Kiwi businesses have had it tough over the last couple of years, especially those in our coastal regions.
Covid lockdowns coupled with extreme weather events and extensive flooding has made for some challenging times.
But two retail businesses have had to deal with flooding of a different kind. A flooding of fees; credit card transaction fees charged on online orders that the business owners say they shouldn't have been charged for, because those online orders were fraudulent.
Karan Gregory, owner of Contain Boutique in Whangamatā says the online orders are now a necessity.
"It's probably at the moment 70-80% of our business".
In 2013 Karan signed up to Shopify, an e-commerce platform that brands like Netflix, Tesla and Kim Kardashian's Skims use to set up and sell their stock online.
"It appeared to be the leader in website platforms, so I don't think I gave it a second thought,” she says.
That is until this year in May when Karan got a flurry of online orders from Saudi Arabia. They ranged from $1000 to $4000.
"They were coming every five to 10 minutes, all night,” Karan says.
"In one week it was over $400,000. It was insane.”
They were flagged by Shopify as high risk, meaning that they could be fraudulent. Once flagged, Shopify says it's up to the merchant to decide whether to fulfil that order or not.
Karan says getting those orders affected her online stock levels and in one night it affected 160 products.
Shopify's solution for Contain Boutique was to download some fraud protection apps, but Karan says they didn't work. On one occasion, one of her real online orders by cancelled by the fraud app.
Taupo's Kate Kerr, owner of Paire Shoes also received a mass of fake orders on Shopify.
"I had a week of 30 orders, and it totalled $100,000,” she says.
Her website developers, Legend Taupo, communicated with Shopify on Kate's behalf, and like Karan, Shopify suggested downloading some fraud protection apps, but they didn't work.
Fair Go asked Shopify about these apps and its spokesperson says:
"Shopify offers a selection of more than 100 third-party fraud protection apps in our App Store that merchants can decide to install to protect themselves against fraudulent transactions".
But fraudulent purchases were only part of the problem for these businesses. They were being charged fees on these orders. Karan owes Shopify $6700, but she's already had $4000 taken from her account for fees.
Kate owes Shopify $3500 and she's already been charged $1400. Because the fraud apps weren’t working, they were being left wide open to further fake orders and more fees.
Fair Go asked Shopify what exactly these fees were and why Karan and Kate were having to pay them. It's spokesperson said: "These are transaction fees charged by Shopify to process major credit cards as payment via a merchant's store. Merchants don't pay any fees to the credit card provider itself as the Shopify Payments transaction fee covers this for them".
Fraudulent or not, fees are still charged. Shopify's terms of service also makes it clear that there are no refunds on these fees.
Fair Go wanted to know if this practice is legal. The University of Auckland's Associate Professor in Commercial Law Alex Sims says even though it may not be fair, no refunds on fees is legal.
But Professor Sims also says Shopify doesn't have to charge these fees, that they could foot the bill themselves. She also says if these orders are flagged as fake, Shopify should make more of an effort to stop the fraud.
Shopify told Karan and Kate that it doesn't block high risk orders as a decision about how to proceed with these is the business decision of every merchant, and it can't interfere with this.
In the meantime, Shopify has stopped paying both Contain Boutique and Paire Shoes for their orders.
"It made me feel like a very very small drop in Shopify's ocean. It just made me feel like a nobody,” says Karan.
With a little help from Shopify, Karan tried her own measures like blocking orders from certain regions, but in the end decided to shut her website down.
Fair Go wanted to know whether there was any way around these fees. The answer came to Kate, via Legend Taupo, after lots of back and forth communication.
"By the end of it Shopify admitted that the only way you can guarantee that you can 100% not get these orders is to put your website on manual, but we didn't know that until a week later after getting all the fake orders,” says Kate.
Manual capture gives businesses more control over which orders are processed. An order doesn't become official until authorised by the merchant. Shopify confirmed to Kate's web developer that manual capture is the only way to ensure credit card fees are not charged. So, why wasn't manual capture given as a solution in the first place?
Shopify told Legend: "Shopify does not automatically advise merchants to switch to manual payment when there are high-risk orders coming in, because high-risk orders can be managed in various ways, and switching to manual payment might not be the best solution for every merchant".
Shopify explained that switching to manual could increase workload, slow down orders and affect customer experience, but admitted to Legend that if set up earlier, fees would have been avoided.
Other New Zealand businesses have been affected by this too. Kate has had to take Paire Shoe's website down while things get sorted and says,
"Shopify need to be held accountable. It's a huge company, so they really should be communicating with us better and emailing us telling us what to do.”
Contain Boutique has just launched it's new website, with a new e-commerce platform, that Karan says has better communications.
Tips for small businesses:
• When signing up to an e-commerce website, read the T and Cs carefully and ask questions
• Consider putting your store orders on manual to protect yourself from future fraud
• Shop around for a platform that suits your business because there are plenty around
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