Friendly Fraud Credit Card Chargeback
Rapidly rising volumes in eCommerce businesses make room for more fraud, and many, if not all, eCommerce merchants are familiar with the challenges it brings. The problem with friendly fraud is that the more eCommerce flourishes, the more legitimate customers begin pushing the boundaries of what is considered legitimate shopping activity, and eCommerce retailers must adapt to more complex fraudulent activity. Friendly fraud eats at businesses from the inside, as it is perpetuated by the same “good” customers merchants try to attract, rather than fraudsters.
What is friendly fraud?
Friendly fraud is chargeback fraud, committed when a customer makes a legitimate purchase and then asks for their money back. Instead of requesting a refund from the merchant, friendly fraudsters contact the bank directly. As a result of the chargeback, the customer often receives their money back before the merchant gets a chance to look into the reasoning.
Consumers may commit friendly fraud for a variety of reasons, claiming they did not make the transaction, or that they didn’t receive the purchased merchandise, it arrived damaged, they received the wrong item – and the list goes on.
Types of friendly fraud
- Misunderstanding: A customer forgets they made the purchase. It could also be due to confusion – some customers are unaware of the difference between a refund and a chargeback, and assume a chargeback is just another acceptable way to get a refund.
- Family Fraud: A family member makes a purchase – a child using a parent’s credit card, for example, or a spouse using their partner’s card – without the cardholder’s knowledge.
- Buyer’s Remorse: A customer regrets making a purchase, but doesn’t want to or is unable to return the purchase or cancel the service.
- Liar-Buyer: A cardholder intentionally takes advantage of the chargeback process. The liar-buyer could be the customer who has either accidentally or deliberately filed for a chargeback in the past and had it work seamlessly, so they continue to do so.
- Item-Not-Received (INR): A customer claims they didn’t receive a purchased item, and instead of contacting the merchant in order to either have that item reshipped or receive a refund for it, he or she bypasses the merchant and goes directly to the bank to file a chargeback.
While no type of friendly fraud is actually considered “friendly,” some forms can be viewed as honest mistakes while others are more deliberate actions. In the case of liar-buyer or INR fraud, for example, customers intentionally use the ease of chargebacks to their advantage, essentially cyber-shoplifting. Through INR abuse, customers claim they never received their order and then bypass the merchant to file a chargeback directly with the bank. When they do contact the merchant for a refund, it’s considered a policy abuse tactic.
How friendly fraud affects eCommerce merchants
Unfortunately, friendly fraud is more than just a problem of lost merchandise – while losing out on perfectly good inventory is a major setback, merchants are also left with having to cover the costs of shipping, processing, and chargeback and representment fees.
Friendly fraud is also sometimes referred to as chargeback fraud, for which merchants are faced with chargeback and representment fees. An abundance of chargebacks leaves merchants having to figure out which to dispute, if any, and manually separating the fraudulent chargebacks from the legitimate ones is a walk on the tightrope. Merchants must provide sufficient and compelling evidence that the customer did, in fact, authorize the purchase. But, like most things in business, the chargeback dispute process takes up time and money in investigating and gathering information.
Friendly fraud prevention
Friendly fraud is difficult to prevent because it appears after the fact. While many types of fraud happen and can be caught before checkout, friendly fraud only occurs post-checkout, which leaves merchants in the dark until it’s perhaps too late.
Adding customers with repeat offenses to a “customer deny list” is a good first step to eliminating friendly fraud from eCommerce businesses – but there are smarter ways for merchants to prevent new friendly fraudsters from popping up. Merchants should consider implementing a fraud prevention solution that makes data-based decisions, known as a chargeback guarantee.
A chargeback guarantee solution helps merchants accept more orders and stop friendly fraudsters in their tracks while providing frictionless checkout for customers making legitimate transactions, all without the risk of costly chargebacks. By covering all chargebacks related to unauthorized card activity or stolen financial information, merchants can avoid a negative impact on their revenue with the assurance that the solution takes on fraud liability.