Increasing risk of ‘friendly fraud’ toward small businesses

friendly fraud scheme

Reportedly small businesses should brace for a rise in “friendly fraud.”

How does it work: A customer receives a product or service paid for with their credit card and then contacts their issuer to dispute the charge for a refund, or a “chargeback,” without making a return.

Chargebacks aren’t good for merchants because they typically come with hefty fees that could range anywhere between 20 USD and 100 USD. If a business has too many, their account could be shut down, or their transaction costs may rise. If a company accepts fraudulent payments, the card network may hold merchants accountable to cover the expenses.

What is ‘friendly fraud’?

It’s when authorized cardholders dispute seemingly legitimate charges to their credit cards. Customers may contact their credit card issuer with a fraud claim and either report an item wasn’t delivered or claim the purchase didn’t match the description. To be sure, there’s a chance a customer is being honest and flagged the issue accurately.

Is there a way to dispute?

It is commonly advised that businesses have tracking and shipping tools in place that can verify a customer received their order. Another option is to require customers to sign upon delivery, creating a paper trail that shows the product was ordered and delivered.

Can it be prevented?

This kind of fraud is challenging to avert. The more information businesses have about a customer’s purchase, the harder it will be for fraud to occur. It is recommended to use stringent authentication software for purchases.

- 13 May 2020 - EN