Crowdfunding Scam

Crowdfunding is the practice of funding a project or new idea or business by raising money from a large number of people. These days, it is often done through online platforms, such as Kickstarter, Indiegogo, GoFundMe, and YouCaring. “Organizers” will pitch a new product or creative project and submit it to the online platform. People can then fund it for rewards such as the product at a lower price or a special preview of the creative project (such as a movie). These crowdfunding sites can also be used to help people in need, such as raise money to pay for funeral or medical bills.

Online crowdfunding sites are not safe from fraud. Sometimes fake companies and scammers try to trick you out of money. However, more often you will lose your money because the organizers do not have the right experience or the challenges to the project are too big to overcome.

Tips on Evaluating Crowdfunding Campaigns

Here are a few tips on how to protect yourself when dealing with crowdfunding campaigns.

  • Research the Organizer. Learn all you can about the organizer before making a contribution. Use Google and LinkedIn to look up the organizer. Does the organizer have the expertise in the area the campaign concerns? Check out their Facebook page. Does it look fake? Are the friends real? Are there real-time comments? Be suspicious of pages that were created right before the campaign started.
  • Research the Crowdfunding Platforms. There are many different crowdfunding platforms and they all have different rules. Some platforms require organizers to have a prototype and only give the organizers money if the campaign reaches its goals and after the campaign is over. This gives people time to change their minds. Others do not require a prototype and allow organizers to take out money at any time, even if they do not reach their goals. If you want a refund, you have to get it from the organizer. Some platforms also provide refunds in certain situations (that is, when the organizer makes false statements or is charged with a crime).
  • Do a Reverse Image Search. Fake campaigns often copy and paste other people’s stories or photos. Doing a reverse image search of the photos used in the campaign, as well as those used on the organizer’s social media pages, can show you if the photos are stolen. Also, be careful if the campaign is posted on multiple sites. Scammers will do this to reach more people. A reverse image search may also show that the supposedly “new” product already exists and is being sold in another country like China through
  • Contact the Organizer and Ask Questions. Each crowdfunding site allows you to ask the organizer questions through the comments section. If an organizer is answering questions regularly, it is more likely that they are not trying to scam you.
  • Be Suspicious. Beware of campaigns that make you feel sorry for someone, but do not give you any details of how your money will be used. Be extra careful after a major disaster or tragedy because scammers will often try to take advantage of your desire to help victims. Also beware of campaigns that seem too good to be true. They probably are.
  • Understand the Purpose of Crowdfunding. Remember that there is no guarantee that the crowdfunded campaign will be successful. The purpose of crowdfunding is to fund a company or project, not to buy a product. There are risks involved. Similarly, when donating to a worthy cause, contributions are probably not tax deductible unless they are made to a nonprofit.

Classified Scams

What are classified scams?

Classified scams work in one of two ways:

#1 A scammer posing as a seller

Here, scammers post fake classified ads offering something for sale. This can be anything from a car to a caravan.

The item is usually priced at a very low price compared to other comparable items.

Normally, if you inquire about the item, the seller may tell you that you are unable to see the item (as they are away, for example) but someone else will deliver it for you after you have paid for it. After payment, you will not see the item or be able to contact the person who was selling it.

#2  A scammer posing as a buyer

If you are trying to sell something through a classified ad, you also need to be aware of classified scams involving fake buyers.

Sometimes, a scammer may ask you to pay for their transport, for example, so that they can come and collect your item and then never show up.

They may even promise that they will repay you the money when they see you.

Avoiding classified scams: Price too good to be true? Avoid it.

One of the ways that scammers lure buyers to purchase their products is by advertising them at a very low price tag.

If the item you have your eye on looks very cheap compared to other similar products, this should alert you that it may be a scam.

Big value item? Only pay after you have seen what you are buying.

If you are spending lots of money on something you have seen in a classified ad, it is always advisable to see the item, in person, first.

Do not be talked into paying a deposit before you have viewed it.

A simple way to avoid classified scams is to ensure that what you are buying actually exists, before paying any money for it.

Take someone with you to see an item.

Stay safe and bring someone else along with you to see the item.

If possible, arrange to meet the seller at their home. Be wary if they suggest they come to your home to make the sale.

Copy and paste the ad into Google.

If you are suspicious of a classified ad, copy and paste the text into Google. Often, scammers will use someone else’s description of the item to try and tempt buyers.

Equally, you could find other people who have been scammed by the same ad and are warning others to avoid it.

Check the seller’s ratings.

Many websites offer previous customers the possibility to rate their experience with a seller. If possible, take a look at what other people say about the seller you are thinking of buying from.

If you are selling your car, ask the buyer to bring ID.

If you have someone interested in buying your car, ask them to bring ID with them when they come to meet you.

This can help to put off a scammer.

Additionally, you need to be very aware if you let a buyer test drive your car. Do not leave the car keys in the ignition unattended or someone could drive away with your vehicle without paying.

The golden rule for avoiding classified scams: always be cautious.

Scammers are often very good at what they do. They know how to tempt us into parting with our cash.

In order to avoid classified scams, take the time to research what you are buying and who you are buying it from.

  • Avoid deals that are too good to be true.
  • Do not be talked into parting with cash to put a deposit down on a high-value item that you have not seen.
  • If possible, check if the seller has any ratings from previous customers.
  • Be aware that just because an ad looks slick and professional, it may not be genuine.
  • If you are selling something, do not be afraid to ask a potential buyer to bring ID with them to your meeting. This alone can be enough to put off scammers.

Finally, do not part with any cash unless you are 100% sure of exactly what you are buying and who you are buying it from.


