Find out more about friendly fraud, where it happens, how it affects merchants, and how you can lessen the effects before it's too late.
The impact of fraud on businesses is growing every year. In 2020, more than $630 billion was spent on online purchases, and $12 billion was lost to online fraud. Fraud attacks are becoming increasingly prevalent, with an estimated 206,000 fraud attempts occurring each month.
There is little disagreement that fraud is a significant problem to merchants. However, not all fraud is committed by criminals. Friendly fraud is something committed by legitimate customers, and research suggests that friendly fraud may actually be more commonplace than criminal fraud.
In this article we'll take a closer look at what friendly fraud is, and how you can prevent it from hurting your business's bottom line.
What Is Friendly Fraud?
Friendly fraud happens when a legitimate customer makes an online purchase with a credit card, but then disputes the charges with the issuing bank instead of exchanging or returning an item, or examining credit card charges to make sure they are legitimate.
Friendly fraud is a form of chargeback fraud, which is what occurs when money is returned to a payer (in this case, a merchant is returning money to a consumer). There are cases where the consumer has nefarious intentions and their goal is to purchase something, then dispute the payment, but keep the product or services after their payment is refunded.
More often, though, consumers don't recognize charges on their credit card statement, for various reasons, and call the credit card company to dispute the charges. 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 are unaware.
How Can Your Business Prevent Friendly Fraud?
To prevent and identify friendly fraud, you need special tools that differentiate friendly fraud from criminal fraud. The good news is that you can take some simple steps to minimize the amount of friendly fraud your business experiences.
Be an Honest and Ethical Business
You shouldn't expect your customers to be honest with you if you can't reciprocate that for them. Be transparent about any additional fees that may be attached to an order so your customers aren't surprised when they look through their bank statement. Address any concerns that customers might raise about their order—within reason—rather than appearing like your attempting to take advantage of them.
Use an Identifiable Descriptor
If a consumer sees a charge on their credit card statement that they don't recognize, they often dispute it, even if it's a legitimate purchase that they made. If the descriptor that shows up on their bank statement is completely different from your company name, that's an immediate red flag for consumers and will result in an increased level of chargebacks.
Be sure to include your business or store name as part of the descriptor so your customers will be able identify where the charge is coming from.
Provide Effective Customer Service
Social media channels like Facebook and Twitter have become the primary place for customers to share their grievances with brands—often because they can't get a response using tradition contact methods. If your customers can't get in touch with you or you refuse to provide an appropriate level of customer service, they are less likely to try to work with you to resolve the issue, and more likely to go straight to their bank to issue a claim.
Keep Customers in the Loop
When customers place an order, provide a clear shipping estimate and send an immediate order confirmations via email, text, or both. Once the order is placed, keep your customer in the loop as the order is being prepared, when it ships, and if the shipment is delayed for any reason, they should be the first to know.
Consumers who are aware that something is back-ordered or delayed are more likely to be patient and wait rather than disputing the charge with their credit card company.
Blacklist Repeat Offenders
Consumers who successfully file disputes will often try to do it again. If a customer repeatedly tries to engage in friendly fraud, you can prevent them from future purchases to protect your company.
Protect Your Business from Fraud
With the recent surge in online shopping, friendly fraud is becoming an increasingly difficult issue for merchants to manage and prevent. Online fraud is only projected to grow over the coming years, so it's critical that your business has a plan in place to help control it.
If you're seeking a fraud solution that's equipped to prevent a variety of different types of online fraud (include friendly fraud), request a demo of our platform so you can learn more about Vesta's approach to fraud protection. Our Payment Guarantee solution offers a zero fraud chargeback guarantee that effectively takes the liability of fraud off your plate.