Understanding and Combating Friendly Fraud
Understanding and Combating Friendly Fraud
Friendly fraud, a type of first-party fraud, is a growing concern for online businesses. It occurs when an authorized customer disputes a legitimate purchase for various reasons. Unlike regular fraud, where the perpetrator disguises themselves as legitimate users for purchases, friendly fraud involves existing or loyal customers who have their identity authenticated but still initiate the dispute.
Why Do Customers Resort to Friendly Fraud?
Friendly fraud can be categorized into two types: unintentional and intentional.
Unintentional fraud, also known as accidental fraud, can be a simple misunderstanding. For example, a customer might forget about their purchases. This could happen during a shopping spree or promotion day when they simply perform too many purchases and lose track of their items. Another possible reason is a long shipment time, causing the customer to forget. Also, a different business name on the credit card statement may also lead to unintentional fraud. For instance, some online businesses list their parent organization’s name instead of their brand name on the statement. Customers might not be able to connect this to their purchase and then file a chargeback.
International fraud is a malicious act to defraud merchants. Customers intentionally exploit the chargeback system to their advantage, seeking a full or partial refund. They might falsely claim a product wasn’t received, wasn’t as described, faulty items, or that the transaction was unauthorized. Their goal is to get a free product or service or avoid fees associated with canceling a subscription. This could also be due to buyer’s remorse or dissatisfaction with the product.
The Impact of Friendly Fraud on Businesses
Friendly fraud can cause significant issues for businesses, leading to lost revenue and additional fees. If the merchant is sending out a physical item to the customer, they not only lose cost from that item but also incur the shipping and operating costs to manage the shipment. However, if the customer files a chargeback instead of seeking a refund, it will escalate the cost as the merchant will additionally incur chargeback fees and potentially lose their payment account if chargebacks exceed the payment gateway threshold.
So, what’s the chance of winning over a chargeback due to friendly fraud? It’s hard to say for sure. It largely depends on the evidence, customer communication, and the reason for the chargeback. But from a different perspective, do you really want to fight a card dispute or refund a loyal customer due to unintentional fraud if it’s a singular occurrence? It’s generally understood that customer acquisition strategies are more expensive than customer retention techniques. This is because gaining new customers often requires innovative methods to influence buying choices, which can be costly. Hence, we should focus on the prevention.
Strategies to Minimize Friendly Fraud
Friendly fraud is very challenging to handle, as if it wasn’t taken in care, you might eventually losing your loyalty customers and impact your revenue stream in the long run. However, you have might several strategies to lower the risks from happening.
The merchant should have a clear and easy-to-understand refund policy to help reduce unintentional fraud. For example, entail the return window, refund process, and contact information on your website. It’s important to make contacting customer service easy because customers might resort to chargebacks if it’s too troublesome to resolve issues. Also, train your customer service team to handle the refund requests efficiently and professionally might help the matter before it escalates to chargeback.
The merchant could also consider sending detailed order confirmations with photos and descriptions before the shipment. This can help refresh customers’ memory and reduce disputes. Additionally, it’s good to update the customer when the item is out for delivery and the expected receiving date. Moreover, the merchant should use trackable shipping to verify delivery and that could potentially help resolve disputes. At the very least, the merchant could produce the delivery evidence. Also, avoid delivering items to P.O. Box or shipping to ship forwarding addresses.
The merchant should also consider using a fraud prevention tool to analyze transactions and flag suspicious activity. For example, in FraudLabs Pro, you can place the customer on a Watchlist upon receiving a refund or chargeback. Then, monitor their purchasing behavior for future transactions if any disputes recur. If the customer continues to request returns or file chargebacks, the merchant might want to blacklist this customer from making subsequent purchases, as something suspicious is happening.
Conclusion
Friendly fraud is a significant issue for businesses, but by understanding its causes and implementing proactive measures, businesses can protect their bottom line and ensure a smooth customer experience. A little prevention can go a long way in stopping friendly fraud and keeping your business safe.
