Friendly fraud differs from other forms of chargebacks because card holders contest charges they originally authorized, under the guise of a dispute. Friendly fraud is increasingly a problem for businesses. Despite its name, it is actually the most common type of fraud attack.
Friendly fraud can cause significant financial and reputational damage to businesses including chargeback fees, decreased customer experiences, and reputational damage. It’s little wonder businesses are waking up to the dangers of this type of fraud. Strategies to stop friendly fraud like chargeback prevention, chargeback representment, and improved customer communication are common.
A proactive approach to preventing friendly fraud helps businesses focus on selling without fear. Below is what you should know about friendly fraud so you can understand it, protect your business against it, and effectively respond when it happens.
What is friendly fraud?
Friendly fraud occurs when a card holder makes an online purchase with their credit card and then requests a chargeback from the issuing bank after receiving the purchased goods or services, falsely claiming the transaction was unauthorized or the item was never received.
Some of the reasons friendly fraud is a growing problem include:
- Misunderstandings and Confusion: Often, friendly fraud stems from genuine confusion about policies or procedures. Customers might not recognize a charge on their statement due to unclear merchant descriptors, leading them to believe they’re victims of unauthorized transactions. Or, they may believe filing a chargeback is a legitimate way to request a refund.
- Ease of Chargeback Process: Friendly fraud occurs more frequently because the process is so streamlined. It’s easy to initiate chargebacks, which can inadvertently encourage consumers to bypass merchant resolution processes and opt for what they perceive as a more straightforward solution through their bank.
- Buyer’s Remorse: An increasingly common reason for friendly fraud is impulse buying. Credit options like buy now pay later encourage customers to make purchases they might regret in the future. Instead of trying to return the item, they might find it easier to dispute the charge.
- Exploiting Return Policies: Friendly fraud is commonly the result of a merchant’s return policy. If the return policy is too confusing, inconvenient, or strict card holders may opt to dispute it rather than explain themselves to customer support, or pay shipping costs or restocking fees.
Preventing Friendly Fraud
Preventing friendly fraud requires a strategy with many different tactics working together. Here are some of the most common things businesses that successfully prevent friendly fraud do:
- Clear Billing Descriptors: Ensure that your billing descriptors match best practices. Your business name and contact information are clearly stated on transactions and customer statements to avoid confusion. Providing detailed product descriptions and transparent policies can also minimize misunderstandings.
- Streamlined Return Processes: Offering an easy and clear return process can deter customers from resorting to chargebacks. Satisfaction guarantees or free return shipping might cost upfront but can save on lost revenue in the long run by reducing return fraud.
- Engage and Educate Customers: Educate your customers on the impact of chargebacks and encourage them to contact your customer service for any disputes before reaching out to their banks.
- Use Fraud Prevention Tools: Implement advanced fraud detection and prevention tools that can identify suspicious activities before they result in a transaction. Address Verification Service (AVS), Card Verification Value (CVV) checks, and two-factor authentication are effective strategies.
- Maintain Detailed Records: Keep comprehensive records of customer interactions, purchase histories, and shipping confirmations. In the event of a dispute, these documents can be invaluable in presenting your case to the bank.
- Monitor for Red Flags: Pay attention to unusual purchasing patterns, such as high-value orders from new customers or multiple orders in a short period. These can be indicators of potential friendly fraud.
- Engage in Chargeback Representment: When faced with a chargeback, don’t shy away from disputing it if you have evidence that the transaction was legitimate. Businesses can use the chargeback representment process to successfully dispute transactions Presenting strong evidence can help you win enough cases to make representment a strategic asset.
Responding to Friendly Fraud
Friendly fraud attacks should be dealt with systematically and quickly. This helps minimize the risk of loss, and decrease the risk of reputational damage. Every friendly fraud attack is different. But if you learn from each instance, you can develop effective ways to maximize your chances of preventing and winning when they do happen.
Analyze the chargeback: The first step in responding to a friendly fraud claim is to thoroughly review the transaction in question. Look for any evidence that confirms the legitimacy of the transaction, such as IP addresses, timestamps, and any correspondence with the customer. Understanding the context and details of the transaction can help you decide whether to contest the chargeback.
Gather Compelling Evidence: If you decide to challenge a friendly fraud chargeback, compile all relevant documentation to support your case. This can include proof of delivery or service rendered,correspondence with the customer that acknowledges receipt, purchase records that detail the transaction, screenshots of the product or service descriptions and terms that the customer agreed to at the time of purchase, or more.
Contact the Customer: In some friendly fraud cases, reaching out to the customer directly can fix the problem. A polite and professional conversation can clarify any confusion and sometimes persuade the customer to withdraw the dispute. However, make sure to avoid any actions that could be interpreted as harassment.
Submit a Well-Prepared Rebuttal: If you choose to contest a friendly fraud chargeback, submit a rebuttal to the issuing bank that includes all your collected evidence and a clear, concise argument stating why the chargeback is unwarranted. Be sure to follow the issuer’s guidelines for chargeback disputes carefully to ensure your response is considered.
Review and Enhance Internal Processes: Use the experience of dealing with friendly fraud as an opportunity to review and improve your internal processes. Enhance fraud detection measures to prevent suspicious transactions. Improve customer communication around transactions, billing descriptors, and return/refund policies. Offer comprehensive customer service to address issues before they escalate to chargebacks.
Utilize Chargeback Representment Services: For businesses frequently facing friendly fraud, considering a chargeback representment service might be beneficial. These services specialize in disputing unwarranted chargebacks on behalf of merchants, leveraging their expertise to increase the chances of winning the dispute.
Friendly fraud poses a significant challenge for e-commerce stores, blending the lines between genuine customer grievances and deceitful exploitation of the chargeback process. By understanding its causes and implementing a multi-faceted prevention strategy, merchants can protect their revenue and maintain healthy customer relationships. Vigilance, combined with technology and transparent communication, forms the cornerstone of an effective defense against friendly fraud in the e-commerce realm.