£100+ billion a year. That’s the cost of friendly fraud worldwide.
And it’s growing at a rate of 41% every two years.
According to Mastercard, friendly fraud accounts for up to 70% of all credit card fraud. This revenue drain doesn’t include the loss of the goods or services incurred by the merchant, nor the fees and penalties added on by chargeback proceedings.
Once you begin to appreciate how widespread and expensive friendly fraud is, you will see that preventing it is more important than dealing with it when it happens.
Let’s examine what friendly fraud is and how to handle it.
Because it’s coming your way.
What is Friendly Fraud
The term “friendly fraud” sounds odd until you see that friendly fraud is chargeback fraud, plain and simple.
Friendly fraud occurs when a cardholder attempts to reverse a legitimate transaction after receiving purchased goods or services.
By disputing the charge with their issuing bank, the cardholder hopes to get a refund from the merchant without returning the goods or while still using the service.
The issuing bank initiates a chargeback refund from the merchant, which the merchant must fight to regain or concede the loss.
Friendly fraud often succeeds if you’re not prepared.
What ends up happening is that although the transaction was legitimate, and the cardholder received the goods or services as advertised, the merchant loses the revenue from the transaction, plus the cost of goods or services, and pays chargeback penalties on top of that.
This hurts businesses of all sizes, but small businesses the most. Small businesses typically can’t afford the revenue loss plus the cost of the chargeback. Fighting the chargeback drains time and resources from a company with little of either to spare.
Why Does Friendly Fraud Happen?
Recognising why friendly fraud occurs helps you understand why it’s so prevalent in the marketplace. It also sets you up to see how to deal with it and, ultimately, prevent it.
Reasons for friendly fraud include the following:
Fraudulent Intent
Many cardholders think they can just file a dispute and get their money back from the bank instead of returning the goods or cancelling the service with the merchant.
Essentially, they want something for free without confronting you—the merchant.
Accidental Intent or Misunderstanding:
Other cardholders don’t realise that what they’re doing is actually fraudulent. There are a number of reasons for this.
They don’t intentionally commit friendly fraud. They believe they’re right to dispute a charge. But they’re not.
This kind of friendly fraud is difficult for merchants to recognise.
Here are several reasons a cardholder may dispute a legitimate transaction:
- Buyer's Remorse: They just don’t want it anymore.
- Unrecognised Transactions: Poor labelling on the bank statement makes the charge unrecognisable.
- Family Miscommunication: Someone in the family used the card, and the cardholder didn’t know about it.
- Confusion Over Subscription Billing: Many people dispute a subscription renewal that wasn’t forewarned by a timely email.
- Impatience: They think the delivery is taking too long, so they no longer want the product.
- Digital Misunderstandings: The cardholder purchases a product and then faces difficulties using it. They don’t ask for a refund. They file a dispute.
- Lack of Return Knowledge: They don’t know how to return a product or cancel a service, so they file a dispute through the bank.
- Poor Customer Service: Some cardholders punish the merchant for perceived bad customer service by “cancelling” the payment through the bank. It’s easier than dealing with the merchant.
- Quality Disputes: If the quality of the product or service isn’t what they expected—even though it was delivered as advertised and the merchant is blameless—they file a dispute to take their money back.
- Technical Issues with Payment: If something goes wrong, such as multiple charges for a single purchase, the cardholder simply “stops payment” by disputing the transaction.
How to Deal With Friendly Fraud
Dealing with friendly fraud boils down to streamlining, optimising, and clarifying your business policies and procedures.
Provide excellent customer service
Offering excellent customer service is a primary strategy for combatting friendly fraud. This strategy encompasses your entire customer-facing and support workflow.
- Always respond to your customers’ questions and complaints quickly, kindly, and effectively.
- Personalize your responses by using your customers’ names when appropriate. Recall past interactions for context and clarity.
- Show empathy with the customers’ concerns.
- Always communicate in the clearest manner possible. Take time to make written communications concise and understandable. Avoid industry jargon.
- Practice active listening (or reading through email) to understand customers’ concerns fully.
- Follow up after resolving issues to make sure they’re still happy. Their next move may be to dispute the transaction if they’re not pleased.
- Make it extremely easy for customers to contact you. Phone, online, social media, and other appropriate mediums.
- Train your staff to understand your products and services so they can answer customers’ issues knowledgeably and accurately. Have them practice patience and problem-solving.
How to Prevent Friendly Fraud
The best way to prevent friendly fraud before it occurs—and avoid chargebacks in general—is to use a dedicated, automated chargeback prevention platform like ours, ChargebackStop.com.
ChargebackStop prevents 99% of all chargebacks. We alert you immediately to potential transaction issues that may lead to chargebacks.
Combining our services with excellent, customer-focused business practices leads to a virtually chargeback-free online experience.
Looking Forward
If you have questions about friendly fraud, how to deal with it, or how to prevent it, please contact us.
We can provide a free demo of our platform and answer any questions you may have.
Visit ChargebackStop.com today and see for yourself.
FAQ: Friendly Fraud
What should businesses do if they suspect friendly fraud?
Businesses should gather and present evidence of the transaction, including delivery confirmation and communication records, to the bank to dispute the chargeback.
Can friendly fraud be completely eliminated?
While it's challenging to eliminate friendly fraud entirely, implementing comprehensive prevention strategies can significantly reduce its occurrence and impact on a business.
How can businesses recognise friendly fraud?
Businesses can recognise friendly fraud through signals like disputes on previously satisfied transactions, chargebacks without prior customer communication, or multiple chargebacks from the same customer.
What impact does friendly fraud have on businesses?
Friendly fraud can lead to lost revenue, additional fees, increased operational costs, and potential damage to a business’s reputation.
Are there any tools or services that help fight friendly fraud?
Yes, services like chargeback prevention platforms (e.g., ChargebackStop.com) and fraud detection software can alert businesses to disputes and help mitigate the risk of friendly fraud.