Friendly fraud may not sound all that threatening, but it accounts for 70% of all credit card fraud and costs the eCommerce industry billions annually.
You’re doing your best to serve and relate to your customers on a human, friendly level. You’re constantly trying to make them happy, anticipate their needs, and improve their lives. You’re doing your best to provide the best customer experience, but not every customer is acting with the best intentions.
Friendly fraud occurs when a customer makes a purchase online for a product or service, then turns around and contacts their card issuer to dispute the charge resulting in a chargeback.
It may sound relatively innocent – and in some cases, it is – but without the proper safeguards, this sort of virtual shoplifting can make a significant dent in your revenue.
Let’s learn more about friendly fraud, how common it is, and how to protect your eCommerce business against friendly fraud and chargeback abuse.
What is Friendly Fraud?
Friendly fraud is a common credit card fraud that impacts eCommerce businesses. It occurs when a customer files a chargeback with their credit card company on a legitimate transaction rather than first trying to obtain a refund from the merchant. It’s also commonly known as a form of chargeback abuse, chargeback fraud, or cyber shoplifting.
Friendly fraud can be deliberate or accidental. Moreover, some instances that appear fraudulent can be innocent – "friendly,” even.
Here’s an example: You sell luxury watches online, and a customer placed a $200 order. You followed your usual order fulfillment process, but a few weeks later, you received a chargeback notification from the customer’s credit card company. A few things could have occurred:
Deliberate friendly fraud. The customer received the item as promised but made a false fraud claim to their credit card issuer. Examples of this include:
- They are reporting the item as not delivered.
- The delivered item did not match the description.
- The items were returned, but the refund was not processed.
- The order was canceled, but the item was still sent.
- Credit card info was compromised.
Accidental friendly fraud. The customer may not have recognized the purchase when checking their bank statement, believed themselves a victim of fraud, and disputed the charge with their credit card company.
No fraud. It’s possible the customer was in the right, and your business made the error.
Actual fraud. Cardholders can legitimately dispute a charge if they’re the victim of actual fraud or if they did not receive the product or service they paid for and the retailer is unresponsive.
As you can see, friendly fraud can be tricky to identify, which is why it’s become so prevalent.
How Common is Friendly Fraud?
On paper, the idea of friendly fraud may sound extreme – sure, your customers are on the hunt for a good deal, but it doesn’t mean they’re going to steal from you, right?
But friendly fraud is widespread and rapidly becoming even more prevalent. Friendly fraud is the #1 fraud attack source affecting merchants of all sizes. According to a 2020 report by FIS Global, friendly fraud accounts for up to 70% of all credit card fraud and costs the industry over $132 billion annually. What’s more, that number is increasing by 41% every two years – making it more critical than ever to protect your business and its revenue.
How Can Friendly Fraud Affect My Business?
Many business owners accept chargebacks as a cost of doing business. However, since it’s challenging to know when friendly fraud has occurred, some business owners may not think it’s worth their time to dispute fishy chargebacks or protect against them in the first place.
But friendly fraud is anything but friendly to a growing business’s bottom line. Here are a few fast facts about how friendly fraud affects businesses:
- Merchants lose an average of $3.75 for every $1 lost to chargebacks.
- One dollar in every ten earned from eCommerce is spent managing fraud.
- Nearly 9 in 10 merchants lost revenue due to payment fraud in 2020, and 55% reported higher chargeback levels.
Remember, the merchant bears the cost of chargebacks, not the credit card issuer. So preventing friendly fraud from occurring or being equipped to dispute friendly fraud claims can mean a big difference in lost revenue.
How to Prevent Friendly Fraud in Your Business
Here are four things any eCommerce business can do to prevent financial losses and make it more difficult for friendly fraud and chargeback abuse to occur:
Do good business & hold onto the receipts.
Fulfill orders promptly and accurately, display your return policy on your website, and keep shipping and tracking evidence showing that the product or service was delivered. This can help you dispute chargeback claims.
Provide excellent customer service.
Provide several methods of communication to make it easy for your customers to get in touch. Be sure to promptly respond to customer complaints, missing order reports, and refund requests, and do your best to make any merchant errors right.
Sometimes, customers file a chargeback with their credit card issuer simply because they do not recognize a transaction on their bank statement and assume their card was compromised. Make sure your merchant descriptor matches the customer-facing name of your business.
Prevent repeat offenders.
50% of customers who commit intentional friendly fraud do so again within 60 days of a successful claim.
When combined with your tech stack, user identification solutions like Fingerprint’s 99.5% accurate device fingerprinting can help you identify repeat offenders with previous chargebacks, failed payments, and fraudulent activity. So you can catch sophisticated fraudsters before making a purchase, even when they conceal their identity. Fingerprint can also help you raise alerts when other telltale signs of fraud are detected, such as substantial purchases, multiple orders, or failed purchase attempts within a short time.
Friendly fraud is a serious threat – but with the right strategy and tools, you can protect your business from time-consuming disputes and lost revenue. Learn more about how Fingerprint can help protect your business from friendly fraud.