care about. Retailers are on their own with this one. A few years ago it looked like it was going to be a major problem for us…until it wasn’t. Despite our volume more than tripling since my first chargeback post, we’ve seen chargebacks reduced to almost zero.

Last week we had a chargeback come through for the first time in a long time (the customer has since rescinded it – they claim their credit card company initiated a chargeback for the wrong purchase). Which got me to thinking – what happened?

We did three distinct things that I think directly resulted in our near-elimination of chargebacks:

  1. We stopped shipping internationally. A large number of chargebacks came from international customers. When we’d investigate the order there was no AVS (address verification) like there is with suspect US orders. Essentially shipping an international order was always a crap shoot.
  2. We switched the name on our credit card statement from “Pure Adapt Inc” to “Detailed Image”. We originally used “Pure Adapt Inc” when we had Tastefully Driven and were planning on having multiple Pure Adapt e-commerce sites. Upon shutting down TD, this change led to a reduction of accidental chargebacks. Customers wouldn’t recognize “Pure Adapt Inc” and would immediately call and initiate a chargeback. Many of these we were able to get the customer to rescind, but it was a lot of work.
  3. We started canceling suspect orders. We still get international orders. They just use a freight forwarding service. Any order that looks shady we play it safe and cancel. Many of our manufacturers have asked us not to ship their products in volume overseas because there are underground re-bottling businesses. As a courtesy to them, and to reduce our headaches, we’ve abided by this and it has worked out great for all involved.

The other potential factor, the one that’s out of our control, is that credit card companies may have tightened up. I had a random $250 charge from my cable company last year. After calling them they couldn’t figure it out. The rep told me to initiate a chargeback. The process wasn’t quite as easy as I thought it was. I’m sure each card is different, but at least Bank of America made me jump through some hoops to get it initiated. Maybe the credit card companies realized that people were taking advantage of this feature and made it a little more difficult to take advantage of. I’m not necessarily sure that this is a factor, but it might be.

Regardless of the exact factors, it’s nice to have one less thing to worry about. All of the other “solutions” – working with a whitelist system, requiring all AVS matches, getting our lawyer involved – would all create a bunch of headaches and take away time that could be better spent growing our business.

10 comments on Where have all the Chargebacks gone?

  1. Dave says:

    So what’s your process for verifying orders on the domestic level? Do you pretty much pass anything that comes in? Do you require AVS to match on the billing address? Do you do any sort of checks if it’s a certain amount? While we do take international orders, we still spend a lot of time doing “fraud checks” on domestic as a large percentage of orders either don’t have a matching billing address, only the zip code matches (many times if the address has an apt # and they put it on line 2, it comes back as a Z match for zip code because their credit card statement has it on line 1), they are using an unconfirmed PayPal address or they are using an unverified PayPal account.

    Curious how you handle this aspect?

    • Adam McFarland says:

      Good question Dave. The most common scenario where we investigate is the situation I mentioned above – if the order contains high volumes of certain products and it looks like it’s being sent to a freight forwarder. Now, if someone orders 50 bottles or something we’ll also investigate (contact the customer, check the AVS, look the address up on Google Maps, Google it, etc) but that doesn’t happen very often.

    • vivano says:

      Provided AVS and CVV are “green” but the order still looks suspicious (different shipping or billing addresses, next day shipping method, unusual combination of products/services ordered), we run customer’s billing name through whitepages.com or a similar service. If the telephone number in White Pages is available and doesn’t match the one in the order, it’s a huge red flag. We call the phone number found in WP and verify the order with the “real” customer. In most cases it’s fraud.

      If a phone number is not available in white pages, we send a message with some request to the email address in the order to engage the customer (potential fraudster) to write something back. Usually they don’t respond or respond so suspiciously that we just cancel the order right away.

      We sell high value items, so it’s a must for us to be worry and lose a $100-200 profit than be sorry later and lose $1000+ in inventory.

  2. Mike says:

    Hi Adam,

    I read your update with an odd sense of déjà vu. Our business had much the same struggle many years ago. We learned our initial lesson when we received a very large web-order from Indonesia for $3,000 in specialty optics. Everything looked fine, but we totally missed the red flags. The buyer contacted us shortly after placing the order to arrange express international shipping. This should have been the first flag. When we quoted the shipping, the buyer showed no concern for the exorbitantly high cost – he was only interested in expedience … the second flag.

    Fortunately, the items he requested were special-order. So we got lucky. On the very same day the products arrived in our warehouse, we got the chargeback letter. The (stolen) credit card number the buyer was using actually belonged to someone in the United Kingdom. It was just luck that this particular cardholder reported the unauthorized charge quickly. Had one more day passed, we would have shipped the order and lost everything.

    Our initial response was much like yours – stop all international shipping. But we have since learned that was an overreaction. We ship into Canada, Europe, South Africa, Japan, the Middle East, and Australia many times a week, and it has been years since our last international chargeback. But we use extraordinary caution when shipping into Mexico, South/Central America, and particularly the South Pacific Islands.

    We no longer accept web-orders for international purchases. Instead, we insist customers contact us via email first. The dialogue that ensues will usually indicate whether we have a legitimate buyer or a potential scam artist. Since many international buyers lack a solid grasp of the subtleties of English, it’s actually quite easy to read their intent in correspondence. If we’re satisfied that the buyer is legitimate (low risk), we provide a secure payment link and allow the order to proceed.

    If we are still skeptical, we initiate our high-risk order process which requires the buyer to submit a number of documents before receiving the secure payment link. This usually spooks the scammers – who either don’t have or don’t wish to show the documents we request. Of course, this irritates legitimate buyers, but after a little huffing and puffing, most submit the ID and card scans we request.

