What is Friendly Fraud?

Family fraud - A child making an in-app game purchase

When it comes to eCommerce there many different types of fraud that merchants have to worry about from account takeover to promo abuse. However, the most confusing is perhaps friendly fraud since it can include up to three different types of fraud. Here at Justt we see and fight all three, so let us walk you through them.

ECommerce types of fraud that merchants have to worry about

The origin of friendly fraud

The term “friendly fraud” derives from the military term “friendly fire.” It captures the notion that the perpetrators who commit friendly fraud are indistinguishable from regular customers in their behavior until the moment they seek a chargeback. These customers aren’t like fraudsters who are professional criminals using stolen credit cards, who behave in an unusual manner when shopping online, seeking to cash out their bounty.

Friendly fraud and friendly fraud chargebacks first became a noticeable problem around the time of the Great Financial Crisis of 2008. The timing was no coincidence but reflected the earlier growth of e-commerce combined with the suddenly dire financial circumstances of many consumers, which led many people to misuse the chargeback mechanism to avoid paying for goods. Although, not all friendly fraud is intentional. In essence there is three types of friendly fraud, and we list them below.


Unintentional friendly fraud

At its friendliest, friendly fraud is when a customer files a chargeback on a purchase they do not recognize or forgot they made but for which they did in fact receive the good or service. There is nothing malicious about this behavior and merchants can reduce its occurrence with a few simple steps. However, when it does happen, the chargeback must be challenged, and the customer reminded of their purchase. Otherwise, you will not only lose the sale but also be left on the hook for the chargeback fee and loss of goods/services sold.

You can reduce the occurrence of this kind of friendly fraud chargeback by using a clear billing descriptor to appear on customers’ credit card statements. If your brand name and legal company name are different, this may be a significant source of chargebacks. Having an easy-to-find customer service number and email address with quick response times, will also help clear up confused customers before the chargeback stage is reached.

Family fraud - A child making an in-app game purchase

Family fraud

Family fraud is a type of friendly fraud whereby the cardholder seeks a chargeback on something a family member purchased with their card. It could be a child making an in-app game purchase or it could be a spouse having used the family credit card without consulting their partner. These chargebacks aren’t malicious. However, they are intentional and illegitimate. Usually, the correct business decision would be to challenge the chargeback.

Oftentimes, the cardholder has been negligent and should be held responsible for the charges. For example, a parent who saved their credit card details on a gaming or shopping site that their child uses. The child then uses the saved information to make purchases. Parents are supposed to educate their children to make responsible purchases. It is not the merchant’s responsibility to shoulder the cost of these purchases because a parent was not sufficiently careful with their credit card information.

If the cardholder contacts customer service because of family fraud, it may be in the merchant’s best interest to forgive some or all of the charge to keep the customer happy. It could prevent the customer from pursuing a chargeback that will cost the merchant more money and/or help retain a valuable customer. Either way, it’s up to the merchant to determine their best course of action when dealing with family fraud.

Chargeback fraud-A customer intentionally files a payment dispute on a purchase they know they made and for which they received the goods or services

Chargeback fraud

Chargeback fraud is the third sub-category of friendly fraud and is the evil cousin of the other two. It’s when a customer intentionally files a payment dispute on a purchase they know they made and for which they received the goods or services. It’s also known as “liar buyer.”

Reasons for committing chargeback fraud include the expiration of the return date, a desire to take the good while skipping on payment or the cardholder experienced buyer’s remorse but didn’t want to confront the merchant with a return.

Chargeback fraud can be tackled with identity data and proof of delivery that can be used to prove that an address associated with a customer received the goods. For online goods and services, usage logs can be used to show that a good or service was used by a person after the purchase was made.

Friendly fraud growing

Chargeback fraud tends to rise during periods of economic hardship. Notably, pronounced increases in chargeback fraud occurred during the financial crisis in 2008 and the recession brought about by Covid-19 in 2020.

When talking about friendly fraud it can be confusing which of the three sub-categories we’re dealing with, but commonly it refers to all three. In general, friendly fraud is a significant and growing problem. Estimates place the size of economic hit caused to retailers by friendly fraud at between $50 billion and $125 billion per year.

How to deal with friendly fraud

You shouldn’t take friendly fraud lying down. Here are five ways to reduce friendly fraud.

  • Provide a clear billing descriptor. Make sure your company’s brand name matches the legal billing name or expect to get friendly fraud chargebacks from confused customers.
Excellent customer service team to deal with friendly fraud
  • Have an excellent customer service team. A customer service team that quickly and respectfully responds to inquiries and complaints will make customers feel that their voice is heard. They are then likely to allow more time and leeway for the resolution of issues before filing a chargeback.
  • Keep detailed records. The more detail and information you have about your customer transactions and returns, the better protected you are. To prove that a chargeback is indeed fraud, you must be able to provide compelling evidence that clearly shows the customer authorized and received the order. Ensure you have vital customer information such as: phone number(s), email address(es), billing address, shipping address, date of transaction, electronic signature records, and package tracking information. Additionally, make sure your customer service team is keeping detailed records of all customer communication.
  • Request delivery confirmation. Ask your customers to sign for packages upon receipt. A signature verifying that the item was received at the address entered on the order makes it much harder for the customer to commit chargeback fraud.
  • Maintain a clear yet flexible return policy. A return is cheaper to handle than a chargeback and confused customers are likely to call their issuing bank. Make the return process clear and easy to reduce friendly fraud chargebacks.

Fight friendly fraud with Justt

Over 80 percent of chargebacks are illegitimate, i.e. some form of friendly fraud. At Justt we are experts in handling these cases for merchants so they can focus on running their business.

Our tailored solution uses superior machine learning technology and human know-how to achieve the best success rates in the industry. Our success-based fee means that you use us risk-free. We can only help your bottom-line. Contact us to find out more.

Friendly Fraud FAQs

Why is it called friendly fraud?

It’s friendly fraud because the customer behaves like a friendly customer up to the moment when they file for a chargeback.

How can you avoid friendly fraud chargebacks?

To avoid friendly fraud chargebacks, you need solutions that enable you to address disputes before they become chargebacks. Efficient communication with confused customers can help prevent friendly fraud chargebacks.

How do you fight friendly fraud?

Document every order received properly and submit relevant documentation to the issuing bank as evidence of a legitimate transaction.

What is a true fraud chargeback?

This is a chargeback claim from a customer for an unauthorized purchase that was truly illegitimate and entitles the customer to be made whole.

How do banks investigate friendly fraud?

A bank investigator will inspect transaction data for likely fraud indicators. They can use location data, time stamps, IP addresses, and other data to determine whether the cardholder completed the transaction or not.

Is friendly fraud punishable?

Unlike true fraud, friendly fraud isn’t always punishable since most practices leading to friendly fraud aren’t illegal. Evn friendly fraud practices of dubious legality, are practically speaking difficult to punish through enforcement actions.

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    Chargebacks per month

    • Under $5,000
    • Under $50,000
    • Under $100,000
    • Over $100,000