What Is Chargeback Fraud?

Chargeback fraud happens when a customer contacts their credit card issuer or bank to dispute a legitimate purchase and request a chargeback, or refund, for it. This type of fraud happens almost exclusively online and has increased as online shopping has grown in popularity.

Chargeback fraud can be malicious, in the case of customers who knowingly try to “get something for nothing.” But it can also be due to an innocent mistake, like when a customer doesn’t recognize a legitimate purchase on their statement (this is called “friendly fraud”).

Chargeback fraud that is legitimate occurs when the customer circumvents the business and goes directly to their card issuer to request a chargeback. For example, the customer…

  • Claims they never received their order—but had
  • Says they sent back a return that was never processed—though it was
  • Insists they hadn’t authorized the transaction—but had
  • Complains that the item or service wasn’t as advertised—even though it was
  • Claims that a recurring payment was not canceled as requested—even though they never canceled it

When a customer requests a chargeback for these reasons—without contacting the business to resolve the issue and without returning the merchandise—that’s chargeback fraud. Whether they do this maliciously or not, they are essentially cyber-shoplifting.

Is Chargeback Fraud the Same as Friendly Fraud?

On the surface, chargeback fraud and friendly fraud are the same. However, friendly fraud happens because of an honest mistake on the customer’s part. For example, when the cardholder:

  • …doesn’t recognize a legitimate purchase on their statement
  • …forgets they had ever made the purchase
  • …doesn’t realize a family member had bought something with the card
  • …mistakenly thinks that a bank-issued chargeback is just another way to process a return

How Does Chargeback Fraud Hurt Business Owners?

Unfortunately, card issuers are so inundated with chargeback requests that they have scant time or resources to investigate them all, and will often greenlight chargebacks with little or no real evidence, taking the customer’s word for it and passing the damages on to you.

While it may sound astonishing, when a customer requests a chargeback, their refund is automatically deducted from your bank account—as is a hefty chargeback fee levied by your bank.

For business owners, chargeback fraud adds up to lost revenues, sunk shipping costs, potential merchandise shortages, and damaging chargeback fees. Chargeback fraud also costs you time, as you attempt to dispute fraudulent chargebacks and recoup lost income. Be warned: battling chargeback fraud is not easy because the burden of proof falls almost entirely on the merchant, and the chances of getting a charge reversed a slim.

What Is a Chargeback Fee?

A chargeback fee is a price you pay when a customer disputes a purchase. It’s the fee you have to pay over and above the refund that your bank issues to the customer. This chargeback fee can be anywhere from $20-$50 per transaction. Your bank issues this chargeback fee to cover the administrative expense of refunding a customer’s money due to a chargeback request.

Chargeback fees can be very insidious. While a credit card issuer typically notifies you of chargebacks, they often won’t do it for small transactions, like those that fall below $30. Unfortunately, these small chargebacks and chargeback fees can add up if they go undetected, eating holes into your bank account long before you’re aware of them.

How Can You Protect Against Chargeback Fraud?

You can take several steps to combat chargeback fraud and minimize risks to your business:

  • Use strong credit card verification methods. Implement automatic systems that check whether a customer’s credit card billing address matches the one on file with the card issuer. If it doesn’t, you can reject the transaction.
  • Be aware of unusual orders. If a customer orders a large number of products, makes several purchases in quick succession or has wildly different billing and shipping addresses, it may clue you into potential chargeback fraud. For example, organized retail crime rings have been known to order a large number of items to resell, request an illegitimate chargeback, and then retail the merchandise at nearly a 100% profit. If you see something out of the ordinary, contact the cardholder to verify that the transaction is valid (and keep records of the conversation).
  • Confirm all orders. Once an order is placed, send an automatic email confirmation to the customer. This helps prevent friendly forms of chargeback fraud by informing customers that their shipment is being processed, and by serving as a reminder that they made that purchase in the first place. It can also dissuade would-be cyber shoplifters and chargeback fraudsters.
  • Remind customers of recurring payments. Send a notification email to give customers a gentle reminder of an upcoming automatic payment. Friendly chargeback fraud can occur when customers are confused by a recurring payment they had agreed to but had long forgotten about.
  • Use shipment tracking and require signature confirmation. Having proof of delivery is a valuable line of defense against chargeback fraud. Packages left on doorsteps without a signature leave you vulnerable to chargebacks from customers who say they never received your package. Be sure that both you and the customer have access to shipment tracking information, and require a signature for shipments when it makes sense for your business.
  • Use clear transaction descriptions. If a customer doesn’t recognize the name that appears on their credit card statement, they may mistakenly assume that a legitimate purchase was fraudulent, and request a chargeback. For example, if you’re selling healthy snacks under “Metabolic Munchies” but the credit card statement shows a charge from “Healthy Goodness LLC”, the customer may not recognize the transaction. Use clear product descriptions as an added layer of protection against chargeback fraud.
  • Clearly define your return policy. You can counter a customer’s claim to a refund if your policy clearly states that one is not warranted. Chargeback fraud demands a multi-faceted approach, and this should be just one of many defenses in your toolbox.
  • Document conversations and interactions with the customer so that you have a paper trail of evidence to work with if and when you experience chargeback fraud.

How Can PaySimple Help?

When you use a dedicated merchant account from PaySimple, you have the opportunity to defend yourself against illegitimate chargebacks and chargeback fraud. (This is not often the case with aggregator accounts like those provided by services like PayPal.) For more information and resources for defending yourself against chargeback fraud, be sure to read our extensive post on friendly fraud.

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