Friendly Fraud Is Costing You—Here’s How to Stop It and Fight Back
$130 billion—that’s how much businesses lose to friendly fraud every year. It now accounts for up to 70% of all credit card fraud, making it one of the most expensive and frustrating challenges for merchants. Unlike traditional fraud, friendly fraud happens when a legitimate customer disputes a charge—sometimes by mistake, other times to game the system and get a refund while keeping the product or service.
With eCommerce growing and digital transactions becoming the norm, friendly fraud is on the rise. In the past three years alone, merchants have reported an 18% increase in such cases. Chargebacks resulting from these disputes don’t just mean lost revenue—they also come with added fees, reputational damage, and higher costs for businesses.
Understanding the causes of friendly fraud and how to prevent it is key to protecting your business. This guide breaks down why it happens, how to minimize risk, and what steps you can take if your business is targeted.
What is Friendly Fraud?
Friendly fraud, also called first-party or chargeback fraud, happens when a cardholder disputes a legitimate charge to get a refund. Unlike traditional fraud, where a criminal uses a stolen card, friendly fraud is committed by the actual cardholder. The term "friendly" only refers to the fact that the customer is known—not that the fraud is harmless. In reality, it causes serious financial and operational problems for businesses.
When a dispute is filed, the bank initiates a chargeback, pulling funds from the merchant and temporarily crediting the customer. This forces the merchant to prove the charge was valid, often resulting in lost revenue, chargeback fees, and reputational damage. Even if a business successfully fights back, the process is costly and time-consuming.
Visa and Mastercard recognize this issue under the term "first-party misuse," reflecting how widespread and problematic it has become. While some cases result from honest mistakes—like a customer not recognizing a charge—others involve intentional abuse of the chargeback system.
Friendly Fraud vs. Chargeback Fraud: Why Intent Matters
Not all friendly fraud is the same. Some cases come from misunderstandings, while others are clear chargeback fraud—where a customer knowingly exploits the system for financial gain.
- Chargeback Fraud (Planned Fraud): A customer makes a purchase, then disputes it later to get a refund while keeping the product or service. This is outright theft, often referred to as "cyber-shoplifting." Fraudsters who do this tend to be repeat offenders. For example, a customer might buy an online course, complete it, and then falsely claim that they never received access to get their money back. This is chargeback fraud.
- Accidental Friendly Fraud: A customer genuinely believes they deserve a refund and doesn’t realize a dispute is the wrong approach. This can happen when someone forgets about a purchase, doesn’t recognize the billing descriptor, or mistakenly assumes a family member’s transaction was unauthorized. For example, a parent might see a gaming charge on their card and dispute it, not realizing their child made the purchase. This is an accidental friendly fraud.
How does friendly fraud hurt merchants and issuers?
While friendly fraud starts with the customer, its ripple effects hit both merchants and issuing banks - each bearing financial and operational burdens that can compound over time.
The Merchant's Burden
For merchants, friendly fraud isn't just about a lost sale. The cost includes:
- Lost revenue from the sale and often the product or service itself.
- Non-refundable chargeback fees ranging from $20 to $100 per dispute.
- Higher chargeback ratios, which can lead to penalties, increased processing fees, or even termination by payment processors.
- Operational strain, as teams divert time and resources to investigate, respond, and provide evidence for each dispute.
- Damage to reputation, especially when banks label a business as “high risk” due to excessive chargebacks, making it harder to secure future processing partnerships.
Even when a merchant wins the chargeback, the process is time-consuming, and the customer relationship is likely already damaged.
The Issuer’s Challenge
Issuing banks are caught in the middle. While they aim to protect their customers from legitimate fraud, friendly fraud increases:
- Operational costs from handling a growing number of disputes and chargeback investigations.
- Strained merchant relationships, especially when repeat chargeback requests arise from the same customers.
- False positives, where legitimate businesses get flagged unfairly due to abuse of the system.
Issuers must balance customer satisfaction with fraud prevention—friendly fraud blurs that line, making policy enforcement more complex and risky.
Ultimately, both sides lose when friendly fraud goes unchecked. It erodes trust in the payment ecosystem and inflates costs for everyone.
Consequences of Friendly Fraud
The consequences of friendly fraud—especially when it’s left unmanaged—can be dire. The obvious immediate consequence is lost revenue. When a chargeback is filed, the merchant loses both the payment and the product or service provided. Unlike a return, where the item comes back, chargeback fraud often means the goods are gone for good.
In addition, every chargeback costs merchants money through a non-refundable fee, typically ranging from $20 to $100. If a business exceeds chargeback thresholds set by payment processors, they may face fines, higher processing rates, or even risk losing their ability to accept card payments.
Fighting chargebacks also saps time and resources. Fraud prevention tools and allocatng staff to dispute cases both eat away at your bottom line, and he potential damage to your reputation—among both payment processors and customers—can be impossible to recover from.
Why Do Customers Commit Friendly Fraud?
Customers dispute legitimate transactions for different reasons, ranging from simple confusion to intentional misuse of the chargeback system. Here are some of the most common causes (in no particular order):
- Charge Not Recognized: Ever looked at your bank statement and thought, I don’t remember buying that? Customers often dispute charges simply because the business name on their statement doesn’t match what they remember, or because the business operates under a different billing name. This also might happen when a family member purchases without informing the cardholder.
- Buyers’ Remorse: We’ve all bought something and regretted it later. It happens to the best of us. But instead of accepting the loss and calling it a lesson learned, some customers dispute the charge when they can’t return the item. This is especially common for big-ticket items or impulse buys.
