How to Spot Friendly Fraud: What to Look for to Protect Your Business

Sydney VaccaroFraud PreventionLeave a Comment

How to Spot Friendly Fraud

Friendly fraud happens because of a cardholder mistake. Even though the cardholder is not maliciously disputing a charge, friendly fraud can cause your company to lose revenue and spend unnecessary time responding to disputes, which is why merchants should take proactive measures to prevent and respond to friendly fraud.

What is Friendly Fraud?

Friendly fraud is when a cardholder mistakenly disputes a charge. This could stem from an unclear merchant descriptor, a family member making unknown purchases, or simple forgetfulness.

A typical example of friendly fraud is a family member makes a purchase, such as a child or a spouse, but the actual cardholder doesn't recognize the purchase. At the end of the month, when the cardholder goes through their statement, they can't think of what the family member’s purchase could be. Assuming it is either a fraudulent charge or a mistake, they dispute the transaction with the issuing bank.

How to Spot Friendly Fraud

So, how can merchants spot a friendly fraudster?

Post Transaction Dispute

Post-transaction disputes are the easiest time to spot friendly fraud, but not the best time. Friendly fraud disputes are winnable for merchants, but when you receive a dispute, it can cost a dispute fee, time and money with the labor of creating a response, and the possible loss of the merchandise or services. Even though merchants can get back the lost revenue, receiving a friendly fraud dispute is not a painless process.

Recognizing friendly fraud disputes after the dispute has already been submitted still brings value. Merchant can do an analysis of these disputes to help point out what changes could be made to prevent friendly fraud disputes in the future.

Customer Service Interactions

If a customer reaches out to your customer service because they do not recognize the charge, it is an opportunity to prevent friendly fraud from happening. Your customer service should have the necessary information on hand to help the customer understand what the purchase was for, when it occurred, from what device, who placed the purchase or what username, or any other information that could help paint the picture. It is important to note that customer service representatives should be sensitive about sharing too much customer information over the phone or chat.

How to Stop and Respond to Friendly Fraud

There are a couple of methods that merchants can put in place to prevent friendly fraud and be prepared to respond when it does happen.

Clear Merchant Descriptor

Merchants that have an unclear merchant descriptor are putting themselves at risk for friendly fraud disputes. To make a clear descriptor, merchants should make sure to display their business name that the customer will recognize. This is especially critical if your legal company name differs from what a customer will recognize.

Along with a recognizable company name, merchants should include a way for cardholders to communicate with you. If a customer doesn't recognize a transaction, they may initiate a dispute if they can't immediately figure out how to identify or contact the merchant. But, if it's just as easy to call a customer service number or head to a website indicated in your merchant descriptor, it will give you a chance to sort out the issue before a dispute.

Clear Communication

Alongside the merchant descriptor being as clear as possible, merchants should clearly communicate every part of the transaction and billing process to the customer. This is especially important for subscription merchants. Simply sending the customer a reminder email that their recurring transaction will happen in the next couple of days can be enough to prevent a friendly fraud dispute.

Easy to Reach Customer Service

If a customer has a question or does not recognize a transaction, the goal for the merchant should be to have the cardholder reach out to them instead of their issuing bank. To make this possible, merchants should put their contact information wherever the customer may look for it. This could include email, webpages, merchant descriptors, in-app, or anywhere else your customer interacts with your brand.

Collection of Evidence

Friendly fraud disputes are winnable for merchants. This means that merchants can regain the transaction amount by submitting a complete dispute response document. To create a winning dispute response, merchants must provide the specific evidence required by the reason code attached to the dispute. If your company is not collecting this information, you may have inadequate dispute responses.

Stop Invalid Disputes

Friendly fraud disputes stem from a cardholder making a simple mistake. With Real-time Resolution (RTR), merchants can prevent friendly fraud from ever happening. RTR allows the merchant to communicate real-time customer, order, and product information. The information can help jog the cardholder's memory about the purchase and prevent a dispute from ever happening.

To learn more about Real-time Resolution and the possible ROI for your company, click here.