Friendly Fraud Represents up to a $31 Billion Loss Each Year

Friendly fraud is such a problem that it costs the credit card industry $31 billion per year.

As the Internet Retailing website recently reminded us, friendly fraud is a growing trend, especially as more and more businesses have shifted their operations, or at least their sales stations, online as a result of the pandemic.

Friendly fraud and malicious fraud have increased over the last eight months, and many merchants were not prepared to fight it.

A man lowering a creepy plain white mask. Friendly fraud is what happens when someone buys something but later disputes the charge to get their money back.

Friendly fraud happens when a real customer makes a real purchase using their real credit card, but then calls their credit card issuer or issuing bank and disputes the charge to force a refund. They’ll claim they never received a shipment or that the merchant made a mistake.

And while there are actual justifications for actual disputes because the customer didn’t actually receive the shipment or the merchant actually made a mistake, friendly fraud happens when the customer is actually a flat-out lying liar who lies.

It’s called friendly fraud because it sounds so much more professional than “Big Fat Liar Fraud.”

This is different from malicious fraud where a crook either steals someone else’s credit card or they steal a person’s identity and they get a few credit card. In this case, the transaction itself is illegal because it was obtained by fraudulent means. With friendly fraud, the transaction was legal, the refund was obtained illegally.

There are Some Cases Where Friendly Fraud Isn’t Actual Fraud

Okay, maybe we got carried away by calling all friendly fraudsters a bunch of liars. There are some instances where it can be a result of something else.

This happen through what’s known as “family fraud,” where one member of a family charges something on a card (like a teenager make in-app purchases on a mobile game), and the primary cardholder doesn’t recognize the charge.

They call and dispute it, get the charge reversed, and later figure out that it was the other family member who made the initial charges.

There’s also just plain old confusion, where the customer doesn’t recognize a particular charge, and so they call and dispute it. This is where using Verifi’s Order Insights and PREVENT services can reduce those kinds of chargebacks.

That program encourages merchants to email receipts to their customers to cut down on unrecognized credit card charges, as well as providing details about transactions to the Order Insight system. This way when a customer calls the credit card issuer or their issuing bank, that customer service rep can look at the transaction, explain what it was, and spark the customer’s memory.

Buyer’s remorse is sometimes an issue as well. A customer will realize they probably shouldn’t have made the purchase in the first place and so they’ll dispute a charge. They may not be intentionally dishonest or do this because they think they’re pulling a fast one. They don’t know what else to do to reclaim the money, because a return wasn’t going to be possible. Given the state of the economy, their feelings are understandable, but that doesn’t make it right.

If you want to reduce friendly fraud, participate in Verifi’s Order Insight program and figure out how to provide more details for your transactions. Give refunds when the disputes are either too small to fuss with or you’re sure you won’t win. That doesn’t help your bottom line, but chargebacks can cost you a lot more than refunds. (Also, refunds don’t count against your chargeback ratio.) Finally, take advantage of any technology that will help you pinpoint friendly fraud patterns before you’re able to.

To learn more about how you can accept contactless payments while still reducing both friendly and malicious fraud, protecting your cyber security, and reducing disputes and chargebacks, CB-Alert can help, Please visit the CB Alert website.

Photo credit: Sammy-Williams (Pixabay, Creative Commons 0)

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