Indian e-commerce companies, especially the small ones, might be sitting on a keg of dry gunpowder, ready to explode any moment.
Credit card frauds!
Over the last few weeks, many of you might have received messages from various cyber crime departments asking you to be careful about buying online.
Our RTI request for more information to the cyber crime police in Bangalore met with a flat NO– in the usual sarkari tone of course. Apparently, the cyber crime department is exempt from the RTI act.
Last week, we came across one distressed founder of an e-commerce company. The company is on the verge of shutting down. As investigations are on, we aren’t going to name the company yet. But here’s a train of events that exposes a widespread problem in the country’s nascent e-commerce industry.
The small time e-commerce company started advertising on Google a few months ago. In a few days, orders started coming in. The owner tied up with a courier company and diligently went about fulfilling the orders.
And then came the hit: chargebacks!
Card holders had started calling up their banks and cancelling the payments made on their credit cards. The payment gateway promptly blocked outgoing payments to the e-commerce company. And some of the orders had already been delivered!
Now to get the money from the payment gateway, the e-commerce company has to produce a proof of delivery. The POD, as it is called by the courier companies, is the sheet of paper on which the customer signs at the time of delivery.
The big courier company does millions of transactions every day. When the small time e-commerce company called up for POD, the company wouldn’t even bother to listen. Apparently, its a big company and it can’t look for the needle in the haystack.
The owner now has no choice but to go back to the payment gateway and state the case. Naturally, the payment gateway willing to take the hit. Well now what? Litigate? But that comes at a cost and the owner will have to shut the shop because cash flow is a problem now.
Now is probably a good time to read the fine print. At the time of signing the contract with the payment gateway, which came with ZERO setup fee, the owner had signed away a few documents without much attention to the fine print. One can argue that they should have read it, but we all know thats not how most people do things.
If you look at it closely, the contract offers little protection to the e-commerce company. Such contracts exist to protect the payment aggregator. It even holds the e-commerce founder personally liable!
Sample this piece of legalese from one of the payment aggregators:
The Sub-Merchants further agrees, confirms, undertakes and guarantees that the non-payment of such order or the charging back of such uncollectible charge as the case may be, shall be the personal responsibility / liability of all the promoters and directors in their individual capacity if the Sub- Merchant is a Limited Company.
Who is to fault here?
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