Friendly Fraud is on the Rise in Asia. What Can Issuers Do About it?
by Brett Small
Issuers around the world recognize that a growing number of transaction disputes today are not due to genuine fraud, but rather “friendly fraud” — when customers wrongly dispute legitimate charges for reasons such as transaction confusion or buyer’s remorse. As a ratio of total transaction disputes, this is particularly true in Asia.
Our analysis shows that friendly fraud makes up roughly half of all transactions classified as genuine (aka ‘third-party’) fraud in Asian countries. The reason: purchases of digital goods comprise a much higher portion of disputed card transactions in this region — and our research shows that digital goods are more likely to be disputed than non-digital goods. By contrast, only 15% to 20% of all transactions coded as fraudulent are friendly fraud in the nearby markets of Australia and New Zealand.
The negative effects of this threat to issuers are many:
- Poor customer experience
- Increased operating expenses
- Unnecessary card re-issues
- Reduced revenue caused by decreased spending on cancelled cards
- More false declines caused by fraud-detection tools relying on imperfect information.
This all means that if Asian issuers aren’t actively working on a specialized strategy to fight friendly fraud, they should get started soon.
An Opportunity to Deepen Cardholder Relationships
Many Asian issuers have taken a rigid stance against friendly fraud in an attempt to prevent losses and often refuse to investigate or refund cardholders without great evidence of fraud. However, this stance overlooks the fact that a large percentage of friendly fraud is benign — caused by cardholder confusion over unclear transaction descriptions when reviewing a statement or by simple household miscommunication.
Most issuers recognize that fraud and cardholder dispute claims are key “moments of truth” for customer relationships. When a customer feels like a victim of fraud — even if that fraud never actually happened — it presents an opportunity to create a positive experience that ultimately gains that customer’s trust and respect. Thus, by refusing to work with their cardholders to investigate and alleviate their concerns, they are doing more harm than good in the long run. When an issuer takes the time and energy to put customers at ease, it greatly improves the cardholder experience and increases the likelihood of extending their relationship to other products and services within the bank.
How Collaboration Can Curb Friendly Fraud
So, how can issuers in Asia put customers at ease while also fighting friendly fraud? They can adopt the latest generation of collaboration-driven tools that can provide immediate clarity on whether a transaction is fraudulent or not.
Ethoca Eliminator is one such collaborative tool currently in use by issuers and merchants around the world that offers in-depth merchant transaction details in real time. It can provide a digital receipt, for example, that shows the IP address of the purchaser’s device, details about the goods or services bought and the exact date and time of purchase. In doing so, it eliminates transaction confusion and removes the need for a fraud claim to be initiated — saving the cardholder, the issuer and the merchant a lot of unnecessary time, effort and money.
For the first time, issuers can get the data and insights they need to prevent fraud losses, without upsetting customers. With this new generation of collaborative solutions (including Ethoca Eliminator), issuers in Asia can have the best of both worlds.