Friendly Fraud and Chargeback Fraud. What’s the Difference?

Sydney VaccaroChargeback BasicsLeave a Comment

Friendly Fraud and Chargeback Fraud. What's the Difference
There are three reasons why merchants should look at these types of fraud as two different categories.

When discussing disputes and chargebacks, the terms “friendly fraud” and “chargeback fraud” are often used synonymously. But it’s important to differentiate them, because customer relationships are at stake.

Read on to understand the definitions of these two types of fraud, what merchants need to know, how they differentiate, and what merchants can do to fight and prevent each type.

What is Friendly Fraud?

Friendly fraud involves no malicious intent from the cardholder when they dispute a charge. Simple forgetfulness or even family members making unknown purchases can be at the root of friendly fraud. Oftentimes, an unclear merchant descriptor can make a customer dispute a purchase they actually made themselves.

What is Chargeback Fraud?

Chargeback fraud is the malicious use of the dispute process in an attempt to regain the transaction amount, while still retaining the product or service. There are many reasons why a customer commits chargeback fraud, ranging from buyers remorse to not wanting to pay the amount due.

Why the Differentiation?

There are a lot of similarities between the two. Both types of fraud result in a dispute, both are winnable disputes for the merchant, and both will get through front-end fraud filters. After all, they are legitimate cardholders making the purchase. So why do we think there needs to be a differentiation between the two? There are three reasons why merchants should look at these types of fraud as two different categories.

First, friendly fraudsters are simply confused about the transaction and the dispute is really the result of a misunderstanding. This means that if the merchants can communicate with them before they dispute the purchase, the dispute can be avoided.

Second, chargeback fraudsters are using the dispute process to steal goods from the merchant. They are disputing out of malicious intent. If a cardholder commits chargeback fraud they should be banned or blacklisted from your store and site. Friendly fraud, on the other hand, was just a simple mistake and those cardholders should not be banned.

Third, by understanding the context, motives, or story behind disputes, you glean valuable information. Let’s say, for example, that your company is receiving a lot of “credit not processed” disputes (meaning that the cardholder is saying that the merchant did not refund them). But you are confused, because you are actually refunding these cardholders when they return merchandise. After taking a closer look at your refund process, you see that it takes 6 to 8 days for the refund to hit the cardholder's account, but the cardholders are disputing that they did not receive a refund on days 3 to 5. These cardholder’s aren’t disputing because of malicious intent, they just think that you as the merchant didn’t actually refund them. By having information about the disputes, merchant are able to make the necessary adjustments to avoid them in the future.

How to Prevent Friendly Fraud?

The number one goal when it comes to friendly fraud is to get the cardholder to reach out to the merchant instead of disputing the charge with the issuing bank. This can be accomplished through simple things like adding your customer service contact information to your merchant descriptor.

But an even better way to get in front of friendly fraud is through Real-time Resolution. Real-time Resolution (RTR) is a first-of-its-kind solution that catches invalid disputes at the source and prevents them from being filed. It allows merchants to communicate transaction and order information to the issuing bank and the cardholder. In cases of friendly fraud, the additional data helps jog the cardholder’s memory about the purchase which stops the dispute.

How to Prevent Chargeback Fraud?

Chargeback fraud is tricky to prevent, because some cardholders are going to dispute a charge out of malicious intent no matter what the merchant does. But there are some methods that can deter many chargeback fraudsters.

Customer service is key. If a customer has a problem, complaint, or question about the product having great customer service will help resolve the issue before it ever becomes a dispute. Also make sure your customer service is as easy to contact and work with as disputing a charge with an issuing bank is. When a problem goes unanswered or unresolved that is when customers may turn disputing a charge to solve their problem.

Have clear and flexible return policies. Let your customer know exactly what your return policy is and how they can go about returning merchandise that doesn’t work for them. By having a more flexible return policy customers will just simple work with you for returns rather than turning to the dispute process to try and get their money back.

Remember: When it Comes to Disputes, There are 3 Faces of Fraud

Uncovering the true motives behind disputes allows you to create strategies that will lower your dispute rate and, in turn, protect your hard-earned revenue. In The Three Faces of Fraud ebook, we’ll help you in your efforts by unmasking the three faces of fraud that you meet when it comes to disputes: true fraud, friendly fraud, and chargeback fraud. You can download the ebook right here.

