5 Ways to Combat ‘Friendly Fraud’

Identity theft and consumer fraud are synonymous with internet scams. From complaint boards to value-added upsells solicited by credit card companies, when it comes to fraudulent online activity, the most common offender is seen as a vicious criminal.

However, a different type of fraud is taking the lion's share of this nomenclature by storm, boasting an explosive growth rate when it comes to online transactions. The criminal behind the scenes is one who is very rarely recognized. "Friendly Fraud," a term coined to define the act of a consumer making an online purchase and then contacting their bank stating that the transaction wasn't their doing, resulting in a chargeback, has become the No. 1 enemy to online merchants today. Friendly fraud is difficult to target or treat because the criminal is a consumer who is normally the least suspected, protected behind a guise of rationale, subjective interpretation or even naive ignorance of the fact that there are gross consequences for their actions.

Stable merchant processing is a vital ingredient to e-commerce success, and chargebacks can create serious liabilities where this is concerned. In today's marketplace, merchants must consider proactive efforts that help fight friendly fraud and reduce their likelihood to become a target. Consider implementing these five tips:

1. Offer 24/7 (online) support options. Merchants who sell via an e-commerce website but don't offer online support have a higher rate of friendly fraud than those who do. We live in an age of instant gratification. A consumer is more likely to contact their bank if the merchant is unavailable to assist with a refund request or cancellation.

2. Obtain proof of delivery on any product shipped. Not obtaining a delivery confirmation receipt leaves merchants open for the claim that a product wasn't received. At the end of the day, it's the consumer's word against yours — and typically banks will rule in favor of the consumer, regardless if they received the product or not.

3. Keep in communication with your customers, and document any customer interaction. A monthly newsletter will remind them you're there to assist with any resolution they may require and are willing to work to help lessen the necessity for them to contact their bank. Proper documentation of your interactions can also make the difference between winning or losing a chargeback case.

4. Monitor suspicious activity. Multiple product orders using the same shipping address but different credit cards, or IP addresses that don't match the billing address are typical indicators of friendly fraud.

5. Fight illegitimate chargebacks. One of the best ways to reduce friendly fraud is to make sure customers are educated on the consequences involved with the crime. Without taking responsibility to fight back as a legitimate merchant, you're inadvertently endorsing this behavior. In addition, you'll win back some of the revenue you initially lost as a result!

Friendly fraud isn't always attributed to criminal or malicious intent. It's more likely than not that merchants end up victims of these incidents due to consumer ignorance or negligence. Customers don't want to take the extra time to contact the merchant, they can't find the information they need to reference for their order, they forgot to return a product within the time frame, etc. A call to their credit card company is a quick solution with seemingly no consequence.

It's taken years of education on the chargeback process to educate consumers about its existence. The good news is there are a lot more merchants than there are credit card companies; working together to correct this problem is key.

Monica Eaton-Cardone is the co-founder of Chargebacks911, a company established to provide solutions to merchant chargeback issues.