What is Friendly Fraud?

Family fraud a child making an in-app game purchase

When it comes to eCommerce there are many different types of fraud that merchants have to worry about from account takeover to click fraud. 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.

3 types of 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 should 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.

Family fraud a child making an in-app game purchase

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 illegitimate. Usually, the correct business decision would be to challenge the chargeback.

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. 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. 

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 $20 billion and $50 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 chargebacks from confused customers.

  • 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.

How to deal with friendly fraud
  • 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 specialize in handling these cases for merchants so they can focus on running their business. 

Our tailored solution uses superior 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. Email us to find out more.

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