7 ways to combat true and ‘friendly’ fraud
Anyone with a credit/debit card probably understands the impact of fraud – whether real or ‘friendly.’
The rise of so-called ‘friendly fraud’ makes this type of fraud seem somehow lesser than actual fraud. But is this actually the case? The answer to this question begins with the definitional difference between the two types of fraud.
A credit card statement appears and there is a charge you did not make – sometimes many. Maybe your credit card information was stolen, either physically or virtually or you’ve experienced identity theft, where a fraudster is opening completely fraudulent accounts in your name. You contact your credit card issuer to contest the charge. When a consumer is a victim of real fraud, their main recourse is a chargeback. This is the reason the chargeback process exists today.
This type of fraud can arise from either the card holder or a family member. With the rise of stored payment credentials within multiple electronic devices, it is easier than ever to make a purchase without notifying the owner of the card or asking for permission to make a purchase. Friendly fraud can also be a form of buyer’s remorse where the customer doesn’t want to admit to making a purchase and simply denies participating in the transaction. Every merchant in the card not present (CNP) space feels the pain of friendly fraud.
Friendly fraud on the rise
For several reasons, friendly fraud has seen a precipitous rise in recent years:
- Online shopping has become commonplace, and it is easy to use someone else’s card information when you share the same home
- Chargebacks are easy. Most banks allow customers to file disputes at the push of a button
- Issuing banks are part of the problem. Issuers are inundated with chargeback requests as the process is so easy and user friendly
So, what can merchants do to combat both true fraud and friendly fraud?
- Merchants need to get in the habit of utilizing all available tools such as Address Verification System (AVS), (where a customer’s address is automatically verified through the card issuer at point of sale)
- Make use of CVV, the digits (usually on the back of the card) that act as a unique identifier
- Use an easily recognizable billing descriptor
- Your billing descriptor should include your merchant contact phone number or URL for your website — another way customers can more easily connect their purchase with the charge
- Delivery confirmation is yet another way merchants can help combat chargebacks from customers who claim an item was never delivered to them
- One of the easiest ways to stave-off chargebacks is to learn to effectively communicate with your customers. Process refund requests efficiently and in a timely manner
- You might also consider sending notifications before billing recurring transaction, both to remind and alert the customer of an upcoming charge
Still, chargebacks will occur, and another good defense is to keep detailed records and always be on the lookout for suspicious behavior. When a transaction can be identified as true fraud, it makes ethical sense to just accept that chargeback. However, when a merchant can identify a dispute as friendly fraud, they must be prepared to fight these chargebacks to recoup their funds.