Protecting Your Business from Sneaky Schemes

0:00So if you have a clearly stated terms of service that has your refund policy and you do dispute it, then you will win. And we found that's really good. Like winning chargebacks is actually good for your merchant reputation.

0:17Hey, everybody. This is Business Lunch. And you have your hosts here, Ryan Dice and myself, Roland Frazier, welcoming you to a seat at the table. Ryan, what's happening? Nothing. It's great. It's kind of a chill week. I mean, I don't say nothing, but I'm excited that I've got an entire week where hopefully nothing eventful is taking place. Having said that now and putting that out to the universe, I'm sure that just crap's going to come crashing down. But, dude, I looked out at this week and the number of just like open spots on my it's how it should be. Same for me. Yeah. Yeah, no, you're yeah, you're screwed.

0:56But I'm I'm feeling good. And so you asked me how I was going. I'm great. What about you? No, I'm great, too. It is. My week is, it's oddly open. Yeah. My, my, my wife has something she needs me to help her do for a couple of days. And then I've got a thing I need to do. And I looked at the calendar and I didn't have to move. I think I had to move one thing around. Um, it's, it's been so crazy that that feels really good. Like I was looking at this week saying, ha ha ha. Yeah. Yeah. It's like, I'm, I don't know. Cause like my kids there, there's like, it's the soccer, two of my kids play soccer at soccer playoffs.

1:31There's like games every night and they're starting early. And I'm telling my wife, I was like, you know, as busy as things have been, which is not okay. I think that's important, right? You know, CEOs, entrepreneurs, our goal should not be to optimize for busyness. And we certainly shouldn't be something we brag about. But yeah, it's looking at, it's like, oh, this, this is how it was before we had like 17 billion events that all stacked up together. This is like what normal actually is. So it's great. It's really, really good. I have something that I read and I found it absolutely fascinating as a trend.

2:02I wanted to share with you and get your take on it. What do you think? Okay. Yeah, let's do it. So this is, I'm going to read the article. It's very, very, whatever I clipped of it. It's very, very short. 42 % of Gen Z admit to committing friendly fraud. Friendly fraud, also known as first party fraud, occurs when customers file a fraud claim or a chargeback, despite being satisfied with a purchase. Any business that accepts digital payments as a target, research revealed that 42 % of Gen Z admit to engaging in first-party fraud. The majority of them don't realize what they're doing is fraud and they're unaware that it's the merchant who absorbs the cost of the chargeback.

2:42I find that shockingly like own deaf. Like they're not aware it's fraud. You literally are getting money back for something you paid for that you like. Anyway, I'm gonna keep the conversation to just the article here. This article, blah, blah, blah, tips and brands. And it went on to talk about how you can protect yourself. I thought, my goodness, what? 42 %? Holy goodness. And it's to me, to call it friendly fraud, puts such a happy face on cowardly card terrorism. It reminds me of Quiet Quitting. You remember when Quiet Quitting was a thing? And it's like, oh, that's nice to quitting Quiet. It's like, no, they're like, just, they stopped working.

3:27It was stealing. Which is theft. Yeah. All of these. Yeah. Go ahead. I think you're about to say the same thing with me. I sound like the, you know, the thousand year old, you know, I used to walk both ways uphill to school in the snow guy, but my God, I mean, this, like, if we're, why are we putting all these euphemisms on these things that are so wrong and bad and calling it okay and making it this cuddly, oh, it's, you know, it's a quiet quitting and it's friendly fraud. It's hurting businesses and it is lying, cheating and stealing. And what the heck? Okay. That's, that's my, uh, my two cents on it.

4:06What, what do you think? And what do you do about it? Well, I think so. I mean, again, at the, I don't want this to just be, you know, two old guys like yelling at clouds kind of thing. Um, and so from a, you know, from a, from a business perspective, I do think that it's important that you, you know, that your terms of service and stuff like that are up to date. We have had this happen, whether it was, you know, Gen Z or, you know, you know, old guy, Gen X or boomer like us. I don't know. It does happen, but we do, we dispute them and we've got somebody in our department where we can show, you know, our policy clearly states that if these things don't happen, then no, no refund.

