How to run a (maybe) successful scam business

Chai Jia Xun
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Disclaimer: This is not actually a tutorial on how to run a scam business, but rather an experience I had from a scammer that I thought was interesting enough to talk about.

When someone tells you about a scam, it's pretty obvious how it works. The scammer will promise you something, take your money, and then disappear. This can come in the form of telling you that you need to pay a fee to get a job, or a bigger sum of money, or even a product. In the end, you will be left jobless, cashless, or productless, and then realise too late that it was a scam. At that point, the police will typically be unable to help you because the scams are often conducted from a different country.

There are influencers who dedicate their time to reverse-scamming the scammers, and all you can do is watch the scammers get their due karma and revel in some schadenfreude.

But this story is a bit different. I bought a product with PayPal, the company had responsive customer support, and I did get a product shipped to me (albeit the wrong one). And I eventually got a refund as well. So how does that sound like a scam at all? When I thought about this, I started to realise that this was a potentially profitable scam operation operating via seemingly legitimate means.

The Setup

One day near the start of the pandemic, I came across an ad on Facebook for a really cool-looking bed table. It had all the features that I would want and allowed you to lie in bed and use your laptop effectively. This was something that I'd been looking for since I had been regressing into degeneracy and doing all my work from bed. All the other bed tables that I came across were sort of boring and didn't have all these functions. It was also only about $30, so it looked very affordable too.

The website itself was hosted on a platform like Shopify, and besides some shady, clickbaity marketing tactics (such as :fire_emoji: x3 LAST DAY SALE BUY 2 GET 1 FREE), it looked legit enough. The product was seemingly laser cut from wood, which would explain the relatively low price. And as long as that piece of wood held my laptop, that's all I needed. It also happened that I would be travelling back to Singapore in a couple of months, and I would be quarantined for two weeks in a hotel room. A bed table would be just what I needed.

I even messaged their support email with a couple of questions about shipping, and their replies were within reasonable expectations. No red flags were detected at all, so I bought the product.

Fast forward a few months. I had gone through my quarantine and was quite disappointed that I never received my table. They also send some email correspondence with some apologies about shipping delays. Granted, global pandemic and all, so I didn't really fault them.

A couple more months later, when I checked the tracking link they sent, it had arrived. I was so excited about it but also quite puzzled because the tracking link said that it was left in the mailbox. For context, the postman would come to ring the doorbell for any package that did not fit into the mailbox, and I was suspicious that a table would be able to fit into my mailbox. As I had guessed, when I went to collect my mail, I found a package, but it definitely wasn't the thing I ordered.

It's literally 2 pieces of laser cut wood that weren't even attached to each other. Cost price looks to be a couple of dollars.

I checked the tracking link, and that was definitely the "correct" package. I went to their website, and wouldn't you know it, the whole website had been taken down. To make matters worse, I had not taken a screenshot of the product, and I could not find pictures of the product anywhere online. Luckily for me, since they used Shopify, I did manage to find my confirmation email with a picture of the supposed product, albeit as a low-res thumbnail. That was enough for me to file a dispute with PayPal and get my money back (after a drawn-out process).

It's not even subtly different, it’s just straight up a different thing

The Scam

At this point, I was pretty annoyed and confused. On the one hand, this was quite obviously a scam, but on the other hand, I paid through PayPal, which has a pretty good customer protection policy. I didn't for a moment worry that I would not get my money back and was puzzled at why anyone would go through the trouble of attempting to scam someone like this. Either way, I filed a dispute.

Paypal, unlike Amazon, tries to protect both its buyers and sellers. This means that they don't immediately give you a refund, no questions asked. Instead, they first open a channel of communication between the buyer and seller, where they hope you can resolve the issue amicably. As such, I had to be subject to their sleazy tactics before I could get my money back.

Unfortunately, I did not have the foresight to get screenshots of the conversation. This happened within PayPal's resolution centre, and I did not know that they deleted the conversations after six months. I do have bits of the paper trail in my email, but the email that PayPal sends only has a link for you to view the messages on their platform. I will paraphrase how the conversation went.

Note: The numbers here aren’t accurate, but I can’t remember the actual conversation since PayPal deleted it.

Scammer claims it's a mistake:

We're so sorry about your bad experience, it was a genuine mistake, and we shipped the wrong thing. We can offer you a partial refund of $10.

Me:

I'd like to have the actual product shipped if it was a mistake. Also, only a full refund is acceptable if you can't ship it.

Scammer plays the pity card:

We can't ship it, because reasons, and we can't offer a full refund because we need to cover materials and shipping costs. Please accept this token refund of $15.

