What is ‘friendly fraud’ and why can it kill your business?

May
12, 2021

4 min read

Opinions expressed by Entrepreneur contributors are their own.

The impact of fraud on companies grows every year. In 2020 alone, in the United States, more than $ 630 billion was spent on online purchases and $ 12 billion was lost to fraud. In addition, global losses from e-commerce fraud are projected to exceed $ 37 billion annually by 2024. These types of attacks are becoming more frequent, and the serious issue is that there is little consensus or information that fraud is a serious problem for merchants. However, not all fraud is committed by criminals. The friendly fraud or friendly fraud is something that make legitimate customers, and is so common com criminal fraud.

Friendly fraud occurs when a legitimate customer makes a purchase online with a credit card , but then disputes the charges with the issuing bank instead of exchanging or returning an item, or examining the credit card charges to make sure that are legitimate.

This is a form of chargeback fraud, which is what happens when money is returned to a payer. There are cases where the consumer has nefarious intentions and their goal is to buy something, then dispute the payment, and keep the product or services after the payment is refunded. Friendly fraud can often be a misunderstanding, and consumers simply don’t remember making a purchase or someone else who is an authorized user of their card makes the purchase and they don’t know it.

To prevent and identify friendly fraud there are some simple steps that can minimize the incidence of these events. First of all, it is essential to conduct yourself as an honest and ethical business. For example, be transparent about additional fees on an order so that customers are not surprised when they review their bank statement; and address any concerns that customers may raise about their order, rather than giving the impression that you are trying to profit from them.

^{Friendly fraud can often be a misunderstanding / Image: Depositphotos.com}

It is also important to use a clear and identifiable descriptor so that the consumer does not ignore the charge on their card statement. If the descriptor is completely different from your business name, that is an immediate red flag for consumers and will result in a higher level of chargebacks.

Social media has become the primary place for customers to communicate with brands, often because they cannot get a response using traditional contact methods. If customers cannot contact the company, they are more likely to go directly to their bank to try to resolve a dispute. Also, when customers place an order, they should receive a clear shipping quote and immediate order confirmation via email, text message, or both. Consumers who are aware that something is overdue are more patient and wait rather than dispute the charge.

On the other hand, consumers who successfully file disputes will often try again. If a customer repeatedly tries to participate in a friendly fraud, the company can prevent him from making future purchases by placing him on a “blacklist” to protect the company itself.

To be sure, with the recent rise in online shopping, friendly fraud is becoming an increasingly difficult problem for merchants to manage and prevent. This type of online fraud will continue to increase for years to come, so it is critical that companies have a plan in place to help control it.