4:47And we win them. So if you have a clearly stated terms of service that has your refund policy and you do dispute it, then you will win. And we found that's really good. Like winning chargebacks is actually good for your merchant reputation. It shows that, you know, you are doing what you say you're doing and you've got a professionalized team there that's willing to, you know, speak to these kind of things. So I think that's really, really important. You could probably speak to what needs to be in the terms of service better than I could with your, you know, with your legal background. I think a lot of this comes from, though, a lot of the direct-to-consumer, a lot of the D2C companies that received this massive amount of funding in 2019, 2020, 2021, when e-com was just the hottest thing on earth, because it was already big, and then COVID happened, and it got even bigger.

5:35And so investors just plowed money into the e-com space. And every e-com company, Anybody selling anything is like, yeah, send it back. Don't send it back. You ask for your money back. We'll give you a refund. Certainly digital products, nothing really to send back. They can just keep it and say they didn't like it. But a lot of this came from these really crazy money back guarantees that all these funded companies were doing because they were just buying customers at a loss. And now they can't do it anymore. But a lot of the policies still persist. A lot of the habits, consumer habits are still persisting.

6:09And I think it's time for merchants to go, anybody selling anything, to go and review your terms of service and just say, do we really need to say that no matter what, under any circumstance, you can get your money back? Is that really what's the best thing? I don't know. What do you think? I think it's, I read it as being a little bit different than that, because I think it's wonderful to encourage people to shift the risk that things aren't what they thought they were or fit the way they want with a very liberal return and exchange policy. But that's not what we're talking about here. What we're talking about here is a chargeback, which requires an act of contacting a credit card company and disputing a charge that you know that you made.

6:57And it's for a product or service that you know that you got and that you knew that you were satisfied with. And so I think that's a very important distinction to make. And where I come down on it is, rather than shaking a finger at the world and saying that's not how it should be, even though it isn't. It's these days. Yeah. Damn credit card, you toting kids on TikToks. That really, it's a problem that we have to address. And so while we wish that the world wasn't the way that the world is, sometimes it is what it is. And I definitely think that what you're talking about had something to do with it.

7:36And they're like, you know, well, I could return it to Amazon or Zappos, so I should be able to return it here. But what hopefully will happen is that someone will raise a flag and say, hey, when you get something that you buy and then you take the money back from the people that you bought it from, the people that work at that company all suffer. And that's really not a healthy thing for you to be doing in our economy. And you're also kind of a jerk for doing it. And so I think that it is good to bring awareness. And then we go to prevention. And what you said is absolutely the thing there is that you have good contracts, you have solid policies for how you take and process customer orders.

8:24and hopefully you've got some sort of customer experience that extends beyond the purchase so that you can have some form of relationship with these people that will cause them to understand that if there is a challenge they've got, then there is or isn't a return policy and process and that's what they need to follow. Then if they disagree with that, they can charge back, but they can't charge it back and keep the stuff. And I mean, I think that's kind of all you can do. And so probably the most effective thing for us would be to say, what does that process look like? So let's assume that this does continue.

9:04One, I would say starting at the beginning would be, what is your return policy and is it clearly articulated? because if it is clearly articulated, then what you want to try to do is encourage people to take advantage of the return policy as opposed to going and doing a chargeback because the chargeback is going to impact your credit card merchant service significantly more adversely than just a return, right? And have lots of extra fees associated with it in addition to the refund. That's the brutal thing about chargebacks. It's like, we're going to take the money and then take some more money for our trouble.

