Triangulation, phishing attacks, and social engineering are common tactics of digital bad actors. The result of these crimes is millions of dollars in losses for U.S. businesses, as well as incalculable reputational damage.
Another security issue that is equally important but less discussed is friendly fraud. Understanding what it is, and how to prevent it, is vital for the success of your business.
Friendly fraud defined.
Friendly fraud occurs when a customer legitimately purchases an item, but then files a dispute with their card’s issuing bank. Reasons for friendly fraud include unrecognized charges, issues with recurring payments, non-delivery, damaged or defective products, incorrect charges, and customer misperceptions about refunds.
Also known as chargeback fraud, some friendly fraud is malicious, while other instances are unintentional.
There are several scenarios in which friendly fraud traditionally occurs. The customer might not recognize a charge for whatever reason, assume that it is suspicious, and file a dispute instead of addressing it with the merchant. This can happen if payment descriptors are unclear, or if there is a problem with recurring billing.
Alternatively, the customer might falsely claim that the product was not delivered when it actually was. Customers might file a dispute with their bank, believing that it is the best way to be refunded.
Chargebacks might also be filed if the product came damaged or if the amount of the charge was incorrect.
How friendly fraud affects businesses.
Friendly fraud does significant damage to companies. Consequences include higher chargeback ratios, revenue loss, chargeback fees, overhead costs, and additional processing fees.
The name of this fraud type might be prefixed by the word “friendly,” but there is nothing amicable about its consequences for businesses like yours. When the number of disputes increases, the business’ chargeback ratio may rise.
This can lead to increased fees imposed by the merchant service provider as well as revenue depletion from the lost product since the customer gets to keep the item. Moreover, shipping and handling and associated processing fees cannot be recovered.
Should the merchant opt to fight the charge, they may well incur additional costs. What’s more, they might not even win the dispute.
Tactics to prevent friendly fraud.
Friendly fraud can effect your business, but can be minimized. Techniques to do so include analyzing order amounts for abnormalities, screening for high-frequency orders, and focusing on anomalies in orders for high-demand items.
Friendly fraud is particularly hard to detect. After all, the original purchase and credit card data are correct and legitimate. That being said, there are still red flags for which to be mindful. Finding them can help to protect you from many instances of friendly fraud.
The key is to remain vigilant in analyzing data for anomalies in ordering behaviors. Examples include order amounts that are larger than the norm for that particular customer or your website, above-average frequency of orders by the same product for identical or similar products, and orders for high-demand merchandise types that are frequently stolen.
Although these situations do not always turn out to be friendly fraud, keeping your ear to the ground and quickly acting on your suspicions can help you to detect and stop the suspicious ones in real time.
How to fight friendly fraud.
If you believe that friendly fraud has occurred, you can fight it. Steps include writing a rebuttal letter, presenting evidence, and awaiting a response from the issuing bank.
You don’t need to take friendly fraud lying down; there are things you can do to combat it when it occurs. You will first need to submit a rebuttal letter to the issuing bank that disputes the charges.
Supplement this correspondence with all compelling evidence that you can gather to support your case. Types include a transaction receipt, invoice including essential purchase data, tracking confirmation, and/or a copy of the checkout page showing that the customer agreed to your terms and conditions. Then sit back and wait for a response from the issuing bank.
So-called friendly fraud is anything but. As it turns out, friendly fraud can affect your business on many levels.
Now that you have learned what it is and how to avoid it, you will be able to minimize the likelihood that it will do serious damage to your retail operations.
