GoKawiilMichael Cotter had a problem: “Chargebacks” at his tech support company were too high. The reason for this was not hard to find; people at his company, Tech Live Connect, were scamming Cotter’s fellow Americans.
The scams usually began with a pop-up message warning that a user’s computer might have a virus. The pop-up then claimed to run a “scan” (which was always positive) of the computer and provided a toll-free number to call for more help. Those who called were connected to Tech Live Connect’s Indian call center, where they were asked for remote access to their computers, diagnosed with fake problems, and charged hundreds of dollars to “fix” them. Call center workers often pretended to be Apple or Microsoft employees.
Defrauded people complained in droves.
Even worse—they filed chargebacks with their credit card companies, disputing these payments. A high rate of chargebacks is usually a pretty good sign of fraud, and payment processors will often apply penalties or stop credit card acceptance altogether if chargeback ratios climb too high. By the middle of 2015, one payment processor was already warning that it could soon terminate five of Tech Live Connect’s merchant accounts over chargeback concerns.
To make the problem stop, Cotter could have clamped down on the fraud, of course, but this was where the money was. Cotter did claim that he had a policy of firing call center workers who conducted scams, but he eventually admitted that the policy “was not enforced consistently.” Repeat scammers at his company were in some cases promoted, not fired.
Instead, Cotter came up with a different approach to the chargeback problem, one that would fight concerns about fraud by… generating a lot more fraud.
Pay yourself first
In 2016, Cotter began purchasing virtual debit cards. Tech Live Connect then used the cards to pay fake invoices. Essentially, the company was paying itself. But it now looked like Tech Live Connect was processing many more legitimate charges, which diluted the impact of all those fraud claims. The chargeback ratio fell.