What is friendly fraud and how to prevent it

Friendly fraud is a confusing phenomenon for everybody – merchants, buyers and issuers. Since the “friendly” word is mentioned, lots of questions arise. And the most common one is how fraud can be friendly? Well, it can’t! 

The truth is that friendly fraud often occurs, causing merchants money losses and plenty of headaches. It can be both a deliberate act and an unintentional misunderstanding. But it doesn’t make a big difference for merchants who lose their funds. Due to such an uncertain nature of the friendly fraud, it is so difficult to identify it and fight it back. 

So, how to protect your business, if you aren’t even sure what friendly fraud is and how to deal with it? Keep reading to get the answers you’ve been looking for.

Before we step up to the friendly fraud core, let’s see what a chargeback is. It’s when a shopper contacts their bank to request their money back. Customers file chargebacks for different reasons. The most common one is an unauthorised transaction. When a credit card has been compromised, buyers have no other choice but to initiate the chargeback process. Another reason to demand money back is merchant negligence or a simple error. For example, a seller can mistakenly send a wrong item, or the product can be damaged.

As you see, a chargeback is an unfortunate thing that may rain on a merchant’s parade. But it usually takes place due to some valid reasons and can be prevented by a reliable payment provider and a clear-cut return policy. But the real trouble for merchants is a chargeback fraud, also known as friendly fraud. It’s when customers ask for transactional reversals for no valid reason.

Sneaky buyers who want to make money out of merchants claim a legitimate charge to be an unauthorised transaction. They can also say that they’ve sent the product back and wait for reimbursement when nothing was sent. 

Unfortunately, banks often take cardholders at their word, meaning that they refund them without proper investigation. That usually happens when a merchant has no documentation to prove the customer wrong. When tracking and shipping mechanisms don’t work adequately, a seller can’t fight for their rights. 

Issuer banks don’t bear much responsibility when something goes OOPS. They notify a merchant that the money should be returned, and that’s it. A seller can pay those funds back or dispute the chargeback. But again they have to provide evidence to convince both acquiring and issuing banks that the friendly fraud is happening. 

So the point here is as clear as that: friendly fraud will take place no matter what, and if you want to keep your money on the safe side and avoid devastating consequences for your business, take certain measures to prevent it. More about it – later on.

Friendly fraud often happens by accident. However, it’s still bad for merchants because they have to pay at the end of the day. 

Let’s say a kid has purchased something at an online store without their parents’ permission. When parents see money disappear from their account, they immediately hit the panic button. They can even ask their child whether he or she knows something by any chance. But the child can simply keep silent about it. Parents request a chargeback, and it is also friendly fraud (or family fraud), although it’s unintentional. 

Not everybody wants to game the system. Here is another example of accidental friendly fraud. If a shopper is absent-minded, they can simply forget about the purchases made. Or people don't often recognise some charges marking them as unauthorised. 

Sure thing that merchants don't care what makes customers file chargebacks. They just want them not to do that because such carelessness results in a negative outcome for their businesses. 

So, let's see what you can do as a merchant to steer clear of chargeback fraud of any kind.

Although friendly fraud can’t just disappear, you as an online store owner can take certain steps to shield your business. Here is what can be done: 

• When the chargeback fraud is on the horizon, get ready to provide the bank with delivery notification, package tracking, email confirmation or phone call record. In simple words, you should have all the documentation ready at hand to verify that the client received your order. Merchants should have proper shipping and tracking mechanisms. For example, you can request the receipt with the client’s signature made at the delivery office. That will be the evidence that the package was given to the customer. 
• Merchants can record the phone call with a customer, especially when the receipt total is more than average. For instance, if your average transaction amount is $100, and a buyer purchases for $1000, that should be a wake-up call for you. In this case, you’d better make a validating call and record the conversation. Actually, it is a good practice not only for costly orders. 
• If you want to stay away from chargebacks, make sure your return policy is crystal clear. Specify that the funds will be paid back only after the item (undamaged and with all labels) is returned. You also need to communicate a time period of the return. What’s more, it’s important to display your return policy where users won’t miss it. However, that might not be the solution if a customer intentionally misinforms the bank, saying they became a victim of the fraud. 
• Stay in touch with your customers. Don’t screen yourself behind the impersonal website. Let your clients call you whenever they need it. And it’s your responsibility to communicate any issues on your side. For example, if there is a delivery delay, make sure to notify your customer about it. Email confirmations will also come in handy to enhance the communication between you and your clients. 
• Don’t make people angry about your business. Provide first-class customer service, and that will be your first line of defence. Even if there is any misunderstanding or an issue with the product, your clients know you’ll sort things out. 

Friendly fraud isn’t going to fade away any time soon. But you can significantly reduce its number by keeping your documentation in order, recording phone calls and providing stellar customer service.

You can double down on your preventive measure against friendly fraud, but you are easy prey if you don’t trust your store to a reputable payment provider. It is rather difficult to steer clear of unauthorised transactions when your anti-fraud system is good for nothing.

Accept payments with Tranzzo to lessen the number of chargebacks. We comply with the highest security standard – PCI DSS level 1 that guarantees your transactions are under protection. Besides, Tranzzo exposes every payment to more than 200 checks to detect a scam, and we use 3D Secure to make sure your clients agree to be charged. 

Sign up for Tranzzo, and we will take your payments up a notch. Contact us for more information.