It's now been just over 6 months since I made PayPal the primary payment method on my ecommerce sites in an effort to reduce losses to fraud (see
Will 53% of customers switch to PayPal and
Betting on Igor). It takes a long time to see the effects of something like this, since chargebacks tend to occur weeks or months after the fraudulent transaction takes place. That was part of the problem — by the time someone realizes their credit card was used by someone else, the service has already been rendered, so the loss is not just the original payment but also the costs of the service sold. I've now been able to take a closer look at the long term effects of sending all new customers to PayPal rather than accepting credit cards directly.
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$3,000 disappeared because I didn't notice the pattern for 4 days. Some fraudster attempted to place orders using 69 different credit cards before I closed all the accounts and refunded all the charges. Looks like this person had a large list of credit cards about to expire he was running through, since a few couldn't be refunded. That might explain the two strange, nasty voice mails left on my phone by people who left no name or number. Amazing how fast so much money can be lost — in 4 days, a lot of advertising can be delivered, which I of course paid for.
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So far, so good. It will take at least 2-3 months to find out whether anything's actually changed after switching to PayPal as the sole payment provider for new customers; stolen credit cards used without a PayPal account won't show up on the rightful owner's billing statement any faster. But I can say that the cart abandonment rate seems to have changed very little compared to previous weeks. It looks like that 53% that choose credit cards are perfectly happy to use those credit cards on PayPal's site as well.
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This book was my best buy of the year so far. It packs tons and tons of experience into 400-some dense pages of interviews with the founders of 30 startups. I was particularly interested in the story of PayPal's early days as recounted by cofounder Max Levchin, the guy that drove technology for the company from 2-person to 1000-person eBay acquisition. The reason PayPal made it, while their clones and competition in 2000 didn't, was dealing with payment fraud. Some of their competitors were seeing 25% fraud rates — for every $4 transaction, $1 was coming out of their pockets in theft.
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It's time to find out. I just rolled out the updated
Visitor Boost and
Targeted Visitors sites that send all new customers directly to PayPal for payment. This is the riskiest thing I've ever done with these sites, but I need to start taking some risks — I've got 10 months until I graduate college to ensure a
stable business to live on.
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In the past few weeks, I've mentioned some "missing money" a few times – QuickBooks telling me I earned more this year than I could account for in my bank accounts. I think I finally found that today while going over things again and figuring out how July went (worse than May and June, better than April). Chargebacks weren't being accounted for in one of the columns I thought they were included in on one of my merchant account statements. Totaling over $10,000 so far this year, that seems to account for the discrepancy. Still my best year yet, but it could've been better by that much.
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I got some good news on my voice mail this morning – my tax audit is unofficially over. I haven't mentioned it here before: The "Small Business Self Employed" division of the IRS audited the Schedule C of my 2005 tax return. It took about 2 months of mailing binders of documents back and forth between Washington and Pennsylvania, but the examiner has closed the case with no change – I accounted for every penny on my return.
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A few months of testing and the verdict is in:
MaxMind minFraud flags more transactions made with stolen credit cards as high risk than my own fraud scoring code. minFraud does a lot I can't: Checking the bank BIN location against the billing address, the location of the customer's phone number against the billing address or if the IP address is a known proxy; if the username or e-mail address are in its database of high risk accounts; if the e-mail has been reported by other users as high risk.
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