Friendly Fraud: What Is It and How to Prevent It?
Noticed a suspicious transaction that you didn’t make? Don’t worry, there is a way to solve this problem.
Discover the circumstances that allow you to dispute a transaction, learn how to do that, and forget about financial losses for good.
As more businesses switch to online platforms, more and more merchants face the threat of online fraud. One of the common types of fraud sellers encounter daily is friendly fraud. Despite its name, it causes many issues, restricting the company's growth. To ensure the business's stability, cautiously approaching the friendly fraud issue is essential. In this article, we give an elaborate friendly fraud definition, explain the friendly fraud consequences, share practical tips on friendly fraud prevention, and give advice on how to win a friendly fraud customer dispute securing your reputation and finances.
What Is Friendly Fraud?
Before we proceed, let's answer the question: what is friendly fraud? Friendly fraud, or friendly chargeback fraud, is an illegitimate refund operation requested by an unreliable cardholder. Such transactions are performed without the merchant's knowledge. To make chargeback requests believable, such customers make up legitimate-sounding, "friendly" excuses, such as accidental double-charging or unintentional mistakes made by the merchant. Once the bank approves a chargeback request, money is instantly transferred to the customer's card from the seller's account. Friendly fraud causes significant unpredicted monetary expenses, endangering the company's stability.
Customers might issue friendly fraud chargeback disputes for various reasons. The list of the most common causes includes:
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Change of heart
There are many cases when customers make impulsive orders or accidentally make a purchase that is unwise for their budget. In such situations, clients initiate a chargeback dispute to return their money. Sometimes, they are unwilling to take responsibility for their mistakes and blame the merchant's incompetence for the particular chargeback transaction. -
Miscommunication issues
Quite often, customers initiate friendly fraud chargebacks due to some miscommunication. If the merchant doesn't state the company's policies clearly, there is a high chance that customers can issue a chargeback transaction that goes against the seller's terms. Lack of communication between the merchant and customer might also result in chargeback disputes. -
Forgotten transactions
Sometimes, customers might issue a chargeback for a purchase they have forgotten about. Seeing an unfamiliar transaction statement on their account might convince such customers that their card information was stolen. Trying to return the money they've been "robbed" of, customers might contact the bank to start a dispute, not realizing the illegitimacy of such chargeback.
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Malicious intent
Some customers deliberately commit friendly fraud, meaning they knowingly request an illegitimate chargeback. Such fraudsters strive to receive services and goods for free. Once they obtain the item or gain access to services, they initiate a chargeback dispute to receive the money for a legitimate transaction back, which results in both product and revenue loss for the seller. -
Stolen card information
There are many cases when purchases are made with stolen card information. When a legitimate cardholder notices unfamiliar operations on their account, they issue a chargeback, trying to return the stolen money. Though, in this case, the customer is a victim, the merchant still suffers unpleasant consequences of the chargeback operation.
No matter the reason behind the friendly fraud chargeback, such disputes cause a lot of damage to companies. The stable development of the e-commerce business strongly depends on the friendly fraud chargeback prevention tactics that the merchant implements.
Impact of Friendly Fraud on Businesses
Since we figured out how friendly fraud works, now it's time to talk about friendly fraud consequences. While it is obvious that friendly fraud results in financial losses, there are also other less obvious problems chargeback fraud causes. The list of friendly fraud consequences includes:
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Additional expenses
A high chargeback rate might signify the merchant's unreliability. Payment processors tend to charge such sellers a chargeback penalty fee. Moreover, processors can also raise fees for all transactions of such businesses. -
Limited partnership opportunities
Your high chargeback rate can also make other companies consider your business an unreliable partner option. This can significantly limit strategic alliance opportunities, restricting your business's growth.
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Damaged reputation
A large number of chargebacks can build the reputation of an untrustworthy merchant. Striving to receive quality services, customers will avoid such businesses, opting for other alternatives, causing significant damage to the company's financial stability.
All these factors can significantly restrict a business's development, resulting in even more significant monetary losses and even bankruptcy in the most severe cases. The merchant must implement friendly fraud prevention strategies to protect the business from these threats.
Types of Friendly Fraud
While there are many reasons for friendly fraud, there are only two categories of friendly fraud: chargeback fraud and refund fraud. Here, we explain the difference between refund friendly fraud vs chargeback fraud so you can differentiate them and approach them accordingly in the future.
Chargeback Fraud
Friendly chargeback fraud occurs when a customer issues a knowingly or unknowingly illegitimate refund dispute via their bank. Instead of referring directly to the merchant, such clients request a chargeback operation through their financial company. If the company deems the request reasonable, the bank transfers money for the online purchase from the seller's account to the client's bank account, charging the merchant for the reversed transaction. Additionally, the seller receives penalty fees. However, there is a high chance of winning a chargeback dispute by providing evidence of fraudulent activity.
Refund Fraud
This type of friendly fraud happens when the purchaser requests a refund for a particular product or service from a merchant while keeping the product or continuing to use services. It might be challenging to detect this type of friendly fraud since it can be difficult to determine whether the ordered item really came damaged, the parcel never reached its destination, or the customer canceled their subscription. This fraud not only causes monetary issues but can also seriously damage the business's reputation if the unreliable customer spreads false information online.
Both chargeback and refund fraud can significantly damage trust between the company and its clients, later resulting in low-quality services induced by suspicion of the merchant. These types of friendly fraud are equally dangerous for the business and require immediate measures. Ignoring friendly fraud might have devastating consequences for the business development, causing huge monetary losses to the seller. That's why implementing fraud-prevention tactics is essential for an e-commerce business: by doing so, merchants not only prevent monetary losses but also ensure the company's stable development.
