What is “Friendly Fraud” and How Can My Business Handle It?

What is “Friendly Fraud” and How Can My Business Handle It?

What is “Friendly Fraud” and How Can My Business Handle It?

  • On November 18, 2019

Friendly fraud can be summed up as an honest mistake: reporting a charge as fraud when a customer did indeed make that purchase.  Often times this happens unwittingly either by another member of the household or by the cardholder themselves long since forgotten. Instead of working with the merchant to obtain a refund, customers file a chargeback with their credit card company, resulting in the bank issuing a refund on the merchant’s behalf although the merchant did not commit a mistake.

Various Reasons for Chargebacks

Payment Processing Credit card machine on a tableWhether they claim the product wasn’t delivered or the product didn’t match the proper description of the item, a customer can file a chargeback for these and other reasons. Sometimes customers simply do not know the difference between a return with the merchant and a chargeback from the bank. Other times, virtual shoplifters leverage the chargeback rules in their favor by ordering goods, receiving those goods, and then not paying by disputing the charge also known as chargeback fraud. 

In addition to the cost of the goods, merchants also pay chargeback fees, lose shipping costs, and spend time and money disputing charges. Making up 40 to 80 percent of a business’s losses in fraud total, friendly fraud results in merchants eating the costs.

Minimizing Friendly Fraud Incidents

Merchants can implement several practices in preventing chargebacks including keeping an open line of communication with customers. This will help customers get in touch with the merchant rather than the bank when they need to return a product or service. 

Merchants should also make their billing descriptor easy to identify. The name of your business on a credit card statement should trigger a memory of a legitimate purchase rather than trigger alarm that someone is fraudulently charging goods to a customer’s card.

merchant services refund policyMerchants can display the refund policy on their website outlining the timeline in which the customer must return the product. If merchants offer refunds and cancellations immediately, customers won’t need to resort to filing chargebacks with the bank. Merchants can make it easy for customers to return a product with pre-paid shipping labels. Also, merchants can notify customers of recurring payments to prevent a surprise charge and the resulting call to the bank. 

In addition to using delivery confirmation as a business practice, merchants can also keep a paper trail of all transactions to further inform customers of the details of the purchase. By offering details about the transaction, merchants can help customers recognize the purchase. This practice will dissuade fraudsters with ill intent from pursuing fraudulent purchases from the merchant with the current and future purchases. 

On the front end of the transactions, merchants can collect as much customer data as possible to help keep track of the order history. In this same session, merchants can use a software requiring customers enter their complete credit card information, as well as allowing customers to review the order and then verify the purchase. 

Merchants can also use data to notice trends with repeat offenders of friendly fraud. With heavy doses of data and communication, merchants can make cuts in their friendly fraud costs, as well as improve their relationships with customers.