Intentional or not, 'friendly fraud' is not nice
"Friendly fraud,” also known as chargeback fraud, happens when a customer disputes a legitimate charge on their payment card. The customer is typically refunded their money, while the merchant may face hefty fines, payment card rate increases, a freeze or termination of their processing account, and a damaged reputation.
There are two types of friendly fraud: intentional and accidental. A typical scenario of intentional friendly fraud involves a customer who purchases an item, receives it, and then claims they either did not order it, or never received it. This usually results in an automatic reversal of funds to the customer, while the merchant is tasked with gathering evidence that the chargeback is fraudulent.
An example of accidental friendly fraud is when a customer reports an incorrect charge because they aren’t aware that another authorized user on the account made a purchase. Or, when the customer doesn’t recognize the information on their billing statement because it doesn’t match the business’ name, which can happen if the retailer uses a third-party payment system such as PayPal. Unlike intentional friendly fraud, accidental friendly fraud is more easily resolved. Often all it takes is a simple phone call to the customer to review and explain the transaction.
Whether intentional or not, friendly fraud costs merchants a lot of money. According to Visa, merchants lost $11.8 billion to friendly fraud in 2012. To defend against friendly fraud, a merchant’s best defense is a good offense. Best practices include keeping customer receipts, requiring signed delivery confirmation, and providing clear billing descriptors and contact information.
For additional resources to avoid payment fraud at your business, contact us.