CLEARWATER — Trying to run a small business online, it didn't take long for Monica Eaton-Cardone to figure out the biggest obstacle to success.
It wasn't creating a niche or finding customers. It was a barrage of credit card chargebacks — cases where credit-card processors demand retailers reimburse them for charges that are disputed or found to be fraudulent.
The problem grew big enough that it crippled the fledgling company run by Eaton-Cardone and her husband, Gary. So they did what every expert told them not to do: They reached out directly to their customers asking what was behind the chargebacks.
They found out that often customers were not alleging their stolen credit card information had been used. Rather, some customers were shirking responsibility for a legitimate purchase or decided that disputing a transaction with their credit card lender was easier than simply seeking a refund.
They discovered a murky world where retailers were reluctant to even discuss chargebacks for fear they would get a reputation of not standing behind their goods.
By 2011, the Tampa Bay couple's side effort to fix their own company had grown into a consulting business of its own, and Chargebacks911 was born.
Five years later, Chargebacks911 is on its way to becoming a global brand in financial security, with 400 employees working with merchants and lenders in 87 countries across multiple currencies. The Clearwater-based firm has a location in Asia, two locations in Europe and is adding a second London location and Las Vegas office by early next year.
Eaton-Cardone recently talked with the Tampa Bay Times about trying to be a champion for retailers who rarely defend themselves and how the emergence of chip-based cards has actually created a new battleground against fraudsters.
When you discovered problems with chargebacks years ago, were any industry solutions available?
I contacted all of our banks. The advice I was given is you just need to refund more customers. If you just refund, you won't have a chargeback.
So we had a liberal refund policy. The other advice I got from merchant processors was: Do not talk about chargebacks. You'll get labeled as a fraudulent merchant. It's just taboo. It was a subject that was frowned upon to even have a discussion about it.
But you didn't listen to that advice?
No. At the risk of closing up shop, (we decided) to contact every single customer who filed a chargeback and ask them why. We discovered over 80 percent of those customers had never called our customer service (seeking a refund). What we did was slowly but surely codify the process and ended up building this technology. We discerned what we needed to solve our problem was good data.
What data did you need?
Let's say there are 30 pieces of information related to a chargeback. Most retailers only get five of those pieces. It's very hard to determine what's causing a chargeback when you've only got five data points.
It's a system that was designed for failure. And, of course, the banks make money on chargebacks. Everyone makes money on chargebacks except for the merchants.
So we ended up building this technology that continues to learn. … With the Internet, this is not a static environment. It's constantly changing.
We decided we had the right to dispute the chargebacks that were illegally filed. Because I had no other choice, I became an expert in chargebacks.
After hearing from merchants … we started getting contacted by risk managers for other banks I had never heard of and realized our name was getting out there and maybe we have a consulting business. We decided it would be a pet project.
We probably helped at least one merchant every couple months. We had this long list of referrals. … Never did I think it would grow into anything like this.
And the company's name?
The name Chargebacks911 was a complete joke. I had lived with chargeback hell for the last few years and all I wanted was to be able to call 911 and get rescued from chargebacks.
I just wanted something that spoke to merchants like me. I don't care about banks. I don't side with banks.
Gary had more of a vision that if this grows into something, we're going to hate this name and we needed something more friendly that gets along with banks. … Under our name we now work with tons of banks all over the globe. What we've recognized is when you can identify a need and have a real solution for the need, the name doesn't matter.
In retrospect, it's helped us. It's created a reality around the necessity that there really is a chargeback problem. It was an out-of-control situation. Today there are probably 20 competitors, but we were the first.
What differentiates you from the competition?
Of course our technology. And we had a massive head start. But the biggest difference is we built a solution based on firsthand experience.
Hasn't the rollout of chip-based credit cards cut down on fraud dramatically?
It has for other countries. One of the reasons chip-based cards were (distributed) was because of the liability of the U.S. Our inadequacy with security was creating problems in other countries.
If you go to a gas station, your entire magnetic strip could be taken through skimming and then that card information (would be) shipped overseas and used for tons of counterfeit transactions. So the U.S. was a huge liability.
Unfortunately, what has happened with EMV (which stands for Europay, MasterCard and Visa, the three entities that created the global chip-card standards) … is you don't convince (fraudsters) to go out of business. Instead, they just move online.
What we've seen happening in the U.S. is just a migration of fraud. It's dissipated from card-present fraud but migrated to the card-not-present environment.
What we're also seeing is an increase in what's called friendly fraud, which is filing an illegitimate chargeback.
If there is a casino that is not EMV-compliant (in converting to chip-based cards) … you can walk into the casino today and use your chip card and take out $500 in cash and then turn around and file a chargeback and that casino could do nothing about it.
The liability is completely on the retailer, and they have no recourse.
There are consumers … using their own (chip-based) cards to target merchants that do not have EMV-compliant terminals and then simply file chargebacks. We've now created a new breed of fraud.
Upward of 70 percent (of chargebacks) are related to friendly fraud, or family fraud. Using a term like friendly fraud couldn't get more confusing. If banks were doing their jobs, they would do more due diligence before blindly giving a refund to a customer. Fifty percent of the time these customers will do it again in less than 60 days.
What's the latest technology?
We recently made an investment in a company called Veridu. It's an awesome technology that helps merchants be able to authenticate a transaction to help prevent friendly fraud, or at least help you win against a case of friendly fraud.
If you don't defend yourself, you're just admitting guilt. Less than 20 percent of merchants defend themselves. It's just a staggering number.
The best defense from friendly fraud is to make sure you have a great offense. You have to identify the source of the chargeback so the merchant will know if it came from friendly fraud or from (stolen credit card information) so they know when to fight back.
We believe if you have a friendly fraud chargeback, you should win the case 100 percent of the time. It's not your fault.
Contact Jeff Harrington at email@example.com. Follow @JeffMHarrington.