Friendly fraud (we personally hate this industry term as there is nothing 'friendly' about it) happens when a customer makes a credit card payment with their own card and then issues a chargeback through the card provider after receiving the goods or services with the aim for getting them for free. In other words, theft!
"Friendly" fraud differs from online fraud committed by criminals using stolen credit cards. The challenge with friendly fraud is that there is no way to verify the authenticity of the actual transaction, which is in fact legitimate. We find that this happens more with higher risk merchants and also adult ones.
You can’t completely stop “friendly fraud” but you can implement measures to combat it.
Ways to help stop friendly fraud
Good customer service
The easier it is for customers to contact you and speak to a real human being, the less likely they are to resort to chargebacks.
Constantly communicate
Email them when you have received an order and shipped it out. Contact them back straight away if they contact you. Email is the best way to communicate as it provides proof.
Have a good refund policy
A good refund policy is essential. It spells out exactly how a customer can be refunded and how they need to go about it. Make it up front and easy to find
Save as much information as possible
Collect and store as much information on the customer as well as the order as you can. This will allow you to show that they did indeed buy from you knowingly.
Use 3D secure and other authentication tools
This forces the consumer to take extra steps to validate their identity at the time of the sale which can defer them from committing “friendly fraud” later on.
Get a signature whenever possible
Proof of signature is ideal as it stops a customer from using the excuse that they did not get the item.
Whether you own a high street business or an online one, having to deal with people trying to steal from you is all part of running a business. You may not be able to use guards and alarms like you can with a high street shop, but you can follow these steps to help prevent it.
NEW - Reducing fraud and chargebacks even further
To help merchants keep their fraud and chargeback levels low we are enhancing our anti-fraud measures.
Upon request, for merchants with high fraud and/or chargeback levels we now have the ability to automatically refund transactions that have been flagged as ‘High Risk’ (Fraud/TC40/SAFE) by the Card Schemes. This can significantly reduce the risk of future chargebacks and help merchants avoid potential card scheme fee assessments.
This measure may be implemented under the Merchant Monitoring Program if a merchant meets or exceeds any of the following monthly performance activity levels:
A specific merchant's profile receives an excess of 80 chargebacks for either Card Scheme and/or has a total chargeback-to-sale count rate of 5.0% or higher.
A specific merchant's profile receives in excess of £2,000 of fraudulent MasterCard transactions or £6,000 of fraudulent VISA transactions.
The merchant or a specific merchant's profile has a fraud-to-sales dollar volume ratio of 3% or higher.