- Difficult Returns Processes: Ever tried to return something and felt like the company was making it as difficult as possible? It’s a notorious problem among subscription-based products and services. Slow responses, confusing policies, and hiding cancellation buttons can push customers to their bank instead.
- Poor Communication: A customer says they never got their order, got the wrong item, or felt misled by the product description. If they can’t reach the seller or don’t get a satisfactory response, they might file a chargeback instead of working it out. In some cases, they know the product is fine but use this excuse to get a refund.
- Multiple Charges: If a customer sees what looks like a duplicate charge, their first instinct might be to dispute it instead of reaching out to the merchant. And if they’re frustrated, they may dispute every charge from that business just to be safe.
5 Best Practices for Preventing Friendly Fraud
You might be noticing a theme here. Most of these friendly fraud-related disputes happen because customers don’t have (or know) an alternative way to solve the problem or because it’s easier to go through the bank. The good news? A few simple changes can dramatically reduce the risk of friendly fraud.
1. Provide Excellent Customer Support
This is by far one of the easiest ways to prevent instances of non-malicious friendly fraud. If customers can easily reach you and resolve issues, they’re less likely to go straight to their bank. Make your contact information easy to find, respond quickly to inquiries, and offer hassle-free solutions. Also, don’t discount the value in being proactive. A simple email or call asking, "Did everything go smoothly with your order?" can prevent unnecessary chargebacks.
2. Use Clear Billing Descriptors
If your business name appears differently than what customers expect, they may assume the charge is fraudulent and dispute it. Make sure your billing descriptor includes your business name, website, or phone number so customers can quickly identify where the charge came from. Studies show that unclear billing descriptors are the top reason for friendly fraud disputes, so this simple fix can significantly cut down on chargebacks.
3. Send Order Confirmation and Renewal Reminders
Customers are more likely to dispute a charge if they don’t remember making the purchase. Sending immediate confirmation emails after a transaction—with clear details like the order amount, date, and business name—reinforces the legitimacy of the charge.
For physical goods, providing tracking information helps customers know when to expect their order. If you offer subscriptions, always send renewal reminders before charging customers. Many chargebacks happen because customers forget they signed up for a service, and a quick email reminder can prevent disputes before they happen.
4. Make Returns and Refunds Easy Whenever Possible
When customers feel trapped by a difficult return process, they may turn to their bank instead. Clearly state your refund and return policy at checkout and in confirmation emails. If possible, provide a hassle-free return process, such as online return requests or prepaid shipping labels.
Even if you don’t offer refunds on certain products, clear policies upfront can prevent chargebacks caused by misunderstandings. A frustrated customer is much more likely to file a dispute, so making returns as smooth as possible keeps disputes down and customer satisfaction up.
5. Implement Chargeback Alerts
Some services help merchants manage chargebacks before they escalate. Chargeback prevention alert systems notify businesses when a dispute is initiated, allowing them to issue a refund or resolve the issue before it becomes a formal chargeback. This can help reduce chargeback ratios and prevent unnecessary fees.
ChargebackStop offers a full-service chargeback management platform that notifies merchants of payments disputes before they become chargebacks. Receive real-time dispute alerts and fight back with your best evidence, all from within one platform.
How to Fight and Win Friendly Fraud Chargebacks
Even with the best prevention strategies, some friendly fraud chargebacks will still happen. When they do, you need a plan to dispute them effectively. Here’s how to handle chargeback representment and improve your chances of winning disputes.
Investigate Every Dispute
As soon as you receive a chargeback notice, check your records. Did the customer contact you first? Do you have proof of delivery or service usage? Sometimes, disputes happen because of an honest mistake—like a lost package. If that’s the case, resolving the issue directly with the customer may be the best approach. But if all evidence shows the charge was valid, prepare to challenge it.
Gather Best Evidence
The right evidence strengthens your case. Provide delivery tracking showing the product was received, screenshots of a customer’s login or usage history for digital services, signed delivery slips, or copies of emails where the customer acknowledged the purchase. If the reason for the chargeback is fraud, evidence such as matching IP addresses, device IDs, or prior transactions from the same cardholder can help prove the purchase was legitimate. It’s important to submit this information quickly because banks work on strict timelines and delays can hurt your chances of success.
Submit a Rebuttal
Chargebacks are handled through your payment processor or merchant portal. You’ll need to submit a rebuttal letter along with your evidence. Clearly state why the charge was valid. For example: “The customer received their order on [date], confirmed receipt in an email, and has made previous purchases from us using the same payment details.” Having a structured process for this helps. Some businesses use templates or hire services to manage representments.
Stay Up-to-Date on Rules and Regulations
Card networks are making changes to help businesses fight friendly fraud. Visa’s Compelling Evidence 3.0 (2023) allows merchants to automatically dispute fraud claims if they can show at least two prior undisputed purchases from the same customer using the same payment details. This makes it easier to challenge repeat offenders. Keep transaction history, customer interactions, and any relevant data that could support your case under these new rules.
Take Action with Chargeback Monitoring
Friendly fraud is a growing problem, but it can be managed. Understanding why it happens and taking proactive steps—like clear communication, better billing descriptors, and a strong dispute strategy—can help reduce chargebacks and protect your revenue.
At the same time, not all friendly fraud can be prevented, and businesses should fight back when friendly fraud does occur. Don’t assume chargebacks are just a cost of doing business—many can be prevented or won through proper evidence and the right dispute strategies.
ChargebackStop offers a comprehensive chargeback management platform designed to help merchants reduce revenue loss from chargebacks and fraud. By providing real-time alerts, automated tools, and actionable insights, our platform enables businesses to respond to chargebacks effectively and prevent disputes before they escalate.