9:37Yeah, and maybe put a reserve in place for you And then you'll get even less money, right? Right. Okay. So thing one is figure out what your return policy is, clearly articulate it and communicate that to the customer along the touch points of the purchase process, particularly when it gets into their hands. What are you telling them when they get it with respect to what they can do if they're not happy with it and what their options are? I'd say that's probably thing one. What do you think thing two is? i i mean i think i think thing too is to have a process in place for you know when chargebacks do occur so you i mean you need to have the policies in place you need to make people aware that they exist anything else before we get there though that you you could think of that maybe helps to mitigate there's there's no substitute for just having a truly exceptional amazing product a truly exceptional amazing customer experience for having a face to the product so that, and the company, so that people don't feel like it's just some nameless, faceless organization?

10:41Because you said something before, people didn't realize this was a bad thing because they didn't know it would impact, you know, the company. Well, what does that mean? It means it's got to impact somebody. So they thought it was going to impact the credit card company. I think so. I think it's like, oh, the bank. It's the bank. Sure. Yeah. So why do they do that? Because it's nameless and faceless. And so I think you've got to, you got to put, you got to make it clear. And one of the important things to do is just even asking for feedback, asking for a testimony. Hey, you know, you got this thing.

11:05How's it working? How can we help? So just really amazing, exceptional customer experience, letting them know that there are real live humans that are there behind, you know, at the company, actively pursuing them to make sure they get value. Well, that's just good business practice in general that we know will also prevent refunds and chargebacks. Yeah, I like that. I don't know a ton of, I mean, and I do think I want to make sure we're talking about this. It's becoming more of a problem than maybe it had been in the past. But if your current chargeback rates are not bad, like if you're doing fine, this is not something that I think you should just panic about and, you know, go and put down a bunch of, you know, you don't want to put a bunch of proverbial locks on the door to keep your customers out.

11:50Like we don't want to, ooh, 0 % chargeback rates, but our sales got cut in half. You know, like Like at some point, you know, they, in retail, they call it shrinkage, right? Which is basically just inventory leaving through the, you know, through the front door, the back door, like without paying for it, like at some point theft in all its forms, there's a cost of doing, just a cost of doing business. Yeah. So I think you want to do the best that you can have the policies in place, do the best that you can from a customer experience and follow-up perspective, have the process in place for fighting it.

12:20But at some point it just kind of is a cost of doing business. Yeah. And we have experienced on more than one occasion, employees coming to us and saying, everybody's charging back or everybody's doing this. And then you're like, everybody, you know, all of them, like we have zero set. You know, it's like, how many? Yeah. Drill down into it and find out, is it, you know, well, no, I mean, it was two people. There were two in the same week. Yeah. Out of the 4 ,000 transactions we did this week. Okay. Well, that's probably okay. We want, you know, can we do things to make that better? but that's lower level priority.

12:54Okay. So let's go into how do we improve our ability in the event that it does become a problem to be sure we get to keep money that we're entitled to. Very first thing, a clear policy that is on the page that states whatever your return or non-return policy is, what the terms, what the process is to do it. You need to be sure you're complying with all of the applicable laws of your state or country. And you need to have some proof that they did in fact do the thing because a lot of those are, I don't recognize this. And I'll actually go so far as to help a little bit with a statement that I think there are plenty of people that buy things and then don't even realize that they bought them.

13:44And then they say, I don't recognize this charge and keep them. So like, I don't know, I'd love to look into that 42 % and understand how it breaks down better. But you know, cause all statistics, you know, they say 98 % of statistics are made up on the spot. The, the challenge that, that potentially exists because I know, and you know, that we'll have people that opt in and give us their email address and we immediately, and buy something from us. And then we deliver it to the email address, they paid for it. They ordered it. And it's a digital product and we send it to them. And then they report us as spam.

14:19It's like, it's, it's amazing. I think just the speed that life moves at for most people. And so, so part of that is, you know, like get your charge product email, all those processes to be congruent that they are the same company. Don't have your, you know, whiz bango 2000 product sold by Gemini sports. And then the email comes from Mike and then the, you know, the credit card is through a DBA. And it's like, that happens. So I think that congruence, that credit card descriptor is a biggie though. Like, um, so what actually shows up on their statement is important. And I would make sure that it's whatever brand they're most going to recognize, ideally your website.

