What Is Friendly Fraud And How Can Merchants Fight It?

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While the e-commerce market is strong, the industry as a whole faces plenty of challenges. A major challenge is friendly fraud, one of the fastest-growing threats in the online market. Friendly fraud occurs when a customer requests a chargeback without proper justification, such as unrealistic customer expectations, lack of understanding of the difference between a return and a chargeback, and buyer’s remorse.


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Monica Eaton-Cardone, co-founder and COO of Chargebacks911, said that even though chargebacks are meant to be consumer protection mechanism, they have become more a merchant hazard.

She notes the following regarding friendly fraud:

  • Internal data from Chargebacks911 suggests 60 to 80 percent of chargebacks result from friendly fraud.
  • Chargebacks cost businesses $31 billion in direct losses through revenue, merchandise and fees in 2017.
  • It’s anticipated that the economic impact of friendly fraud alone will exceed $25 billion a year by 2020.

The risk of fraud can grow as a merchant’s customer base expands if they aren’t tracking the value of customers acquired from each source.

  • If a particular promotion or advertising platform is bringing in customers who make a high number of returns, refund requests or chargebacks, the merchant’s losses could exceed the value of those sales.
  • About 40 percent of consumers who commit friendly fraud will do it again within 60 days.
  • The longer a friendly fraudster remains a customer, the more likely that person is to commit friendly fraud multiple times.
  • The customer actually costs the business more the longer they hang around.

Visa and Mastercard Dispute Rule Changes

Even if the new chargeback rules being implemented by Mastercard and Visa are better suited to the needs of a dynamic online market, they only go so far toward addressing key problems like friendly fraud.

  • Merchants are still considered guilty until proven innocent.
  • According to a Chargebacks911 study conducted last year, most merchants either saw no change in Visa chargebacks five months after the Visa Claims Resolution rollout or reported an increase in Visa chargebacks.

Potential Solutions To Friendly Fraud

Card schemes, banks and merchants must come together and establish consistent and fair procedures that can be standardized across all card brands.

  • An industry-wide consumer “dispute credit score” would allow schemes to track consumers who repeatedly commit chargeback abuse and report this behavior back for issuers.
  • A chargeback monitoring program for consumers and issuers: if any party’s chargeback ratio exceeds a specified threshold, card schemes can act appropriately.

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