When you spend $1,500 on something, you typically expect to receive a great deal of value from the purchase. Whether it be a new computer, or a new piece of jewelry, as a consumer you don’t usually invest those kinds of funds without being prepared for serious and (usually) instant gratification. One product that unfortunately wasn’t able to provide this serious and instant gratification to many customers was the Hoverboard.
When my Hoverboard company started to experience four week delays in the arrival of our inventory from China, it resulted in a series of processes breaking down, the major ones being influencer gifting, customer fulfillment, inventory management, and customer service. They all very quickly started suffering from the negative ripple effects of a broken supply chain.
However there was one other and arguably way more important problem that had arisen for us during this period: customer disputes. When our early adopter Hoverboard customers began purchasing our $1,500 product, these people wanted their Hoverboard now! Early adopter customers consider themselves “early adopters” for good reason. That’s because they want to begin using a new product before the majority of the general public has the chance to. They value and crave receiving products first and don’t mind paying a premium in order to do so.
We experienced two different types of early adopter customers who started disputing their Hoverboard payments with their credit card companies:
- Real honest paying early adopters.
- Fake fraudulent scammer early adopters.
Our real, honest, paying customers had a story that went something like this:
Joe Smith decides he wants a Hoverboard and goes on our website on June 1, 2015 to make his purchase. A few days go by and then on June 10, Joe still hasn’t received his Hoverboard. He decides to call our office inquiring where his product is, and our customer service team informs him that there is a delay in our shipment of Hoverboards.
We ask Joe to wait patiently and inform him that he’ll be receiving his product hopefully within the next week. A few more days go by and by the time it’s June 17, Joe decides to call our office again because the Hoverboard still hasn’t arrived. At this point, Joe is a little concerned because his $1,500 purchase has yet to arrive and he’s anxiously awaiting to use his Hoverboard.
Meanwhile, our customer service team still has no idea when our Hoverboards are scheduled to arrive because our shipment is already 2 weeks late from its originally scheduled delivery date and our factory isn’t giving us any clarity on the actual arrival date of our inventory. Our customer service team responds to Joe’s phone call by assuring him that our company is not a scam and that he is absolutely going to receive his product. However, we are still suffering from this delay in shipment.
By this point, Joe is not hearing the answer he wants to and he starts to (understandably) get angry. Joe starts to threaten our company, saying that he is going to dispute the payment if he doesn’t receive his Hoverboard within the next week, and guess what happens? Another week goes by Joe calls our office just to confirm that the Hoverboard hasn’t shipped and once he receives that confirmation, he calls up his credit card company immediately and disputes the payment.
At that point, our company gets a notification from our payment processor stating that there has been a dispute made and that the money will be deducted from our account unless we can show evidence that the customer is in the wrong. Since we had no inventory to ship Joe and have no evidence of a FedEx tracking number showing proof of delivery, we ended up having to accept the loss and see the funds deducted from our account immediately.
Pretty harsh right? Well, unfortunately, it only gets worse.
See, we also had many fake, fraudulent customers and their story went something like this:
An online scammer would plug in all sorts of different credit card combinations in an attempt to make a purchase of a Hoverboard with a credit card. Whenever these scammers were successful purchasing a Hoverboard via our website with one of these honest peoples’ credit cards, we as a company would ship one of our units to this fake customer at their fake address.
Then, in four weeks at the end of the month when the honest customer gets their credit card bill in the mail and they see a $1,500 Hoverboard purchase, they say “what the hell is that?,” and they call up their credit card company to dispute the payment.
Once this happened we would get the same notification from our processor stating that unless we provided evidence of having shipped the product they would deduct the funds from our account. This time, we actually had proof of a FedEx tracking number showing delivery of the unit. However, we had shipped the unit to a fraudster and, as a result, the address we had shipped the unit to didn’t match the address on the credit card and it would be deemed fraudulent and the dispute would hold.
We had hundreds of fraudulent orders go through our website and this resulted in hundreds of additional disputes, on top of the ones from our legitimate customers.
Each day, we would see our bank account fluctuating drastically because the credit card processors would deduct tens of thousands of dollars out of the account at once when there was a bulk of fraudulent orders that needed to be paid back. The processor also had the right to suspend and/or freeze our funds in our account which they did on multiple occasions when fraudulent orders would build up. One day we would have $500,000 of liquid sales revenue sitting in a bank account and the next day it would be frozen, and the processor wouldn’t allow us to touch the money for up to 6 months.
With all of this happening at once, different credit card processing platforms stopped doing business with our company, and it wasn’t just our company. The industry as a whole got tainted so quickly with fraud that credit card processors stopped wanting to accept credit card payments from any Hoverboard companies, because the industry was deemed to be too risky.
As these fraudulent orders kept building and building, it ended up putting our young startup in a very precarious position. We were not only struggling to fulfill orders and retain the funds in our bank account, but also had massive credit card processing issues lingering over our heads and, as a eCommerce company, if you can’t process funds you’re more of less out of business. That is, of course, until orders start ramping up dramatically during the Christmas 2015 Holiday season.
Stay tuned for Part 5, on Why Going Viral Sucks…
Big thanks to the team over a Silicon.NYC for allowing me to begin contributing to their publication. This was my 4th article published on their site and you can definitely check out this story and plenty more other exciting technology oriented stories over at Silicon.NYC.