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Clearwater fintech expert weighs in on the latest Facebook scandal

Margie Manning

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Monica Eaton-Cardone

A financial technology entrepreneur in Clearwater is calling for increased education and tougher restrictions for online credit and debit card usage, including games that allow children to rack up big charges on their parents’ cards.

Monica Eaton-Cardone, co-founder of ChargeBacks911, said the lack of regulatory standards is a key reason behind the latest accusations against Facebook. The social media giant was accused in a class action lawsuit of knowingly duping children and their parents out of money spent on games, then refusing to give the money back, according to Reveal, a report from The Center for Investigative Reporting.

While Facebook has drawn a lot of criticism for the practice, the issue is bigger than a single company, Eaton-Cardone said.

“Every big digital company is marketing to minors. These are the people who are using technology and parents are not making sure the right precautions are in place,” she said.

She spoke to St. Pete Catalyst from London, where she was named Global Leader of the Year at the Women in IT awards ceremony.

Eaton-Cardone founded ChargeBacks911 after her own online retail business was hit with a heavy volume of chargebacks, which occur when a customer disputes an item on his or her credit card statement. She developed technology to help merchants avoid chargebacks, including what is known as “intentional friendly fraud” or cyber-shoplifting. That occurs when a consumer orders and pays for a product online, receives it, but then disputes the charge, claiming they never got the product. If a merchant doesn’t fight back, the consumer gets the product for free.

There’s also accidental friendly fraud.

“This happens when consumers don’t know what they are responsible for when they sign up for a credit or debit card and they don’t take responsibility to manage their account,” Eaton-Cardone said.

For instance, a parent might load credit card information into a game console, such as an Xbox or Play Station, for their child to use. The card is stored for future use and the payment method is used every time a child plays a game, even without the parent’s knowledge.

“Then a month goes by and the parent sees there’s $500 in charges for Xbox on the credit card. In the parent’s opinion they never authorized the charge. So they call the bank and file a chargeback,” she said. “That’s also friendly fraud because as a consumer I may not realize that if I choose to give my child access to transact, then I’m responsible for every single one of those transactions.”

That’s the type of friendly fraud involved in the Facebook case. From the Reveal report:

“Facebook encouraged game developers to let children spend money without their parents’ permission in an effort to maximize revenues, according to a document detailing the company’s game strategy.

“Sometimes the children did not even know they were spending money, according to another internal Facebook report. Facebook employees knew this. Their own reports showed underage users did not realize their parents’ credit cards were connected to their Facebook accounts and they were spending real money in the games, according to the unsealed documents.

“For years, the company ignored warnings from its own employees that it was bamboozling children.”

In the three months between October 2010 and January 2011, Facebook collected $3.6 million in revenue from children playing games. Parents requested about 9 percent of that back in chargebacks.

“Other merchants get fines and fees and their credit card account processing shut down if above 1 percent,” Eaton-Cardone said. “To see that some of the tech leaders in the industry are almost 10 times that and they are not shut down underscores how big a problem chargebacks and how big of a problem friendly fraud has become.”

There needs to be better education on credit card usage, Eaton-Cardone said, as well as warnings from Facebook and similar digital companies. But there also are issues around differing sets of chargeback rules for merchants created by each of the major card networks, including Visa, Mastercard and American Express.

“There should be a neutral party with government endorsement to come up with realistic thresholds and best practice standards that can be adopted and are made for the trading world that we know today, instead of something that existed 20 years ago,” she said.

While Chargebacks911 makes money by helping merchants with chargebacks, “the biggest risk for us is taking on a merchant or a client or a bank and finding they don’t have sustainable revenue and their costs for managing chargebacks have gotten out of control,” Eaton-Cardone said. “We want sustainable merchants, sustainable banks, a sustainable economy and responsible consumers. With a sustainable model we make a lot more money because every client has longevity.”

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