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Chargebacks and The Growing Trend of Friendly Fraud

Chargebacks were enabled in order to safeguard both consumers and issuing banks from potential fraud. Additionally, with so many card users and so many legit fraud cases in the world, it only makes sense to have a system in place to expedite the process of refunding money lost by consumers.

Sounds great, right? Certainly – except that chargebacks ending up costing more than the fraud they were supposedly preventing (similar to false declines/false positives). What’s worse is that a large number of these are “friendly fraud.”

Friendly Fraud

Friendly fraud basically means that a customer bought something and then claimed they never made the purchase or never received the goods. Unfortunately, the merchant is left holding the bag. Whether or not the customer actually received the goods or not, or that consumers are making honest mistakes or simply changing their minds is a moot point. Either way, the bottom line is that chargebacks are costly to businesses of all types and all sizes.

Friendly fraud makes up a huge portion of chargebacks and accounts for 86% of chargeback requests, ultimately costing retailers more than $11 billion per year according to a CardNotPresent story published last week. That’s a lot of chargebacks and a lot of money.

In this day and age where positive online ratings and reviews are crucial to the success of any business, merchants are pressed to comply with the wishes of consumers. Business owners are likely to say or do whatever they have to in order to please their customers quickly in an attempt to prevent potentially harmful reviews. As an unfortunate result, chargebacks are hastily processed and approved when they probably shouldn’t be.

Cutting Down on Chargebacks

So, how can merchants reduce their chargeback risk? For starters, they must be aware that the real risk isn’t the immediate financial hit – it’s the risk of losing their entire business. That risk begins to grow as soon as fraudsters discover a business is vulnerable, because they may begin targeting it for purchases and share shop information with other fraudsters (CardNotPresent).

To cut down on legitimate chargebacks, product descriptions, refund and return policies, as well as customer service contact information should be easy to find on a merchant’s website. Likewise, customer service should be easy to contact and respond quickly to any refund or exchange requests.

To prevent fraudulent chargebacks, however, a merchant will need to weed out fake or problematic orders without slowing down the checkout or overall order processing, which might alienate good customers. Identifying fake orders from valid ones generally involves learning common fraud methods and techniques, determining high risk billing and shipping zip codes (including overseas addresses), and understanding which types of purchases or which specific items that can signal fraud.

Chargebacks and the growing trend of friendly fraud are hurting businesses and costing merchants a lot of money – and customers in the long run. The sooner store owners understand the problem, the sooner they can begin mitigating losses and adopting fraud prevention measures.

LOLA POS. works with our merchants to ensure that they are operating stores safely and efficiently while helping to reduce potential fraud threats and identifying existing ones. Contact us today to see how we work for you®!

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