Hack 24 Protect Yourself from Buyer Fraud

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Use PayPal's Seller Protection Policy to ensure that you don't lose money to fraudulent payments.

Whether you use PayPal as a buyer or a seller, you need to be on the lookout for fraud. If you don't take the proper steps to protect yourself, PayPal might need to retract a payment from your account, even after you've filled the customer's order.

For instance, a credit card holder can dispute any credit card payment, even after you've received the payment and delivered the goods or service the customer agreed to buy. This is the customer's right and it can be an effective means of buyer protection, but dishonest buyers can also abuse this service to intimidate or cheat honest sellers.

Furthermore, a person using a PayPal account to pay you might have hijacked the account from its rightful owner, or someone might have funded a PayPal payment with a stolen credit card. Either way, the rightful owner will, understandably, dispute any such charges once she has discovered them.

PayPal's Seller Protection Policy can mitigate the risk, often to the point of allowing you to keep disputed funds, but the best way to avoid fraud is to spot it going in. Here are some ways to minimize your risk as a seller.

3.12.1 Qualifying for Seller Protection

If you are a U.S. or Canadian seller dealing with U.S. buyers or a UK seller transacting with UK or U.S. buyers, you might qualify for PayPal's Seller Protection Policy, which covers up to $5,000 per year of reversals. To qualify, you must do all of the following:

  • Ship a tangible product. (See [Hack #26] for a cute workaround.)

  • Ship only to a confirmed shipping address [Hack #3].

  • Ship promptly and use some form of package tracking.

  • Respond quickly to any complaints, either from the customer or from PayPal.

  • Meet additional requirements discussed at https://www.paypal.com/sellerprotection and http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/ua/policy_spp-outside.

If you follow these guidelines diligently, you might be able to avoid losses to buyer fraud completely.

3.12.2 Checking the Buyer's User Status

Use the information resources that PayPal provides to learn about your prospective buyer. The Seller Reputation Number [Hack #7] gives you a feel for how much selling your buyer has been doing with this PayPal account. Because many PayPal users do only selling or only buying with any given PayPal account, a buyer's reputation as a seller might not be the most useful information.

As a seller, you will be more interested in your customer's Buyer Reputation Number. However, this score is not readily available; PayPal makes this information available to you only when you are asked to accept or deny a payment sent without a confirmed address.

See the beginning of this chapter for more information on the settings that affect whether you're asked to accept or deny payments.

Possibly the best indicator of a buyer's reputability is his accounts Status. Holders of verified [Hack #2] accounts have shown PayPal that they are in fact in control of the email addresses on file with PayPal and have legitimate bank accounts. PayPal trusts these members more than unverified account holders, so it makes sense for you to trust them as well.

Your prospective buyer's account creation date tells you how long the buyer has been a PayPal member. Buyers using relatively new PayPal accounts or accounts with low reputation numbers have a short track record as PayPal members, but this doesn't mean they can't be trusted. However, you might want to avoid doing business with buyers until they become better established. A long-standing account is less likely to have been set up with the commission of fraud in mind. On the other hand, accounts of any age can, and sometimes are, hijacked by phishers and crackers.

3.12.3 Conducting a Little Reconnaissance

Here are some tips to help you decide whether to do business with any particular person:

  • Consider the buyer's reputation. In addition to the user status information provided by PayPal, do you have other sources you can use to gather information? If you're conducting business via eBay or another auction site, check your buyer's feedback rating or community reputation. Also, look for a history of fraud or payment disputes in the recent comments from other sellers.

    If you're at all suspicious, take it one step further and look for any recent purchasing activity that appears out of the ordinary (such as numerous high-value items). At the eBay site, go to SearchBy Bidder, type the customer's user ID, indicate that you want to include completed items, and click Search.

  • Contact the buyer. For any item, especially one that is expensive and easily resold, it makes sense to contact the buyer directly. Email to confirm purchase details or on the premise of confirming that the product will really suit the buyer's needs. Be particularly wary if the buyer takes little interest in your questions. Some social engineering and a nose for fraud can save major headaches.

  • Use common sense. If you sell only Beanie Babies, ball bearings, and body oil on your eCommerce web site and a single buyer suddenly orders ten boxes, bushels, and bottles of each, ask a few questions before shipping.

In the end, you will probably choose to do business with most of the customers you encounter. But a little common sense and awareness can protect you from most types of fraud.