How to Prevent Friendly Fraud
Friendly fraud chargebacks are a severe problem. Fortunately, there are a few efficient ways to prevent friendly fraud chargeback disputes from occurring. Here, we share some practical tips on how to prevent friendly fraud by implementing simple but effective tactics.
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State your policies clearly
One of the excuses unreliable customers use when filing for a chargeback is that they were not made aware of the company's policies. To prevent such type of friendly fraud, state your terms clearly. Create a separate page for the rules of your business. Give full information on your policies in an easy-to-understand language. Highlight essential pieces of information. Dedicate a separate paragraph to the rights and responsibilities of customers. Add a hyperlink to your terms on the checkout page to prevent clients from asking for a refund that goes against your rules.
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Confirm the purchase and shipping information
Confirming the purchase on the checkout page is one of the efficient ways to prevent friendly fraud. By confirming the purchase, unreliable customers have fewer excuses to issue an illegitimate chargeback. Additionally, you can ask customers to confirm their shipping and credit card information. This way, you will have more proof of your competence, and fraudsters will have fewer chances to disguise their fraud as a "friendly" legitimate refund request.
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Support communication
Low-quality customer service might become another reason for friendly fraud. To ensure the quality of your service, you must develop a strong communication system with your clients. Allow clients to ask you relevant questions and provide the answers quickly. Listen to the customers' complaints and make changes to improve their experience. Provide purchasers with relevant information about their orders; you can also implement a notification system that will alert your clients about changes in the status of their orders. Help clients find practical solutions to their problems; create a separate page with the most common questions and answers to these questions to save your and your client's time. Be welcoming and friendly to ensure the comfort of your customers. This way, you will prevent many friendly fraud chargebacks and satisfy your clients, building your status as a trustworthy merchant.
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Find a reliable delivery company
Long product shipments can be one of the reasons why customers might file a friendly fraud chargeback. Find a trustworthy delivery company that provides fast and quality services. By doing that, you not only prevent friendly fraud chargeback disputes but also improve the overall customer experience.
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Implement tracking services
Customers who commit friendly fraud often claim that their purchase wasn't delivered or was delivered to the wrong address. Implementing tracking services can easily prevent such illegitimate claims. Thanks to such tools, both the merchant and the customer can easily detect the whereabouts of the parcel. Tracking services can efficiently reduce the number of friendly fraud chargebacks and improve the company-customer relationship by enhancing purchase transparency.
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Partner with a chargeback fraud prevention company
Dealing with friendly fraud chargeback disputes yourself might be tedious. Fortunately, there are efficient automated solutions for e-commerce merchants. You can easily prevent many friendly fraud chargebacks by implementing special chargeback prevention tools. Such instruments can automatically resolve chargeback disputes and detect suspicious cards and customers, efficiently preventing friendly fraud and securing your finances. Additionally, such instruments significantly increase the team's productivity, saving the time that could be wasted on chargeback dispute resolution for more critical tasks.
Regularly check your purchase data and review customers' comments to notice issues that require correction. Constantly improve your service and fraud-prevention defense system; this will minimize the risk of friendly fraud disputes and help you become a reliable merchant, gaining recognition among purchasers and other companies.
How to Respond to Friendly Fraud
Despite many efforts merchants put in friendly chargeback fraud prevention, there is still a risk of friendly fraud disputes occurring. To protect your business, it is vital to Here, we explain how to deal with friendly fraud once the situation escalates.
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Analyze the dispute
Before proceeding with your defense, investigate the filed dispute. Figure out the reason behind the refund request. Find out whether the claim is a legitimate complaint or a chargeback fraud. Only then, begin building your defense line. -
Contact the customer
If a customer doesn’t contact you to resolve the issue, you might try referring to them yourself. Try finding a solution through conversation: offer a refund or exchange of the item, discount for the next purchase, etc. This will help you avoid penalty charges and improve the overall customer experience, raising trust between you and your clients.
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Gather evidence
Find proof of your competence as a seller. Gather necessary documentation, transactional statements, address and credit card data confirmation, tracking services statements, etc. Find as much evidence of you being a reliable business as possible and organize this data in an easy-to-read way. You can significantly ease this task by implementing friendly fraud chargeback prevention services, such as Verifi or Ethoca, available within Germius CRM. -
Advance your defense
The occurrence of friendly chargeback fraud could be a sign of a weak fraud-prevention system. Analyze your chargeback data. Search for the weak spots and eliminate them when you find them. Notice chargeback fraud patterns to detect suspicious customers, IP addresses, cards, etc. Consider implementing tactics you haven’t used before and check your data later to determine their efficiency. Being cautious minimizes the risk of friendly fraud chargeback recurrence, securing your company’s good name and revenue.
Remember to pay attention to details and find as much evidence of your competence as possible. Analyze your friendly fraud chargeback data frequently to find the weak spots in your fraud-prevention system and strengthen your defense against fraudulent disputes.
Final Thoughts
Friendly fraud is a frustrating issue for many merchants. Ignoring this problem can have devastating consequences that can endanger your success in the e-commerce sphere. However, by implementing friendly fraud chargeback prevention tactics, you can significantly minimize the number of illegitimate refund disputes, securing your revenue and the company’s reputation. By providing better customer service and investing in friendly fraud chargeback prevention tools, you can have a good chance of winning any chargeback fraud dispute, ensuring the stable growth of your business.
