What is Friendly Fraud?
You may have 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 in industries like digital goods, the risks for businesses can be high.
Why Does Friendly Fraud Happen?
Often, cases of friendly fraud are benign and stem from simple confusion over an unrecognized transaction. A common example of this is when someone—like a spouse or child—makes a purchase without telling the cardholder. As a result, they don’t recognize the transaction on their bank statement and call in to dispute it as fraud.
What’s the Difference Between Friendly and Regular Fraud?
The main difference is the identity of the perpetrator. With ‘regular’ fraud, the fraudster uses a stolen identity, such as someone else’s credit card, for financial or personal gain.
With Friendly Fraud, the Fraudster Can Be:
The cardholder, who made the transaction but fails to recognize it on their statement.
Someone authorized 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 authorized but has access to the card information (i.e. a child who makes a purchase using a smart device).
What to do About Friendly Fraud Chargebacks?
Whether a chargeback is the result of regular or friendly fraud, the results are the same—you lose the sale, the goods and can face costly fees. The best way to deal with friendly fraud is to have a solid strategy in place.
Tips for Minimizing Chargebacks
1. Review your refund policies and contact information. Make it easier for customers to contact you directly to inquire about orders, returns and refunds.
2. Make sure your merchant descriptor—the 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™. This will 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.