Friendly Fraud
What is friendly fraud?
You've likely heard the term friendly fraud buzzing around. But what does it mean exactly, and does it really impact your business?
Friendly friend occurs when a customer disputes a legitimate transaction as fraud—resulting in a chargeback to a merchant. And with friendly fraud accounting for upwards of 80% of all fraud for digital goods merchants, the risk for businesses is high.
Why does friendly fraud happen?
Often, cases of friendly fraud are benign and stem from simple confusion over an unrecognised transaction. A common example of this is when someone—like a spouse or child—makes a purchase without telling the cardholder. As a result, the cardholder doesn't recognise the transaction on their bank statement and call-in to dispute it as fraud.
What’s the difference between friendly and third-party fraud?
The main difference is the identity of the perpetrator. With third-party fraud, the fraudster uses stolen personal information, such as someone else’s credit card numbers, for financial or other personal gain.
With friendly fraud, the fraudster can be:
The cardholder, who made the transaction but fails to recognise it on their statement.
Someone authorised to use the cardholder's account, such as a family member, who forgets to tell the cardholder they made a purchase.
Someone that isn’t authorised but has access to the card information (e.g. a child who makes a purchase using a smart device).
What to do about friendly fraud chargebacks?
Whether a chargeback is the result of third-party or friendly fraud, the results are the same—you lose the sale, the goods and might face costly fees. The best way to deal with friendly fraud is to have a solid chargeback-prevention strategy in place.
Tips for minimising chargebacks
1. Review your refund policies and contact information. Make it easy for customers to contact you directly to inquire about orders, returns and refunds.
2. Make sure your merchant descriptor—the identifying term that appears on a cardholder's statement after they make a purchase—is clear.
3. Provide additional purchase details upfront using a solution like Ethoca Consumer Clarity™ to greatly reduce friendly fraud stemming from transaction confusion.
4. Work with a collaboration network, like Ethoca, to receive notifications of incoming disputes in real-time.
Related resources
Friendly fraud — when cardholders dispute card purchases they or someone else in their household actually made — has become a significant cost burden to merchants and issuers.
When consumers dispute purchases on their payment cards that they or another member of their household actually made, they’re engaging in “friendly fraud.”
It may sound harmless, but "friendly fraud" (also known as false claims) is taking a serious toll on merchants' and issuers' bottom lines — and it's hurting consumers, too.