15:08So if it is a website with the dot com, if it'll fit and there are character limits on there. But we used to try to get a website and a phone number in the credit card descriptor if we could. Can't for all, but at least if we get the website, we found that that is better than, you know, because we might have a company that's, you know, we had one, our holding company years ago, Idea Incubator LLC. And so God bless our finance department when they were setting up the merchant accounts. That was the business. And so that's what went on the credit card descriptor. Well, that is not the actual brand that we had.

15:41You know, the brand might've been digital marketer or one of the other ones, but we were getting a ton of chargebacks because people were looking at it going, I don't know what that is. And so I do think, like you said, having brand congruency from what's the website, what's the email, what's on the credit card descriptor, that's going to help, you know, decrease a lot of the, you know, oops fraud, like a lot of the honest people filing chargebacks because they truly don't know or remember what it is. And that I would call friendly fraud. Like it's, I mean, fraud legally requires intent. So it's kind of not like, you know, friendly negligence, but at least you don't feel, you know, you're like, okay, those aren't bad people, you know.

16:22Then for the people who are taking advantage, I think then you go into what was my, you know, what is the process that's necessary for you to win a chargeback? I think that's really what you're gonna reverse engineer and so you've got their consent, you've got your terms of service and then how did you take the card? Did you take it in the right way and everything? And now it's just basically, what proof do you have that they did in fact charge it and ideally that it was shipped if it's a physical product and received if possible and if not physical and digital, then that it was digitally delivered and that hopefully you've got a log and you can see that they've accessed it Because I know we fairly regularly have people doing chargebacks, but they've been accessing the heck out of every single thing that they bought.

17:10And you win those pretty much every time. So those are some things to think of. Anything else that you think we missed? Yeah, I mean, that is, I was going to say, that's exactly how for digital products, we show that they did, in fact, get it. Because people will say, I didn't even order this. It's like, well, is this your email address? Yeah. Okay. Well, we can show that this email address, you know, the login information was only sent to that email address. So it's not like the login information wasn't just freely visible on the thank you page. It had to be emailed in. Somebody then had to actively log into that email address and click the link to gain access, which we saw happen, you know, on this date.

17:45So that is essentially showing delivery for a digital product. And when we've been able to produce that, to your point, we've won every, you know, merchant dispute that we've, you know, that we've had. Now, we've got one person across about a half a dozen companies that's managing, you know, all of these different, you know, merchant disputes. And it's not that many. We don't do it so much for the savings that we get. I don't know, given that we get so few, that if that was the only thing this person did, I don't know that what we save in chargebacks would ROI what we pay this person. But one, she does other things.

18:18She's in the finance department, accounting department. So she's doing other things. But also what it is helping is with that merchant reputation. and that's what we're most interested in protecting. So I think you got the policies, you understand. And I love what you said, asking your merchant provider, hey, what would you need to see in the event of this chargeback? Because the way we learned is we lost some chargebacks. Right. Disputes that we know we should have won. They're like, well, we need to see this and this. Well, crap, let's go put that stuff in. Fix it. We used to, for example, immediately give people access.

18:50We would auto log them in. As soon as they bought, we would automatically log them in. To the members area, which seemed like a really great customer experience. And arguably it is. But, you know, now there's no way for them to say it. So now it's not, you got to click on it. You got to go log in. So that's, that's definitely the lessons will come as this stuff happens. Don't panic about it. I would like to make one other comment though, before we break on just what I've seen out there on, again, angry guy yelling at clouds and the TikToks. but I am shocked at how much fraud is being taught to Gen Xers, Millennials, and anybody who's there to watch on TikTok.

19:34Like my guess is that there's somebody out there. The reason that 42 % of Gen Z's admitted doing this, I haven't found this, but I'd be willing to bet that there is a TikTok video or 10 ,000 of them of somebody saying, Hey, here's a, want to see a cool chick for a cool chick, a cool trick for how to save money on all your purchases. it's really simple. What I do here is I buy it and then I go in and I do a charge back. And the reason I believe that to be true, have you seen the TikTok video of the woman basically sharing her cool trick for getting a loan with no credit that's essentially money laundering?

