How to Prevent Friendly Fraud

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Quick Hits: 
  • Friendly fraud is the intentional or unintentional abuse of the chargeback system by customers. 
  • Friendly fraud results in chargebacks that often cost twice the original transaction amount through loss of merchandise, labor, and chargeback fees. 
  • Friendly fraud usually stems from customer dissatisfaction, card credentials being used by an unauthorized family member, or abuse of the chargeback system as a form of cyber shoplifting.  
What is a Friendly Fraud Chargeback? 

Friendly fraud is the intentional or unintentional abuse of the credit card chargeback system. Chargebacks were created to protect customers from fraud, whether their card was stolen or the merchant who charged them was dishonest, customers could submit chargeback requests to retrieve the stolen funds.  

While chargebacks solved a key customer problem, as ecommerce evolved, chargebacks became easier and easier to file. Additionally, banks that receive chargeback requests are motivated to keep their customers happy. This means banks will often side with their customers and approve their chargeback requests. 

Once customers understand how easy it is to receive a chargeback, they may be tempted to commit friendly fraud to receive money back for purchases they don’t want to pay for. And once they get away with it, they’re likely to keep going. Chargeback 911 data suggests that 40 percent of people who commit friendly fraud will submit a fraudulent chargeback again within 60 days.  

When fraudulent chargebacks are filed, the merchant has to pay for lost merchandise, lost labor, and additional chargeback fees unless they can prove the charge was valid. This can end up costing the merchant twice as much as the original transaction. Too many chargebacks and merchants may face more than fees: some merchants lose their merchant accounts if too many chargebacks are filed under their account.  

Concerned woman looking at fraudulent charge on credit card.


Causes of Friendly Fraud 

Friendly fraud is not always friendly, in fact, it can often be quite insidious. Some individuals take advantage of the chargeback system to knowingly steal from merchants. However, friendly fraud could also come from a customer who is truly defrauded, unhappy, or confused. 

Whether friendly fraud is unintentional or malicious, the intentions behind a chargeback will be hard to identify. The causes of friendly fraud are important to understand simply because they will help us identify ways to prevent it later on.

Reasons behind Unintentional Friendly Fraud 

Family Fraud 

Some cardholders will claim chargebacks if a child or teen used their card without them realizing it. Especially with online games, many children won’t realize they’re completing a purchase. When the bill shows up on the parent’s statement they’re likely to believe they are the victim of fraud.

Some parents, even once they realize where the charge is coming from, will default to calling their bank instead of the merchant. While these issues should be resolved with the merchant, some parents freak out when they see an unidentified charge and file a chargeback without letting the issue be resolved through the proper channel. 

The cardholder doesn’t understand refunds

Some customers may think that a chargeback is the same as a refund, and go to their bank instead of the merchant they bought the item from to get their money back. Friendly fraud can also occur when an expected refund didn’t show up as quickly as a cardholder thought it would. This leads them to file a chargeback alongside a refund.

The cardholder didn’t understand how to cancel an order 

A customer may think they canceled an order, then file a chargeback when the purchase goes through anyway. Even though the merchant is completing an order and charging them according to their information, this can lead to an illegitimate chargeback.   

The customer doesn’t understand chargebacks 

A customer may ask their bank about a charge they’re curious about, and the bank will assume they are asking for a chargeback. When the bank files the chargeback, the customer will agree to remove the charge without understanding the consequences to the merchant.

The cardholder doesn’t recognize the transaction  

A cardholder may not recognize the description that appears for a charge or forget they made a purchase altogether. This can often happen for recurring purchases that customers don’t realize are recurring.

Intentional Friendly Fraud  

A cardholder may use chargebacks for cyber shoplifting  

Individuals may buy an item with the full intention of using a chargeback, claiming the item never arrived or was different than advertised. This is an intentional form of fraud, though it is classified as friendly fraud as these cardholders pose as confused customers.

A cardholder may use chargebacks to deal with buyer’s remorse 

A customer may buy something, but regret the money spent at a later date. Instead of dealing with the hassle of returning the item, they initiate a chargeback in the hopes of “erasing” a purchase they’re unsatisfied with. 

A cardholder may use chargebacks as an alternative to returns 

Sometimes a buyer wants their money back, but has no legitimate grounds for a return. Maybe they used or damaged the item, or the time to return an item has gone by. The chargeback process may even be easier than the return process, and so they’ll employ a chargeback instead of a return. Often customers who do this know it’s a shady way of getting around return policies to get a refund.  


Friendly Fraud Prevention 

The best way to fight friendly fraud as a merchant is to prevent it before it happens. To reduce chargebacks, you must address customer satisfaction and confusion that leads to friendly fraud. To prevent intentional fraud, it’s important to track the offenders and blacklist cards. Here are some of the most effective steps you can take:

Preventing Unintentional Friendly Fraud 

  • Prevent confused customer chargebacks by having a clear ordering process to guide customers through the sales process. Make it as easy as possible for customers to track their orders and submit returns. Order status, order cancellation, and order returns should be clear and up to date so that customers aren’t confused about the status of their order. 

  • Prevent unrecognized chargebacks by having a clear merchant descriptor so customers know where charges are coming from. 

  • Prevent family fraud chargebacks by having a clear return process so that parents can process their issues through you, instead of initiating a chargeback through their bank. If you’re in a higher-risk industry, like online gaming, make purchase screens clear enough that children can understand real money is being used and parental permission should be obtained. 

Fighting Intentional Friendly Fraud 

  • Keep a list of every card that has initiated a chargeback with your account, especially the cards where chargebacks were effectively disputed. Blacklist these cards, or watch to see if they submit a chargeback again in an attempt to continue cyber shoplifting.
  • Have an effective system in place to dispute chargebacks. While disputing a fraudulent chargeback may take significant effort, allowing an illegitimate chargeback to go through encourages the fraudster to attempt another chargeback in the future.

Friendly fraud happens for a myriad of reasons and will continue to be an issue for merchants as eCommerce evolves. Most unintentional fraudulent behavior can be fixed with clear communication and excellent customer support. However, this cannot solve all chargeback issues, as up to 30 percent of chargebacks are due to credit card fraud.  

If you’re looking for ways to reduce credit card fraud, and the costs associated, ensure you have the best fraud prevention solution to protect your payments. At TokenEx, we highly recommend Kount’s fraud prevention tools, we’ve even created a Kount integration to further protect cardholder data through tokenization. Learn more about how we protect payments here: