Small businesses work hard to find and take care of, the treasured 20% of great customers that make every day worth the effort. They are why we keep moving forward with constantly improving and enhancing the customer experience. But small business owners know great customers really are only 20% of the Customer Service day. Fraud prevention and interacting with the risks of the global internet are the largest issues in growing a successful business; are ongoing, and never easy.
Most anti-fraud material and election year legislation is all about protecting consumers, while little press exists about serious risks those protected consumers can present to small online merchants. Retailers in general but especially smaller e-tailers, are under siege in environments overly emboldened by easy litigation, lack of internet controls, and over-hyped consumer protection initiatives.
Smaller retailers grapple with the balance between attracting as many consumers as possible to generate revenue, while barricading their businesses from a steady stream of unsuitable customers that persistently drain human, public relations, and financial resources through outrageous demands, tantrums, threats, and even outright fraud. Complicating things are Credit Card Issuers that can be more than accommodating in charging merchants immediately when difficult customers claim “no fair” (after receiving the merchandise of course) with a righteously indignant “I am not satisfied!” excuse.
Outside of the most deserving people in your customer base, family and social circles, it’s a new age of reckless, “I don’t care just gimme or you’ll suffer” brutishness that inevitably creates high victim counts, and higher costs for the nice guys. Small online merchants are gradually, sometimes painfully, learning what it takes to fend off the worst of it.
Most importantly, customer screening and credit card fraud prevention go hand in hand. Typical characteristics of a potentially bad customer often mirror a fraud risk profile for the merchant as well. It must be said that credit card companies do offer anti-fraud guidelines that should become SOP for pre-screening orders. That said, here are a few more strategies experience in online retailing has taught me:
Free Email Users. As it happens, “freemailers” are suspect according to Credit Card Industry guidelines, but some of our best customers also use free mail services. I can say that most of the worst customers we have ever had also placed orders using free email accounts such as hotmail or gmail. Profiling in any context isn’t exactly dernier cri nowadays; and because so many of our nicest customers use freemail, we go with it.
Actual Case: Customer uses an organic blanket for 2 months then demands a refund because it smells funny. When Customer Service rightly refuses, citing policy and federal sanitation guidelines then wishes the customer a nice day, daily screaming email streams from the hotmail account commence, complete with chargeback threats and, yes, ALL CAPS.
Target or Macy’s: No big deal … send lovely letter that says “Sorry, Policy. Can’t wait to serve you again soon!”, and customer can go blog their brains out.
Small businesses: Refund the money (with lovely letter) and bolt the door. You don’t need that.
Before processing orders ensure somebody follows ALL security check procedures provided by the Credit Card Issuer(s) for each transaction. Take the time to telephone flagged customers and verify shipping address, identity, and participation of the cardholder. If warranted, refuse to process the order without the invasive, infamous, “Credit Authorization Form”. Oh WOE to the Privacy Act!
Fax it or shop elsewhere.
International Shipments. Unless your business can afford to absorb 70-80% of high ticket international transactions in losses, DO NOT SHIP OVERSEAS. Only American Express has the ability to verify international credit cards at this time, so it’s open season on stolen MasterCard and Visa cards. Criminals simply take delivery of hundreds or thousands USD in merchandise; then 87 days after the transaction claim they knew nothing about it. The only loser is you the merchant, as you watch your stolen merchandise get sold on eBay. Side note: there’s a lot of stolen organic bedding out there. What’s on your bed?
Our advice to small business owners: No shipments outside the USA, Canada, Alaska, Hawaii and Puerto Rico. Period.
(Proceed with caution when shipping to Hawaii or Puerto Rico though. Certain former U.S. postal agencies have a remarkable propensity for losing merchandise over large expanses of water, creating an entirely new breed of bad days.)
Chargebacks. A truly nasty weapon; a threat that gives a few people weird satisfaction. Most (not all) chargebacks amount to legalized theft that makes customers feel comfy about applying for a credit card at merchants’ expense. You can count on it being used by the freemailer deliberately projecting a rage factor for his/her issue (watch for that catchphrase “I am APPALLED!”. Uh-huh. Guaranteed chargeback if you just shipped 3 thousand bucks worth of wholesale goods to “a friend” of the cardholder’s in Shanghai (“I was not satisfied with the service”).
Problem 1: Merchant pays vendor wholesale ( $150.00) for product plus shipping ($45.00) to deliver to customer. Later, chargeback is debited against the Merchant for full amount charged at retail. Instead of earning, say, 40% gross profit on the sale, Merchant has not only paid ($195.00), he has now paid (wholesale+shipping $195.00)+(retail+shipping $255.00+tax $13.50), or over 200% cost out of pocket AND lost expensive merchandise to a legally enabled petty crook, just for the pleasure of recording a nice sale on the books. The boneheaded crook doesn’t care. On eBay he/she will probably net about $150.00 making the original merchandise worth $210.00 at retail worth $463.50 in losses, plus $150.00 or more in profit to the criminal
Problem 2: Even if Merchant can get a reversal, some third party processors, including PayPal, may suddenly freeze a company’s assets completely when a chargeback is issued. More than likely the freeze of your assets will last at least 180 days or 6 months. (It is written that PayPal did settle a class action lawsuit over this issue, but I wouldn’t count on anything.) A vulnerable small business can be destroyed and the owner’s credit possibly wrecked for years. Which is why the occasional vindictive customer will deploy that threat with such sadistic delight.
First, if possible cancel the order or refund immediately, then slam the door. (Sorry, the overseas shipment is a loss.) If they try to order again, send the most darling, pro-customer “thank you so much for shopping our website” rejection letter in the template arsenal, and do NOT accept another order. That would be a blacklist item by the way.
If the chargeback is issued, don’t be intimidated. The foreign goods are a loss of course. For domestic shipments if possible, rebut to the Card Issuer with those UPS tracking numbers and insist the chargeback be reversed. Notify customer you have provided proof of shipment to his credit card company, and he will be re-charged. Don’t tell him his credit privileges with your store are also permanently suspended. You don’t need to encourage the customer to plaster nasty prose about your company all over the internet.
Make sure your business has more than one merchant processing account ready to go in a New York nanosecond. If the worst happens, don’t let another transaction get processed. Switch instantly.
Never keep large balances with processors such as PayPal or any other related financial institution, where assets can be unexpectedly seized. Routinely transfer enough operating income to the connected bank account and move the rest OUT to another account altogether, where it cannot be touched.
Wish I could close with the comforting assurance that with a bit of caution all your dreams will come true, but that would not be accurate. Fact is, Yes, serious online retailing is definitely about finding good customers and making enough money to grow the business and live well. But it’s also largely about shielding your business and assets. Small businesses must have solid, flexible, and opaque protections in place. Secondly, it’s about locating and properly marketing to quality consumers, while discouraging customers that probably cost more than they should. Finally, it’s about doing your best to ensure product delivery and satisfaction for all customers, rewarding good people appropriately, while quietly removing the occasional bad eggs that can poison the entire basket.
Susan Fullen-Yurek is an online entrepreneur primarily engaged in organic bedding and linen retail sales, and developing acquired internet spaces for future use. While this article is not relative to the organic industry, she deemed the content important enough to share with other small business owners.