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Beware: The New York Times reported that the man who operates DecorMyEyes.com racked up scores of complaints but Visa and Mastercard did little to stop him.(Credit:Screen shot by Greg Sandoval/CNET)
commentary Internet shoppers once again have reason to question whether Visa and Mastercard are the best means to buy online.
People were taking to Twitter and online forums to express shock about a compelling expose published in The New York Times on Friday. The story focused on an online retailer with a dubious history of customer service that included responding to complaints by unhappy patrons by allegedly threatening their lives. The newspaper reported that Vitaly Borker, a resident of New York, had generated so many complaints from selling eyewear on his site, DecorMyEyes.com, that all the negative comments had served him by raising his site higher in Google's search results.
Besides potential problems with Google's search algorithms, David Segal, the story's author, unearthed all kinds of e-commerce collateral damage. Among the companies that should be embarrassed by the report for either failing to protect their customers or their inability to track down rogue retailers were eBay, Citibank and the Internet Crime Complaint Center.
But the reputations to suffer most were those of Visa and Mastercard, two of the nation's largest transaction companies. Among the many complaints about Borker was that he refused to issue refunds and one of the ways he got away with it was due to an apparent flaw with Visa and Mastercard's security systems.
Red flags go up at Visa and Mastercard if a merchant sees too many "charge-backs," the term used to describe when a customer successfully disputes a transaction and obtains a refund. This is what the Times wrote: "Precisely how many of these charge-backs is too many is one of the few business subjects that Mr. Borker deems off the record, but suffice it to say he tracks that figure carefully and dials down the animus if he's nearing his limit."
Deja vu.
I heard about how merchants with ill intent know how to game Visa and Mastercard's systems a year ago. I was speaking to a source who once worked at some of the so-called post-transaction marketing companies that were investigated by the U.S. Senate last year as part of one of the worst online retail scandals in history.
Companies such as Vertrue, Webloyalty and Affinion paid a large number of top e-tailers, including Orbitz, Buy.com and Priceline to allow them to charge their customers' credit cards without the customers supplying the credit card number. Near the close of a transaction at the e-tailing site, a shopper would be presented with an ad that typically offered some free service that appeared to be from the merchant.
The trouble was the customer often didn't see the tricky small print buried in a mass of text.
A Senate subcommittee found that perhaps more than a million people were stung by this "scam" and unwittingly paid these companies every month. The retailers and marketers walked away with hundreds of millions of dollars.
The source, who continues to be employed in online marketing, said that one of the reasons managers at Webloyalty and some of its rivals were able to operate under the noses of Visa and Mastercard because it was easy to game the system. They knew exactly the number of charge-backs they could acquire before having to scale back operations, the source said.
To be fair to the credit card companies, this isn't an easy problem to solve, as people like Borker are well aware. He told the Times: "If Visa and MasterCard ever shut me down, I'd use the name of a friend of mine. Give him 1 percent."
Borker actually was shut down by Mastercard. Noah Hanft, a Mastercard lawyer told the Times that it booted Borker for going over his charge-back number. Nonetheless, the company has no idea how Borker was able to continue doing business.
"No system is perfect...keep in mind, millions of transactions are conducted on our system every day, with 30 million merchants," Hanft told the Times.
That is almost exactly what Visa and Mastercard spokespeople said to me during the post-transaction marketing scandal.
As part of the senate investigation into post-transaction marketers, Visa and Mastercard promised to do more to protect shoppers. It doesn't appear they've done enough.
For now, all consumers can do is look for safer ways to do buy online. Peter Pham, a venture capitalist and former Photobucket exec, posted a note on Twitter that linked to the Times story. Pham wrote: "Why I only use Amex."
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