20:08No. Dude, this is hilarious. And I say this because one, it's a funny story, but two, you need to know that this is the kind of information that's being spread out there and is being taught to your consumers. And if you're a parent, you're, you're kids. So this woman, um, she's an Airbnb, you know, flipper person. And so she's like, here's how I get, you know, free stuff to, to go and buy more Airbnb. Step number one, I set up an LLC. And when I have an LLC, then I can go and I can get a QuickBooks account. And then when I have a QuickBooks account, I send myself an invoice for$5 ,000 for services to this other company.

20:50And then I pay that back. And now I've shown income. And now I can, based on this income, look what pops up. QuickBooks immediately offers me a loan. So I get this loan and then I get this credit card and I, and it's this whole thing and do the entire, like the entire thing is just money laundering and fraud. And it's all over the place visible. So part of the reason that people don't know what they're doing is wrong is because they got influencers openly telling them what to do with a smile on their face and, you know, quick cuts and stuff like that. This is my favorite one. I think we're going to pull it up that my son, Ryan just showed me.

21:28It is a infinite money hack or infinite money glitch. You're going to love it. Do we have it handy? Okay. Is it the one I, I think that's the one I described. Maybe not. No, no, this is, this is, you'll love it. I'm going to, I mean, well, I'll just tell, I'll talk about it and then if we can find it, we'll put it on. And just so we're clear, is it real? It's not a joke. It's not somebody making. No, it's real, real advice, real advice. So this guy is basically a, a painter. and so his infinite money hack is basically that he paints something he goes and gets an appraisal oh there we have it yeah so this is a clip of somebody else's thing of it let's let's let's roll that

22:22yep Yep.

23:03so so basically that's fraud also yeah i i'm gonna go i'm gonna paint something i'm going to get an appraisal on it if the appraisal is going to say it's sixty thousand dollars then i'm going to get insurance to cover the appraised amount so i guess we have a fraudulent appraiser in there too, by the way. Um, and, and, uh, then the insurance company is going to, I guess, take that, uh, at face value, which that makes sense if they could see something and say, yeah, okay. Uh, cause they'll worry about it if you make a claim only, and then you're going to take that to the bank who apparently is going to loan him 100 % of the value of the asset, which we know is a lie.

23:46Um, but let's say it was 50 % and he got 30 ,000, which might happen in some world that's fraud flat out yeah the only thing i think that advice has going for it is i think the guy is just totally full of crap like there's just no way that happened like it's one of those things that sounds like it should work but for his sake i hope he's full of crap because if he's doing it it's fraud and technically just lying to a bunch of people um isn't as illegal as doing what he actually suggested and he's teaching it that's the thing yeah it's like module two and his like, you know, painter riches course or some crap like that.

24:24I don't know that to be true, but it's on brand. Art appraisal riches. Yeah. I like it anyway. Yeah. Okay. We're going to play the rest of it now.

25:05it's kind of a hack infinite money glitch and it's kind of a hack way of selling your paintings to have them foreclosed on and I guess then you just find another bank because no banks talk to each other and your credit will be just fine right Because they're not going to have a personal guarantee on that loan. Anyway, it was to me very interesting. But hopefully, guys, this was helpful in teaching you about friendly fraud. That there are people that are out there that believe it's okay to do these things. That your communications should ideally in your brand congruency help the accidental, not ill-intentioned bad doers.

25:47not accidentally commit what I would call as more of friendly negligence, but we'll go with friendly fraud because it alliterates. And then last but not least, for those people who are just scumbags that are trying to steal from you and get your stuff, have all of the documentation, reverse engineer, what does it take to win a chargeback in your field for your company? Ask your merchant provider, put those into your policies and procedures, and then you're probably gonna be just fine. So along with Ryan's caution of don't overreact and make things so difficult that you lose business from people that are good people that are going to buy from you just because you're trying to stop the one person out of 10 ,000 that's doing the bad thing.