Me:

I refuse to believe that you made a mistake; the product does not even try to look like the picture. I am not responsible for your shipping costs if you ship me a fake product.

Scammer tries to convince me it's not worth waiting:

We can give you a $30 refund now if you accept it. If not, you will have to wait for PayPal to resolve it, which might take 60 days, and they might not side with you)

Me:

No thanks, I'd rather wait.

The case gets escalated to PayPal.

I had to upload an explanation and some evidence of the scam, but after a while (I don't remember how long), PayPal judged the dispute in my favour, and I managed to get the full refund. I ended up not losing anything except my time and sanity.

But why, though?

This is something that has been puzzling me for a while. How does this scam even work, and why would anyone do it? After putting some thought into it, I think it simply works due to the fact that people are lazy and would not want to go through that much effort to get a few dollars back.

Here are the things that came together to make this a functional scam

  • They served ads for a product that probably didn't exist but had a cool factor.
  • They used a Shopify store and allowed PayPal, so it was trustworthy.
  • They sent the product a long time later, so there are probably a bunch of people who would receive it without even knowing what it was and forget what their original purchase was.
  • Sending the product gave them plausible deniability when confronted, and they would not immediately be flagged as a scam.
  • They took down their site shortly after their scam campaign ended.
  • They made the refund process tedious so that those people who did want a refund might accept a partial refund instead.

How to run a scam business

  1. Go and look for a really cool concept product. Preferably something that's topical and people would pay money for. This is probably the most challenging part, but it's easier than actually creating and selling the product.
  2. Make a nice website for it, which is easy with websites like Shopify. Put a bunch of money into Facebook targeted ads and get a whole lot of orders.
  3. Reply to customer emails while pretending to be a real business to throw them off and delay anyone from reporting you.
  4. Ship out super cheap products many months later, with any luck, a good portion of customers would forget that they bought the thing and never complain.
  5. For customers who do complain, be responsive and apologetic. Offer small refunds and slowly increase them, making the process as tedious as possible. The goal is to make the customer accept a lower amount than they originally paid.
  6. Some customers would get their full refund, but that's part of this "business."
  7. Delete all traces of your "company", create a new "company", rinse and repeat.

To see how viable this could be, I did some quick calculations to figure out the operating costs.

Assuming we sell something for $50

Here are some costs involved

  • CAC (Customer Acquisition Cost): $5
  • Manufacturing and shipping: $10
  • Leftover: $35

Let's say we spent $5000 on ads and managed to sell 1000 pieces to get a $35000 in profits. There is probably a bit more costs for the website and some platform fees, but I've left those numbers out since they aren't large sums.

Let's further simplify the calculations and say that 50% of customers get their full refund. The result is $35000 - 500 * $50 = $10000. That is $10000 from this endeavour. It might not sound like a lot for all that effort, but typically these scams are based out of countries with a much lower cost of living.

In reality, I think there would be many more customers who accept a partial refund instead and not bother to fight for their full refund. If we take that into account, the earnings could potentially be higher. Though I did make some wild assumptions about the other costs involved, so this calculation could be completely incorrect as well.

Is this even really a scam?

The amount of effort put into this scheme is also almost on par with simply running a normal business, so the upside isn't even that high and it's not an easy get rich scheme.

I have no way of knowing if this was truly a scam, or just an extremely incompetent businessperson. As far as I can tell, it smells like a scam that's trying to look legit so it's harder to get prosecuted for it. It's hard to make say for sure, since this mode is marginally less scammy than those that straight up run away with your money without giving you anything in return.

If we assume this is really a scam...

How can we prevent this?

We can't, probably?

Honestly I have no idea how to stop something like this from happening. As an individual, the only thing you can do is to waste your time and get the full refund (which sometimes is such a small amount that it isn't even worth doing).

Ad platforms like Facebook would probably remove an ad if it's reported as a scam, but with the way this operates, they're long gone before it's even reported. Ecommerce platforms like Shopify do put in place measures to verify that you are a real person to prevent the creation of multiple fake accounts, and yet I'm sure people still find ways around it.

The bottom line is that scams come in every form, and all you can do is to be aware of them and make sure your friends and family are aware of them too. Singapore has a very high rate of scams targeted at us, likely because we're a wealthy country. There is no good ending to this story. Even though I got back my money, I still wasted too much effort and brain space just to deny scammers of my $40.

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Chai Jia Xun
Chai Jia Xun

Jia Xun speaks of himself in the third person when writing his bio. He thinks he's being cute but we all know that's just cliche. Being meta is so passe. Why do people still do it?