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Friendly Fraud Isn’t Friendly. And Sometimes It’s Not Even Fraud.

posted on: Fri Nov 03 2017

The term “friendly fraud” derives from the expression “friendly fire.” Much like friendly fire harms a soldier’s allies, friendly fraud likewise harms a credit card holder’s allies (i.e., issuers, acquirers and merchants).

And like friendly fire, friendly fraud can result from any number of causes…ranging from innocent errors to outright malice. 

Of course, when most online businesses hear the term “friendly fraud,” they think of the malicious kind: unethical consumers trying to steal from them by filing illegitimate chargebacks. And that perception is understandable. The malicious kind of friendly fraud accounts for 60% to 80% of chargebacks.

However, the other 20% to 40% of chargebacks that get lumped under the term friendly fraud are due to merchant errors or innocent consumer confusion. Yet even though intent may be innocent, the result for an online business is still the same: chargebacks, chargeback fees and other penalties.

Innocent consumer confusion can lead to erroneous chargebacks with no actual fraud intent.

  • Nearly half of all friendly fraud chargebacks (49%) resulted from a simple misunderstanding in which the cardholders didn’t even know they were filing chargebacks.
  • One common problem is “Family & Friends” chargebacks, which is when a cardholder doesn’t know that someone has made a purchase without their knowledge. For example, a teenager buys a pizza online and doesn’t tell his parents.

Merchant errors can lead to friendly fraud chargebacks—both innocent and malicious.

  • A not uncommon merchant issue that can lead to innocent chargebacks is when the online business’s billing information isn’t recognized by the consumer on their cardholder statement. For example, the cardholder may be expecting charges from the mobile game “Candy Crush” but instead the company name “King Digital Entertainment” is listed.
  • Merchant errors that can end up on the malicious end of the continuum include 1) when the wrong item gets shipped, 2) when the product doesn’t match the description on the website, and 3) when the shipper doesn’t deliver correctly. Instead of the customer going through the proper refund or exchange process, they simply file a chargeback. In fact, 8 out of 10 customers admit to filing a chargeback out of convenience, instead of trying to resolve an issue with the seller.

Malicious digital shoplifting is easy and easy to get away with.

  • Filing a chargeback is as easy as tapping a button in an app.
  • Many of the reasons for malicious chargebacks can sound innocent. For example, “I didn’t order the product” or “the product never arrived.” (Of course, the correct course of action for a legitimate customer would be to request a refund or exchange through proper channels.)
  • 40% of consumers will claim a second friendly fraud chargeback within 60 days of their first friendly fraud chargeback.

The good news is that all of these friendly fraud losses can be mitigated with little-to-no impact on your operations and with strong ROI:

“The Kount Complete and Chargebacks911 combined solution helped us add $400,000 directly to the bottom line, without requiring extra time or effort or headcount. It is definitely worth the investment.”

- Jennifer Johannsen, Director, Risk & Compliance, ClickBank

To start with, a review of your current processes by experts like Chargebacks911 helps reduce merchant errors and identifies opportunities for reducing both innocent and malicious friendly fraud through best practices. In addition, an integrated enterprise-class fraud prevention platform—such as the combined Kount Complete™ + Chargebacks911 solution—collects and analyzes hundreds of discrete data points during fraud screening and transaction processing to not only deliver superior criminal fraud screening, but also provide the data evidence needed to win chargeback representments of friendly fraud.

Download the eBook “There’s No Such Thing As Friendly Fraud” to discover 10 best practices for fighting chargeback fraud and how you can reduce chargeback losses by as much as 85%.

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