When discussing disputes and chargebacks, the terms “friendly fraud” and “chargeback fraud” are often used synonymously. But it’s important to differentiate them, because customer relationships are at stake.

Read on to understand the definitions of these two types of fraud, what merchants need to know, how they differentiate, and what merchants can do to fight and prevent each type.

What is Friendly Fraud?

Friendly fraud involves no malicious intent from the cardholder when they dispute a charge. Simple forgetfulness or even family members making unknown purchases can be at the root of friendly fraud. Oftentimes, an unclear merchant descriptor can make a customer dispute a purchase they actually made themselves.

What is Chargeback Fraud?

Chargeback fraud is the malicious use of the dispute process in an attempt to regain the transaction amount, while still retaining the product or service. There are many reasons why a customer commits chargeback fraud, ranging from buyers remorse to not wanting to pay the amount due.

Why the Differentiation?

There are a lot of similarities between the two. Both types of fraud result in a dispute, both are winnable disputes for the merchant, and both will get through front-end fraud filters. After all, they are legitimate cardholders making the purchase. So why do we think there needs to be a differentiation between the two? There are three reasons why merchants should look at these types of fraud as two different categories.

First, friendly fraudsters are simply confused about the transaction and the dispute is really the result of a misunderstanding. This means that if the merchants can communicate with them before they dispute the purchase, the dispute can be avoided.

Second, chargeback fraudsters are using the dispute process to steal goods from the merchant. They are disputing out of malicious intent. If a cardholder commits chargeback fraud they should be banned or blacklisted from your store and site. Friendly fraud, on the other hand, was just a simple mistake and those cardholders should not be banned.

Third, by understanding the context, motives, or story behind disputes, you glean valuable information. Let’s say, for example, that your company is receiving a lot of “credit not processed” disputes (meaning that the cardholder is saying that the merchant did not refund them). But you are confused, because you are actually refunding these cardholders when they return merchandise. After taking a closer look at your refund process, you see that it takes 6 to 8 days for the refund to hit the cardholder's account, but the cardholders are disputing that they did not receive a refund on days 3 to 5. These cardholder’s aren’t disputing because of malicious intent, they just think that you as the merchant didn’t actually refund them. By having information about the disputes, merchant are able to make the necessary adjustments to avoid them in the future.

How to Prevent Friendly Fraud?

The number one goal when it comes to friendly fraud is to get the cardholder to reach out to the merchant instead of disputing the charge with the issuing bank. This can be accomplished through simple things like adding your customer service contact information to your merchant descriptor.

But an even better way to get in front of friendly fraud is through Real-time Resolution. Real-time Resolution (RTR) is a first-of-its-kind solution that catches invalid disputes at the source and prevents them from being filed. It allows merchants to communicate transaction and order information to the issuing bank and the cardholder. In cases of friendly fraud, the additional data helps jog the cardholder’s memory about the purchase which stops the dispute.

How to Prevent Chargeback Fraud?

Chargeback fraud is tricky to prevent, because some cardholders are going to dispute a charge out of malicious intent no matter what the merchant does. But there are some methods that can deter many chargeback fraudsters.

Customer service is key. If a customer has a problem, complaint, or question about the product having great customer service will help resolve the issue before it ever becomes a dispute. Also make sure your customer service is as easy to contact and work with as disputing a charge with an issuing bank is. When a problem goes unanswered or unresolved that is when customers may turn disputing a charge to solve their problem.

Have clear and flexible return policies. Let your customer know exactly what your return policy is and how they can go about returning merchandise that doesn’t work for them. By having a more flexible return policy customers will just simple work with you for returns rather than turning to the dispute process to try and get their money back.

Remember: When it Comes to Disputes, There are 3 Faces of Fraud

Uncovering the true motives behind disputes allows you to create strategies that will lower your dispute rate and, in turn, protect your hard-earned revenue. In The Three Faces of Fraud ebook, we’ll help you in your efforts by unmasking the three faces of fraud that you meet when it comes to disputes: true fraud, friendly fraud, and chargeback fraud. You can download the ebook right here.