Friendly Fraud Eased with Visa’s New Chargeback Rules

Traditionally, credit card fraud has been associated with criminals exploiting the system with stolen card credentials. Now that e-commerce sales have dramatically increased due to the pandemic, another form of fraud has been gaining momentum – friendly fraud.

What is Friendly Fraud?

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. Examples of this type of fraud, also known as chargeback fraud, might happen when a customer has long-forgotten a recurring subscription, or claims an item wasn’t delivered or that they simply don’t remember making the purchase.

It has become so problematic, it can account for up to 75% of all chargebacks, according to Visa Inc. As with all disputed card transactions, which includes items purchased with stolen card credentials, the merchant must provide proof the transaction was legitimate to avoid a chargeback.

Visa Alters Chargeback Rules to Help Merchants  

To help merchants control the growing problem of friendly fraud, Visa announced it is altering its chargeback rules to allow merchants to provide additional information to prove a disputed purchase is legitimate.

The change, which will go into effect April 15, 2023, will allow merchants to prove the validity of a transaction by providing such information as examples of the customer previously using the same payment credential at their store, a customer’s login credentials, and proof the customer has used the product. The changes were developed in partnership with clients, the Merchant Risk Council, and the Merchant Advisory Group.

The changes come at a time when a study by Sift Science Inc. found that nearly one in five consumers who have filed a chargeback dispute have committed friendly fraud by submitting false claims to get their money back on legitimate purchases. Losses from friendly fraud cost merchants more than $25 billion a year, according to the National Retail Federation.

“Friendly fraud is not always friendly, especially from a merchant’s perspective,” Mike Lemberger, senior vice president of North America Risk for Visa, says in a prepared statement. “At Visa, we’re evolving our disputes program using technology and insights that help level the playing field for the entire ecosystem. When we give merchants and issuers the tools to take more fraud out of the equation, everyone wins.”

To Learn More About Chargebacks:

Contact us online or call 1-800-621-8931.

Check out i3 Commerce Technology’ newsroom.