Friendly fraud is a costly threat to all online merchants and others that accept card-not-present transactions. Unless merchants take steps to reduce this type of fraud, they are risking both their reputation and their revenue.
What is Friendly Fraud?
Friendly fraud is often called chargeback fraud because it involves consumers abusing the chargeback process at the merchant’s expense. Rather than secure a refund from the merchant, the cardholder files the chargeback directly with the issuing back — essentially using them as a middleman.
Not all friendly fraud is intentional. Customers may not understand the difference between a chargeback and a refund. Consumers may also have a legitimate complaint, but instead of contacting the merchant first, they take their complaint directly to the issuing bank. While not necessarily malicious, these customers don’t seem to realize how these actions affect the merchant. However, there are more and more customers that make purchases with the intention of filing a illegitimate chargeback. The chargeback process has become so easy that cyber shoplifters are easily able to play the system. Friendly fraud can take place in a variety of ways, including when the customer:
- Places an order intending to secure free products
- Misses the window to return a product
- Tries to lower their credit card balance
- Experiences buyer’s remorse
- Forgets to cancel a recurring order
Nine Strategies to Combat Friendly Fraud
Regardless of the intent, friendly fraud can have a significant effect on a business’s bottom line. It can be difficult to prevent because any valid transactions can potentially lead to fraud. Typical security measures won’t prevent it. There are, however, concrete steps you can take to reduce the likelihood of it occurring. Here are some effective steps to prevent friendly fraud from happening in the first place.
- Provide Clear Descriptors. Ensure clarity on credit card statements by making sure the business name is clearly displayed. Many chargebacks happen because customers don’t recognize the charge on their bank statement.
- Set Realistic Product Expectations. A dissatisfied customer that feels they were misled may think it’s futile to resolve the issue with the merchant, and may contact the bank directly. Make sure product descriptions are accurate and honest. There’s a difference between portraying your product in the best light and deliberately misleading the customer. Color, size, function, capabilities and anything else the customer needs to know about the product should always be included.
- Send Order Confirmation. Each customer should receive an email confirmation that details the order, as well as the return policy.
- Use Pre-Sale Tools. Utilize some of the pre-sale tools available to merchants. Asking for the credit card security code can ensure that the cardholder is in possession of the card. Using 3D Secure (Verified by Visa and Mastercard SecureCode) can also ensure that the cardholder is making the purchase.
- Communicate Clearly. Make cancellation and return policies clear, concise and transparent. When these policies are easy to locate and understand, customers will be less likely to seek a chargeback.
- Notify Customers About Order Processing. When there is a delay between an order being placed and a card being charged, customers should be reminded about their purchase, and details about what they’re being charged for. This is especially true for recurring payments, where customers will often forget about their initial purchase.
- Provide Exceptional Customer Service. With the rise of social media and increased mobile purchasing, consumers expect prompt responses to questions and concerns. If customers cannot get in touch with the merchant, they are more likely to contact their bank. Make sure contact information in all forms is clearly visible on the website. If customers know how to reach the merchant and can do so easily, it diminishes the likelihood of a chargeback.
- Maintain Organized Shipping Methods. Customers left in the dark about the expected arrival of their merchandise are more likely to file a chargeback. Merchants should provide easy online access to instructions detailing each step of the purchasing process. Up-to-the-minute order history information, a clear delivery timeframe and take-charge emails that notify the customer of order receipts, back orders, delivery tracking and confirmation, should be provided. Ship promptly and keep customers informed.
- Blacklist Fraudsters. Customers who commit friendly fraud will continue to take advantage of a merchant if left unpunished. Blacklisting these customers will prevent them from taking advantage of your business again.
While every business may still fall victim to friendly fraud, using the methods detailed above will help protect your hard-earned revenue and long-term sustainability.