Australia Small Businesses Hit by Fake Bank Refund Scams
Synopsis
Australian small businesses are losing hundreds of dollars to fraudulent chargebacks, a decades-old consumer protection system being misused as a form of theft. The average chargeback is $91 but costs $25 to dispute, making it not worth fighting for most small operators. Banks side with customers 72 per cent of the time, totalling $477 million reimbursed in 2023-24. The rules governing chargebacks date back to the 1980s and have not been updated for the era of online shopping. Over 1,600 Australians have signed a petition calling on the government to act.
Australian small business owners are losing hundreds of dollars to false chargebacks, a consumer protection concept that is being hijacked to rip off the businesses serving them. More than 1,600 Australians have since signed a petition urging the government to take action.
Key Highlights
- Australian small businesses continue to lose millions from chargeback fraud.
- In Australia, the average chargeback is $91, but it costs $25 to dispute it upfront, so most small businesses won’t bother fighting it.
- Customers who dispute card fraud receive a full refund from their financial institution in 2023-24 costing on average $477 million.
- There is also an online petition, signed by more than 1,600 people, urging the government to take tougher action to safeguard small businesses.
- Now the Australian Banking Association is requesting a complete review of the 1980s-era chargeback rules.
Australian Small Businesses Getting Robbed By A Legal Loophole
Fraudulent chargebacks are on the rise against small business owners right across Australia, with cases in retail, beauty, transport and accommodation. A chargeback occurs when a card payment is disputed, because the item never arrived/damaged/unauthorised, and the bank pulls the money out of the business immediately.
After a customer mistakenly reported a trio of paintings by Sydney artist Bronte Goodieson as defective, $460 was pulled from her account. When she reached out to the buyer, they told her the paintings were fine, they just called the bank because they did not know what day delivery was going. An owner of a Gold Coast tanning salon, Rachael has received close to 12 fraudulent chargebacks in the 18 months since the store opened, and has not won a single case.
How the Game is Rigged for Small Business Owners
The chargeback process was designed in the 1970s to combat real fraud, but the rules have not been updated since the 1980s, when card payments were uncommon and e–commerce barely existed. Australian retail sales are now close to 50% online and global chargebacks are expected to surpass 324 million transactions by 2028.
If you get a chargeback, you have to pay $25. That's just to counter-claim on an average transaction of $91. Banks also do not have much reason to side with merchants. At the Australian Financial Complaints Authority, banks are charged $500-$1,000 even before they take a complaint to them, so most banks just give customers their money back and move on.
Top Industry and Expert Tame: The Rules Need an Overhaul
Brad Kelly co-founded the Independent Payments Forum, which represents 120,000 small businesses to combat so-called network operation fees, and followed up by saying, fundamentally, the system is broken. “We operate on a legacy system that goes back to the 80's and that hasn’t been updated,” he added. Australia’s banking sector, says it would support a full review of existing scheme settings according to ABA chief executive Simon Birmingham. The government says it expects payment providers to take a more thorough look at claims before processing chargebacks, but has not announced any specific rule changes yet.
FAQs
- What is a chargeback?
A process by which a customer challenges a card payment with their Bank, and the Bank instantly deducts money from the business, sometimes before even investigating
- Who decides the outcome?
Your card-issuing bank and banks have a financial incentive to support their customers over merchants.
- Are the rules going to change?
The Banking Association has demanded a review, the Small Business Minister has noted the issue, but nothing has changed yet.
- What should small businesses be doing now?
Document every transaction in exhaustive detail, tracking numbers, delivery confirmations, photos and any exchanges with customers are the only evidence you have to support a dispute.
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