How to Prevent First-Party Fraud During the Holidays

The holiday season is a time of joy, celebration and increased shopping activity. Unfortunately, it also marks a peak in fraud attempts against retailers. One aspect of this threat is first-party fraud, also known as friendly fraud. This type of fraud occurs when customers dispute legitimate charges on their accounts — whether due to confusion, forgetfulness, or intentional exploitation of the chargeback system.

First-party fraud is on the rise, with 63 percent of merchants reporting an increase over the past year according to a survey by the Merchant Risk Council. It was the second most common form of fraud reported by merchants in North America, and the most common reported by enterprise merchants.

Typical fraud prevention tools don’t work against first-party fraud since the order is coming from a legitimate customer. However, there are steps merchants can take to minimize risk.

Holiday Challenges in First-Party Fraud

The holiday season introduces certain changes in consumer behavior that amplify the risk of first-party fraud. Understanding these causes can help retailers be more prepared.

Higher Transaction Volumes

With the holiday shopping rush, retailers handle significantly more transactions. The sheer volume increases the chances of false disputes, whether accidental or intentional.

Buyer’s Remorse

The pressure to find the perfect gift or capitalize on limited-time deals often leads to impulsive purchases. Some customers may regret their spending and resort to first-party fraud to get their money back without returning their purchases.

Joint Account Confusion

For couples with joint accounts, a debit card purchase made by either person will appear on the same account statement. When a purchase is kept secret to avoid spoiling a gift, the other account holder might assume the unrecognized charge is fraudulent and file a dispute.

Delayed Returns

Holiday gifts that do not meet expectations can trigger chargebacks if the return window has already closed. Retailers with restrictive or unclear return policies may face disputes when customers are unable to return unwanted items.

Strategies to Prevent First-Party Fraud

Because first-party fraud cannot be detected at time of purchase, retailers need to take proactive steps to minimize the root causes of this type of fraud.

Return Policy Adjustments

Accommodate the needs of holiday shoppers by offering extended return periods. Provide clear and easily accessible information about return and refund policies to avoid misunderstandings.

Clear Billing Descriptors

Ensure the business name that appears in your billing descriptor is one that customers will recognize. Adding a customer service phone number to your billing descriptor can also help customers resolve queries without initiating chargebacks.

Customer Service

During the holiday rush, make it easy for customers to reach support teams by phone, email or chat. Consider temporarily increasing staff to handle the surge in inquiries. Address issues promptly to discourage customers from resorting to chargebacks. Consider making exceptions for long-standing or loyal customers who rarely seek refunds. Update customers about their orders, especially if delays occur, and resolve potential issues before they escalate.

Technology and Tools

Order intelligence tools provide enriched transaction details to banks when customers inquire about charges. These solutions can often resolve disputes before they become chargebacks.

Every Challenge is an Opportunity

The holiday season may bring challenges, but it also provides an opportunity for retailers to improve their risk mitigation capabilities in ways that will continue to have a positive effect long after the new year.

To be maximally effective in combating first-party fraud, it’s important to have access to experts who can provide data-driven insights and guidance on how to address the unique challenges faced by your company. With expert help and a customized risk mitigation strategy, businesses can enjoy a successful holiday season while ensuring a positive experience for their customers and furthering long-term business goals.

Tim Tynan is the CEO of Chargeback Gurus, a leader in chargeback prevention and recovery services for e-commerce payments.