Friendly Fraud and How it Affects Merchants


Friendly Fraud involves buyers claiming they did not receive what they ordered. However, this claim is often subjective, and the dispute becomes one party’s word against another. Moreover, banks want to keep their customers happy so that they may take the customer’s side in a friendly fraud dispute. This creates a feedback loop where cardholders are likely to request chargebacks again in the future. Indeed, up to 40% of cardholders who have committed friendly fraud will do so again within 60 days.

1Chargeback fraud

There are four common causes of friendly fraud. Firstly, the customer purchases merchandise intending to dispute the charge falsely. They may have read a dispute guide online and believe that the transaction has not been made. In addition, they may have made other legitimate chargebacks. Finally, if the customer makes a second purchase with the same credit card, they may be unable to link the transaction to the original one.

The consumer filing a fraud chargeback may not have even contacted the merchant. The consumer will most likely assume that the merchant is intentionally dishonest and would stonewall the refund request and file a chargeback. This can happen when the merchant refuses to issue a refund, or the customer has a different reason for disputing the transaction. In this case, the merchant may have to argue their side of the story.

2Friendly fraud

In many cases, consumers bypass the merchant, leading to a chargeback. To avoid this, companies should ship the goods before they charge them. Managing expectations and offering a substitute product are also helpful ways to prevent chargebacks. However, these methods can only avoid the first instance of friendly fraud. In many other instances, the merchant can take action to stop the fraudulent activity. First, it’s essential to understand what happens to the merchant after a chargeback is filed. A chargeback is harmful to the merchant because they lose the fees they receive for sales transactions, and payment processors fine them if they file a chargeback. Additionally, if the merchant’s chargeback rate is too high, their processing fees will rise, and they may lose their ability to process cards. Finally, merchants will have to devote more resources to fight chargebacks.

3Subscription businesses

Subscription businesses are particularly vulnerable to friendly fraud. Consumers often forget to cancel their subscriptions or don’t realize that the subscription option was chosen. The result is that the merchant loses legitimate revenue that could otherwise be recovered. Fortunately, subscription businesses are equipped with data to win chargeback disputes. They can submit evidence that proves that the goods have been delivered. Merchants should pay special attention to the initial transaction to minimize the risk of chargebacks.

There are several ways to minimize the risk of friendly fraud. First of all, the customer must be able to identify the payment method. Some unauthorized users may use the card without authorizing the charge. As a result, they could receive free products or services for disputing a charge. Also, the cardholder may be unaware that the purchase was fraudulent, so that they may dispute it. Another common friendly fraud technique is transaction confusion, which occurs when a cardholder does not recognize the charge and denies it. The same is true for “first-party fraud,” where an unauthorized household member purchases with their credit card.

Fraud detection software

One of the ways that friendly fraud is detected using fraud detection software is by analyzing the size and frequency of a customer’s orders. While this may seem trivial, it is a crucial indicator of friendly fraud. For example, if an order has suddenly risen to an abnormal level, this could be a clear indicator of friendly fraud. In addition to using fraud detection software, you can also use a spreadsheet to track trends in order of size and frequency.

A good fraud detection software will offer a dashboard that lets you monitor key performance indicators in real-time. You will be able to watch orders and payment methods, and channels and take appropriate actions based on the data. Some fraud prevention software like Ethoca chargeback company will even offer visualizations to help you identify trends and help you make the right decisions. This is a handy feature for detecting fraud and helping prevent it. This kind of fraud can easily cost a company thousands of dollars.