It’s an unhappy fact that many in the antiques trade are familiar with the feelings of anger and frustration that can accompany being on the wrong end of a credit or debit card chargeback.
Aubrey Dawson, founder and managing director of Dawson’s Auctioneers in Maidenhead, Berkshire, describes a typical experience. “We had a buyer who bought two Rolex watches, through an online platform, and paid by credit card. It was about £10,000 in total,” he recalls.
Soon the alarm bells in Dawson’s head started to jangle. The buyer wanted them shipped, despite the fact that the delivery address was only an hour or so away, and with no insurance. Dawson’s refused and after making a lot of excuses, the auction house got a chargeback, with the buyer claiming he had never taken part in the sale.
Despite Dawson’s contesting the claim, the card company sided with the buyer, leaving Dawson’s to foot the chargeback bill. But thanks to the firm’s prudence, it hadn’t despatched the goods.
Chargeback is the name given to the process that card providers use to enable consumers, under certain circumstances, to retrieve payments made on their credit or debit cards. It’s intended as a last resort to settle disputes between buyers and merchants in cases where the cardholder is not present (CNP) when the purchase is made.
By no means all chargebacks are fraud: they can occur legitimately when an item is not as described by the vendor, is damaged in transit or doesn’t turn up at all, for example.
Although in principle the ability to chargeback is an important part of protecting the rights of honest consumers against dodgy traders, in practice the way in which the process is managed by card companies puts the risk – and the burden of proving that they are in the right – squarely on the merchant.
It’s a system which leads not only to the chance of unforeseen financial loss but also creates a great deal of resentment among auctioneers and dealers.
“I have a file on chargebacks which is an inch and a half thick,” says Colin Young, managing director of auctioneers Golding, Young & Mawer and president of NAVA Propertymark.
“ Consumer protections are good but they are being abused
Aubrey Dawson, Dawson’s Auctioneers
“The system is not fit for purpose. The credit card companies won’t support merchants and all the liability ends up with us. No responsibility is taken by the card companies.”
The problem for auctioneers in particular is exacerbated, he says, by a new generation of buyers brought up on e-commerce sites. When they step out from behind their laptops and venture into the saleroom, they don’t appreciate the rather different rules that apply there. “They believe they have a whole set of rights which they don’t have. Live auctions are view, pay, take it away. Those are the terms and conditions they sign up to,” says Young.
Justin Wilson, director of timed auction firm William George & Co, says most chargebacks are the result either of buyer’s regret and change of heart or genuine forgetfulness. “But where a chargeback is fraudulent, it is quite distressing to the seller,” he says.
Dealers face similar difficulties when it comes to card payments, especially when selling online. “I had an e-commerce website, but I stopped around three years ago because I was getting inundated with fraudulent transactions,” says Mark Goodger, of antique boxes and accessories specialist Hampton Antiques. “I had no protection and it was a nightmare.”
Goodger now insists on taking payment by bank transfer wherever possible, if the buyer is not present and cannot use chip and pin. His caution has paid off, he says – so far. “I haven’t had a chargeback yet, but I know it will happen. The possibility is always on my mind.”
The system may not be perfect, argues Marco Forgione, chief executive of BADA, but it’s important to maintain a sense of proportion when it comes to chargebacks. “It is an issue, but a small one. It is a marginal consequence of engagement with the much wider growth and market opportunities afforded by e-commerce.”
Nevertheless, many auctioneers and dealers seek to limit their potential exposure to chargebacks by the effective if rather blunt instrument of imposing limits on CNP transactions, especially those taken over the phone. “I’ve been stung for £700,” says Young. “It’s not masses but it’s the element of risk. For this reason we don’t do CNP on high-risk items at all now.”
The system is intended to be applied to brand new identical consumer goods like washing machines and electronics, and struggles with the second-hand nature of antiques where condition can be crucial, says Marika Clemow, director of operations at Auction Technology Group, parent company of thesaleroom.com and Antiques Trade Gazette. “Chargebacks are a grey and subjective area and therefore open to abuse.
“ I have a file on chargebacks which is an inch and a half thick
Colin Young, Golding, Young & Mawer
“But it’s probably less than 1% of transactions, and as business owners maybe we do have to accept it. The upside is much more than the downside – more international customers and wider markets.”
Auction Technology Group has its own set of security procedures for new registrants. “We do a telephone check and an email address validation, we link accounts across our database to weed out blocked accounts. So we’re 99% sure it’s a real person,” Clemow says.
But even so, CNP transactions are always subject to the possibility of a chargeback. “The only really secure way is to have the payment wired to you,” Clemow advises. “I have never seen a chargeback from a payment taken that way.”
In future, she says, there may be more alternative payment methods that don’t involve the card system and are more convenient for buyers than logging into bank portals. “We are researching other ways to do bank transfers online – easier ways of setting up a direct debit, for example,” Clemow says.
Ultimately, embracing the full potential of e-commerce may mean adopting a slightly different attitude to risk, says Chris Wade, VP of product for Sage, provider of small business payment gateway SagePay. “You have to take controlled risks and SagePay helps merchants to do that,” he says.
A solvable problem
Wade argues that fraud is inevitable in business. That may be true in theory, but those who have endured the thankless hassle and expense of the chargeback process will take some persuading.
“There needs to be more consultation from the card companies, with sellers as well as buyers,” says Aubrey Dawson. “They need to be more receptive. We get two or three chargebacks a year, and every one I have had over the past 15 years has been fraudulent. Consumer protections are good, but they are being abused,” he says.
Wilson, of auctioneer William George & Co, argues the problem of chargebacks is solvable.
His firm, which sells industrial and commercial items as well as art and antiques, was once in the distracting situation of receiving several chargebacks over a two-month period. Faced with such an excessive amount of chargebacks, it embarked on what Wilson describes as a “root and branch” overhaul of payment procedures, including learning how the chargeback system worked “in order to best protect ourselves”.
The effective defence, Wilson concludes, is a robust purchase paper trail and a willingness to show intent on challenging chargebacks.
Once William George & Co has been contacted by its merchant provider about a chargeback, it has 14 days to reply. To speed up its response, the auctioneer has devised a standard letter with space for specific case details, to which it attaches screen shots of the winning bid, details of the time and date of the purchase and a copy of the invoice.
“The merchant provider will accept this information by email and the more detail you provide, the better, especially if the person charging back is claiming fraud,” Wilson says. These documents are then sent on to the card holder’s bank for adjudication, “and eight out of ten times you will win”.
If the card holder alleges fraud, the auctioneer contacts them direct, with evidence of their purchase. This can encourage payment for the item but if not, William George & Co will let the card holder know that court action will follow.
Finally, the auctioneer will insist on a letter of apology from the bidder to the firm’s bank. The challenge of chargebacks, Wilson argues, is not just financial, but reputational as well. In his experience, the issue can not only be addressed, but successfully tackled to boot.
Andrew Saunders is a business journalist and former deputy editor of Management Today magazine. Additional reporting by Noelle McElhatton, editor of ATG.