Friendly fraud, also known as chargeback fraud, occurs when a customer disputes a legitimate charge. This seemingly harmless action has significant consequences for merchants, leading to revenue loss, strained customer relationships, and higher transaction fees. Below, we outline the "5 Deadly Sins" of friendly fraud and provide actionable tips to help merchants protect themselves.
How to Avoid: Maintain transparent billing descriptors and provide clear, accessible return policies. Send confirmation emails with details of the purchase and customer support contacts to prevent unnecessary disputes.
The Sin: Slow or inaccurate responses in customer support can erode trust, leaving customers feeling unheard and leading them to seek refunds or file chargebacks as a solution.
How to Avoid: Ensure customer support is prompt, attentive, and accurate, addressing concerns fully and showing customers they are valued and understood.
The Sin: Not retaining sufficient evidence of transactions, delivery confirmations, or customer consent can leave you defenseless against disputes.
How to Avoid: Keep detailed records of all transactions, including signed agreements, delivery confirmations, and digital receipts. When disputes arise, strong documentation can be your best defense.
The Sin: Responding too late to a chargeback can automatically rule against you, even if you have valid evidence.
How to Avoid: Set up an organized dispute management system that alerts you to disputes immediately. Respond before the chargeback deadline, to prevent automatic losses.
The Sin: Overlooking unusual or recurring customer behaviors such as frequent returns or multiple disputes, can indicate a policy abuser.
How to Avoid: Invest in data analytics to track customer purchase history and identify patterns. If specific customers repeatedly dispute charges, flag their accounts for review.
Friendly fraud can be detrimental to your business, but by addressing these “5 Deadly Sins,” merchants can significantly reduce their risk. Remember: Clear policies and descriptors, good customer support, detailed documentation, prompt dispute responses, and understanding customer behavior are all essential to protecting your revenue.
