If you’re currently running an ecommerce store, or are even just familiar with the industry; chances are you’ve heard the term “friendly fraud” before. Chances are you’ve also heard it more and more in recent years, with many studies and anecdotal stories proving that it’s sharply on the rise. Sadly this has resulted in some fairly annoying, and costly incidents for many businesses. So let’s explore the trend in a bit of detail.
1. What is Friendly Fraud?
Friendly fraud occurs when a customer makes an online purchase and, upon receiving the product or service, disputes the charge with their credit card company.
Imagine you ordered that snazzy pair of shoes online. They arrived, you tried them on, walked around in front of the mirror a bit, and felt pretty happy with how they looked. But then you thought, "Hey, what if I could keep these shoes and get my money back…"
So, you tell your credit card company that you never received the shoes, and they promptly refund your money. Cheeky, right? Sadly; it’s not as far-fetched or as uncommon as it sounds. With retailers often laser-focused on providing great customer service (thus not asking too many questions), and a growing number of bad actors using fraud tactics like this, friendly fraud is no longer a trivial concern.
2. Why is Friendly Fraud an Issue?
There are a few key reason friendly fraud is becoming a major issue in retail:
- Lost Revenue: The most obvious pain point is that you lose out on sales. The customer gets the product, and you're left with neither the product nor the payment. So there’s the direct product/revenue loss.
- Chargeback Fees: When a customer disputes a transaction, not only does the merchant lose the sale amount, but they're often hit with an additional chargeback fee by the credit card company. So you’re actually losing more money than just the product.”
- Damaged Reputation: Too many chargebacks can lead to a business being labeled as high-risk. This means your payment processors might increase fees or, worse, stop doing business with you altogether.
- Increased Operational Costs: Investigating and disputing chargebacks takes time and resources, which can quickly add up and distract from your main business operations. No fun at all (and exactly the reason we built our ecommerce fraud prevention product).
3. How to Prevent Friendly Fraud
Thankfully; there are some steps retailers can take to minimise or completely avoid friendly fraud from hurting their bottom line. Here are some of the key tactics we see working for retailers looking to stop friendly fraud:
- Clear Communication: Ensure that your billing descriptor (the name that appears on credit card statements) is recognizable. Customers might dispute charges simply because they don’t recognize your business name on their bill. Also, always send email confirmations for purchases and shipments. Simple but effective.
- Meticulous Record Keeping: Maintain detailed records of all transactions. This means recording IP addresses, timestamps, delivery confirmations, and any customer communication. These details can be invaluable if you need to dispute a chargeback.
- Be Location-Risk Aware: A lot of friendly-fraud can be avoided by simply avoiding or taking measures with high-risk areas. Some neighborhoods are more prone to issues than others, and by using something like our Location Risk API, you can implement steps such as insuring an order or requiring extra verification before delivering an item.
- Implement Strong Verification Processes: Use tools like CVV (Card Verification Value) checks and AVS (Address Verification Service) to ensure the person making the purchase is the actual cardholder. As part of our platform; we also have a very unique and smart buyer verification feature that can help with verifying buyers instantly.
- Educate Your Customers: Make your return and refund policies clear and easy to find. Often, customers resort to chargebacks because they think it's easier than navigating a complicated return process.
- Proactively Reach Out: If you notice any suspicious activity, like multiple orders from the same IP address in a short time, don’t hesitate to reach out to the customer for verification. It's better to be safe than sorry.
In conclusion, while friendly fraud might sound innocuous, it can be a real menace for ecommerce businesses. But by understanding it and taking proactive steps, you can significantly reduce its impact. Keep your wits about you, prioritize open communication, and remember that in the ecommerce world, an ounce of prevention is worth a pound of cure.
As always, if you want to discuss anything fraud related, or explore our tailor-made ecommerce fraud prevention capabilities; get in touch.