Friendly Fraud

By Monica Eaton, CIO and Co-Founder of Global Risk Technologies

Identity theft and consumer fraud are synonymous with internet scams.  From complaint boards to value added up sells solicited by credit card companies – when it comes to fraudulent online activity, the most common offender is seen as a vicious criminal.

However a different type of fraud is taking the lion’s share of this nomenclature by storm, boasting an explosive growth rate when it comes to online transactions – and the criminal behind the scenes is one who is very rarely recognised.  “Friendly Fraud”, a term coined to define the act of a consumer making an online purchase and then contacting their bank, stating that the transaction was not their doing, resulting in a charge back – has become the number one enemy to e-commerce merchants today.  It is difficult to target or treat because the criminal in these cases is a consumer who is normally the least suspected; protected behind a guise of rationale, subjective interpretation, or even naive ignorance of the fact that there are gross consequences for their actions.

Stable merchant processing is a vital ingredient to e-commerce success and charge backs can create serious liabilities where this is concerned.  In today’s marketplace, merchants must consider proactive efforts that help fight friendly fraud and reduce their likelihood to become a target.

• Offer 24/7 (online) support options. Merchants who sell through websites but don’t offer online support will have a higher rate of friendly fraud than those who do. We live in an age of instant gratification.  A consumer is more likely to contact their bank if the merchant is unavailable to assist with a refund request or cancellation.

• Obtain proof of delivery on any product shipped. Not obtaining a delivery confirmation receipt leaves merchants open for the claim that a product was not received.  At the end of the day, it is the consumer’s word against yours – and typically banks will rule in favor of the consumer, regardless if they received the product or not.

• Keep in good communication with your customers, and document any customer interaction. A monthly newsletter will remind them you are there to assist with any resolution they may require, and work to help lessen the necessity for them to contact their bank.  Good documentation of your interactions can also make the difference between winning and losing a charge back case.

• Monitor suspicious activity. Multiple product orders using the same shipping address but different credit cards, or IP Addresses that don’t match the billing address are usual suspects to friendly fraud.

• Fight illegitimate charge backs. One of the best ways to reduce friendly fraud is to make sure these customers are educated of the consequences involved with their crime. Without taking responsibility to fight back as a legitimate merchant, you are inadvertently endorsing this behavior.  A side benefit is that you will win back some of the revenue you initially lost as a result!

Friendly fraud is not always attributed to criminal or malicious intent.  It is probably more likely than not that merchants end up victims of these incidents due to consumer ignorance or negligence – customers don’t want to take extra time to contact the merchant, they can’t find the information they need to reference for their order, they forgot to return a product within the time frame…and the call to their credit card company is a quick solution with seemingly no consequence.

It has taken years of education on the charge back process to educate consumers about its existence.  The good news is there are a lot more merchants than there are credit card companies – working together to correct this problem is key.