Friendly Fraud – Not So Friendly for Merchants

As merchants enter the throes of the holiday season, they need to remember that friendly fraud is inevitably part of the equation. Although friendly fraud is repeatedly characterized as simply a cost of doing business, the attitude and approach toward it should not be indifference.

Friendly fraud occurs when a customer makes a purchase with a credit or debit card and then disputes the charge with their bank, even though they don’t have a legitimate reason to do so.

Types of Friendly Fraud

Much of the fraud that is committed against retailers can be traced back to merchants’ own customers, many of whom initiate chargebacks after buying and receiving goods. The most common types of friendly fraud happen when:

• Genuine customers make purchases and decide that they don’t wish to pay for them.
• Customers receive an item, and when they were not pleased with it, they request a chargeback and claim they didn’t initiate the purchase (even though the retailer holds evidence that they were the actual customer).
• Customers do not return the actual item but replace it with another item. When a return is initiated, the merchant issues the refund back to the customer’s card. However, once the merchant receives the return, they discover that either the correct item was not returned, or it was damaged upon return.

How Merchants Can Safeguard Against Friendly Fraud

The more mitigating steps that merchants place on understanding their returns and refund data, the better. There is no magic bullet that can prevent all incidences of this but there are strategies that business can use to help reduce the damage once it has been committed.

Network intelligence is key in the fight against friendly fraud. Reviewing behavior analytics of customers – returns and refund knowledge that’s been gleaned from previous transactions – can flag inconsistencies or instances of fraud previously committed.

There are a host of tools and technologies that can be used together to create a custom fraud plan that can benefit the merchant, based on their geographic location, product sets, and the payment method used.

Also, merchants should adopt basic techniques to lower their overall risk of fraud including:

• regular communication with customers
• easily recognizing billing descriptors
• subscriber notices sent before charging for recurring payments
• racking and signed delivery confirmation on larger orders
• granting refunds and cancellations as soon as requested

With these practices and tools in place, merchants can help safeguard themselves from fraud and continue to focus on running their business.

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