Friendly Fraud Isn't Very Friendly...

The circumstances surrounding friendly fraud vary. Some customers believe that charging back an item is the same as getting a traditional refund or return. Most cardholders don’t realize that there is a penalty imposed on the merchant when a chargeback is issued. However, other consumers are very aware and decide to use a chargeback for convenience or to avoid paying. These consumers are attempting to get something for free and intentionally ripping off the merchant.

How to detect friendly fraud from true fraud?  The difference between friendly fraud and true fraud are determined by the cardholder. With friendly fraud the fraudster is the actual cardholder. This can be any person who is authorized to use the card. So if you allow your mother to use your card and she commits fraud, it’s still classified as friendly fraud because she was an intentional card user.

True fraud is when someone who wasn’t authorized to use your card fraudulently makes charges. This would be identity theft or a stolen credit card. If a cardholder suspects true fraud, the cardholder should immediately close their account and have a new card issued from their issuing bank.

The true cost of friendly fraud:

As stated earlier most consumers assume that a chargeback is just another way to get a refund. Refunds can resolve most customer disputes, whereas chargebacks should only be used as a last resort for customers. When a chargeback is filed by a customer whether it is friendly fraud or not, a merchant losses money on everything our infographic displays. Instead, with a refund the merchant is only responsible for giving the customer back the money for the item or service.

Why is friendly fraud so popular?

• Online Shopping: Friendly fraud is much easier to commit when a merchant has an online shopping store. A brick-and-mortar store proves that the customer knowingly made the purchase whereas an online purchase can’t detect if the customer actually owns the card being used.
• Easiest Option: Now that we live in a world where things need to be instant, consumers take the easy way out. Customers have openly admitted to filing a chargeback because they would rather go to their bank and make sure the refund is happening instead of contacting the merchant.
• Banks Don't Help: Banks are supposed to give the merchant a chance to file a representment where they prove their case that the transaction was purposeful. However many banks just automatically favor customers without doing their due diligence for the merchant.

How to avoid friendly fraud?

• Communicate regularly with customers.
• Keep track of EVERY transaction.
• Make sure your descriptors are clear for your customer to identify.
• Offer friendly service to put the customer at ease.
• Keep your customer in the loop and updated before and after processing their recurring payment.
• Don’t service customers who have filed a previous chargeback.
• Keep up with your orders, making sure you deliver your products on time.  

As a merchant it is best to know what you are up against. Communicate with your customers that if they aren’t satisfied you would be happy to help them with a refund. Most friendly fraud is committed by uninformed, impatient customers. For more details about how to protect your business from fraud read our fraud prevention tips here.

If you want a processor who takes fraud and chargebacks seriously, switch to Redde!