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Friendly Fraud – What your business needs to know

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How can fraud be friendly? It’s an important question and one that doesn’t really have a simple answer. Businesses across the UK are trying to combat crime and fraud on an almost daily basis, but that hasn’t stopped new forms from popping up and eating into their profits.

In this article, we take a deep dive into the world of friendly fraud and find out what it is, how it happens, and what your business can do to prevent it.


What is friendly fraud?

Friendly fraud is the colloquial term used to describe chargeback fraud, whereby an individual reports a transaction on their account as unauthorised despite the fact that they’ve benefited in some way from it. It could be, for instance, that a customer who places an order with you files a chargeback with their bank once the goods have been delivered. As a result, they end up with both the goods and the money – effectively swindling your business for free products or services. 

Boiled down it’s not all that hard to understand, but that doesn’t mean that friendly fraud isn’t a serious issue for businesses. Those in the eCommerce world are even more vulnerable, too, as the vast majority of their income will come from customer card payments unlike physical retailers who might deal with some transactions in cash.

With figures from Markets Insider suggesting that merchants will lose out on £100 billion due to friendly fraud during 2020 alone, it’s clear that something has to be done.

How does friendly fraud work?

So-called “Friendly fraud” starts with a person placing an order before going on to file a fraud claim with their bank. This launches the process of them convincing their banking provider that they should receive the money from the order back. They can do this in a variety of ways, but one of the simplest is to say that the order wasn’t authorised and that they themselves are the victim of fraud. 

Owing to the way ecommerce works, many banks and financial providers are minded to take cardholders at their word and accept their claims. Ultimately, this can lead to legitimate transactions being marked as fraudulent – which then launches the costly and time consuming card chargeback process. Businesses lose out and fraudsters get the best of both worlds, whether they mean to or not. 

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What you’ll realise fairly quickly is that friendly fraud is not all that friendly, but there are some key differences from other more traditional forms of deception. For one thing, the perpetrators of friendly fraud typically use their own bank account and details unlike other fraudsters who might engage in identity theft.

What causes friendly fraud?

Of course, there are people out there engaging in chargeback fraud to line their own pockets, but the problem isn’t quite as clear cut as that. There are many causes of friendly fraud, and often it isn’t as malicious as it first seems.

In many cases, illegitimate chargeback requests are filed because of customer confusion. Without a proper grasp of your refund process, some clients feel that their only option is to take any problems they experience up with their bank. It could also be that you’ve shipped an item behind schedule or that there’s a holdup in the postal system, causing a customer to believe that their order just isn’t coming. In some cases, you may even find that a successful dispute resolution leads to a chargeback when a customer doesn’t receive their money back as quickly as they expected. 

All of these dilemmas are quite understandable, but that doesn’t ease the financial burden on businesses. For this reason it’s necessary to make a plan to deal with friendly fraud, stopping it at source wherever possible.

How to prevent friendly frauds?

Unfortunately, it isn’t possible to prevent chargebacks entirely as they can often occur for genuine reasons. Despite this, there are plenty of steps that you can take to safeguard your business by tackling the issue head on. The good news is that none of these solutions should alienate your customers, so protecting yourself won’t have any nasty unintended consequences.

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Provide grade A customer service

By making it easy for customers to get in touch, you can eliminate confusion and misunderstanding that might otherwise lead to them filing a chargeback request with their bank. Similarly, a proactive approach to customer service will leave customers aware of delivery delays and other such issues meaning that they won’t be as likely to ask for their money back. 

Use reliable payment solutions

Reporting is a major issue when it comes to chargeback fraud, since some businesses really struggle to keep an accurate record of their transactions. This can really hit a firm where it hurts when a dispute arises, as it won’t be easy to demonstrate that you did things by the book. To avoid all of this, businesses should consider investing in a reliable and secure eCommerce payment gateway, for instance from Merchant Service providers UTP Group. Keeping meticulous logs and allowing business owners to see reports in real-time, a proper payment solution could be a lifesaver when it comes to tackling friendly fraud And if you have an in-store payment solution, make sure you have enough card machine paper for your customers.

Communicate clearly

Friendly fraud often happens when customers don’t understand how they can deal with an order issue. From returns to refunds and even delivery issues, it’s all too easy for customers to take up issues with their bank rather than the vendor they’ve bought from. By prominently displaying your store policies, your customers will have a better idea of what to expect and may be less likely to request chargebacks. 

Dealing with friendly frauds

When all is said and done, the last thing business owners need is a banking dispute. Chargebacks take up your time and cost you hard earned money, but fortunately they can be dealt with effectively. Customer disputes are sadly an unavoidable part of doing business, but provided you’re proactive you could protect your business and even build better customer relationships whilst doing so. All it takes is a little communication.