A problem that accounts for a high percentage of fraudulent chargebacks
Imagine the headache of dealing with a string of puzzling credit card chargebacks issued against you for transactions that you believed were completely above board.
John claimed he never received his limited-edition BBQ gift set, even though it was indeed sent. Sally booked a non-refundable 90-minute ‘walk with alpacas’ experience for two for her best friend’s birthday, but they didn’t turn up. Joe received the leather travel bag but claimed it was supposed to be a vintage canvas holdall—and called his bank instead of you. Jane bought a six-month wine club subscription but didn’t recognise your company’s name on her statement and wants a refund.
Today you’re burdened with several chargeback fines, lost revenue and merchandise as well as time and reputation. What’s a merchant to do?
If this sounds all too familiar, then you’re an unfortunate victim of friendly fraud.
‘Friendly Fraud’ explained
Unlike fraud committed by criminals using stolen cards, friendly fraud most frequently occurs in card-not-present (CNP) environments such as e-commerce, where a cardholder claims fraud for a transaction they were involved in. This type of fraud is difficult to deal with, as the legitimate cardholder uses the card with all the correct information and then disputes the charge. The challenge with friendly fraud is that it’s hard to distinguish from genuine fraud and even harder to prove for merchants.
How does friendly fraud occur?
Friendly fraud is generally the result of buyer’s remorse (that feeling we all have after making an impulse purchase), disagreement with refund policies, a transaction completed deliberately or inadvertently by another household member who’s not the cardholder, or just a simple case of not recognising the merchant details on a card statement. At the other end of friendly fraud behaviour is a cardholder abusing the chargeback system on purpose to obtain products and services for free.
Chargebacks are indisputably important for consumer confidence. It’s a vehicle to redress their grievance if their purchase has somehow gone wrong. But what happens when consumers take advantage of these rights?
According to Visa and LexisNexis’ True Cost of Fraud research, the statistics are alarming—friendly fraud is growing at a rate of 41% annually, costing the industry billions, and 50% of consumers who claim a chargeback will do it again within 90 days.
How can merchants take steps to protect themselves?
You can’t completely stop friendly fraud but you can take measures to tackle it and protect yourself against financial, operational, and reputational damage.
- Get a delivery signature – choose a reliable shipping provider and keep delivery receipts. Fraudsters may claim their product never arrived. If you can prove otherwise, you can challenge the chargeback.
- Keep communication open – email your customers when you have received an order and shipped it out. Make it easier for customers to get in contact with you and respond promptly to their queries. Keep all lines of communication open with the customer, preferably by phone, then email so you have a timed and dated paper trail when you need it. Monitor social media and track your interactions.
- Save all your customer information – store as much historical information on the customer and the order as you can, e.g. what they bought, when, purchase amount. This will allow you to show that they did indeed buy from you knowingly.
- Use billing descriptors clearly identifying purchase and your business for card statements – make it obvious for the customer where the transaction came from. Add a phone number to it to make it easy for them to call you to resolve the dispute.
- Use authentication tools (3D Secure, AVS, CW3, CVC2) – direct customers to extra authentication steps to validate their identity at the time of the sale.
- Clearly state your refund policy on your site – make your cancellation and refund policies obvious and easy to find. Spell out the terms as simply as possible, and use other messages on your website to draw your customers’ attention to them. When customers make a purchase, they are entering a contract and part of that contract are their refund and return rights.
If you would like to learn more about combatting friendly fraud, click here to find out how our wide range of tools can reduce your fraud risks and improve your bottom line.
Or simply call us on +44 (0) 203 300 0102. We’ll be happy to find answers to your questions.