    So international orders go quite smoothly now – and as much as 16% of our revenue comes from international purchases. Chargebacks just aren’t an issue for the international side of our business. Our issues are decidedly domestic.

    On our battlefield, first, is just old fashioned fraud – which we combat with AVS and common sense. When an order looks wrong – it usually is. We too will cancel suspicious orders. Most of the time we’re right and we never hear from that buyer again. But if we’re wrong, a little dialogue with the customer usually resolves our question marks and we reinstate the order without too much drama.

    The second is customer service related. As a sporting goods retailer, we have our fair share of customer service issues (broken items, lost shipments, etc.). Most are easily resolved with a little time and patience. But now and then an order “goes ugly” and simply cannot be salvaged.

    In our industry, we have a unique problem. I won’t explain all the particulars, but basically the specialized equipment we sell is quite susceptible to human error. Basically if the user doesn’t follow the instructions, he can damage the product. So when user-error comes into play, it goes one of two ways. Either the buyer is honest and we arrange appropriate non-warranty repairs, or the buyer lies and tries to leverage free replacements and/or free repairs via the classic “wounded customer” routine.

    This is where things can go south. In spite of our best acts of diplomacy, sometimes we reach an impasse with a customer. Nobody like to pay for repairs. Nobody like to admit they screwed up. And nobody likes to get caught up in a lie. So now and then we run into an unwinnable situation.

    And when I say unwinnable .. I mean the rules are written so we cannot win. The language used is very specific, “The customer isn’t benefiting from the product.” THAT’S the standard by which such disputes are adjudicated. The technical fine points and such are irrelevant. Even if the customer blatantly ignores warnings, instructions, directives, misuses a product, etc. … it’s irrelevant. If it can be determined that he customer isn’t benefitting from the product, a chargeback is warranted and we lose.

    Fortunately, chargebacks for all reasons are an infinitesimal expense in the bigger scheme of things. We spend 10X more money on stamps than chargebacks cost us in a year. Nonetheless, after 11 years of being a merchant, I still cannot get over the moral outrage. A chargeback automatically sends my blood-pressure through the roof … not because I’m worried about the money, but because it’s so maddeningly unfair.

    And then I remember that’s it’s just politics – poor little consumer vs. big greedy company. We aren’t supposed to win a chargeback. The consumer is. So maybe everything is right in retail world. I just have to get use to it.

    I’m glad to hear your chargeback problem has improved. But don’t let your guard down too far. No matter if you’re right or wrong, the system still works 100:1 in the cardholder’s favor. And one day, just when you thought you had it all under control …


    • Adam McFarland says:

      Mike –

      Thanks so much for sharing your story. It always makes me feel a little better to read that we’re not the only one who has struggled through this. I know from all of the emails and comments I’ve received that other retailers have found the posts on chargebacks helpful too, so I’m sure people will be able to learn a lot from your comments as well.

      And my blood still boils also whenever I see a chargeback come through, for all the reasons you mentioned 🙂


  3. LAB Computer says:

    Just got hit by a scam artist look at the message from Amazon:

    Greetings from Amazon Seller Support.

    I am sorry for any inconvenience or frustration this issue has caused you.

    If you have questions about a decision on a prior chargeback, please send an email to:


    Please note that it can take up to five business days for our chargeback team to research your question and respond to your e-mail.

    I am closing my amazon account.

  4. HHR says:

    Has anyone successfully litigated for a cheating case against the customer here in the US specifically in California and can anyone recommend a lawyer

  5. Jazib says:

    Dear Adam,

    I work as a billing administrator for an online video games company. We sell digital / virtual currency online, which can be used to buy items on our free-to-download video games. As a company, we receive Paypal chargebacks averaging $650 weekly. In a bad week, it may go up to $2000 per week. Our sales constitute 100s of micro transactions daily, internationally and ranging from $5-200, but mostly in the $5-$20 bracket.

    Since we sell digital goods, we’re pretty much done for the moment a customer files a claim with Paypal and / or their banks.

    One of the ideas I wanted to float to management was to send a physical item whenever a sale is of a substantial amount by a single customer. But you have written earlier that even providing proof of shipment isn’t enough for Paypal and the banks.

    What do you suggest we implement to fight chargebacks, apart from manual screening and looking for fraud flags? Or is that the only thing we can do to protect the business? Is their a way we can stop constantly getting conned? Or one should just start writing off these losses as a contingency, accepting that they will always exist?

    Since we have no ‘shipping information’ to provide other than IP addresses and customer usage logs, most of this information gets ignored by Paypal along the way. We employ AVS/CVV/Verified By Visa, but its the Paypal chargeback that we have been unable to avoid.

    All this customer protection hocus pocus ends up being anti-business in the end.



    • Adam McFarland says:

      Hi Jazib,

      Thanks for reading and commenting. I love your last line!

      All this customer protection hocus pocus ends up being anti-business in the end.

      I’m sorry to hear about your situation. I have heard digital goods can be a nightmare like you’re describing.

      I am due for writing a chargeback update. We actually have had some success proving delivery with tracking numbers. Over the past few years we’ve won maybe half of the chargebacks initiated, the problem was that we’d never get an email saying we “won”. What typically happens after the chargeback is we get an email from PayPal saying they’ve put the funds back in to our account pending resolution. When we looked into it we realized that when we didn’t get another email from them saying we lost the funds it turns out that the money stayed in our account and we “won”. We confirmed this with our PayPal rep.

      So, that’s a really long-winded way of saying that I think your idea of sending people something small that has proof of delivery is a very good idea! Having a signature would help too, but if it’s something small that may be pushing it.

      Good luck!


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