The Three Faces of Fraud (Part II: Friendly Fraud)

Sydney VaccaroChargeback Basics10 Comments

Three Faces of Fraud (Part II_ Friendly Fraud)

We all make mistakes, it is part of being human. Simple mistakes can lead to customers committing friendly fraud without even meaning to. Don’t let the “friendly” distract you from the “fraud” because friendly fraud accounts for 35% of fraud loss.  This is the second part of The Three Faces of Fraud. We will take a look at a case of friendly fraud and how easily it can happen.

What is Friendly Fraud?

Friendly fraud is an innocent act but it can cost merchants big. While closely related to chargeback fraud, friendly fraud involves no malicious intent from the cardholder. Simple forgetfulness or family members making unknown purchases can be the root of friendly fraud. Something as simple as an unclear merchant descriptor can make a customer issue a chargeback for a purchase they actually made.

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Confused Collin

Confused Collin Gets a Charge

While looking over his credit card statement Collin notices a charge from Microsoft for $50. Collin started racking his brain trying to think of what he bought. “This doesn’t make sense” Collin thought, “we are a Mac family. We don’t own anything that would even be compatible with Microsoft products."

Just to be sure he wasn’t missing something, Collin called his wife to ask her if she bought anything from Microsoft. She said that she has no idea where the charge came from. So Collin started the dispute process because the only explanation is a fraudulent charge.  Right? With just a few clicks he disputes the charge.

The Merchant Side of Friendly Fraud

It is hard to differentiate if a customer is trying to commit chargeback fraud or if they simply do not recognize the charge. Microsoft receives the chargeback from Collin. This means they loss the revenue from the transaction and got hit with a chargeback fee. Even if they have all the evidence to win the dispute and prove that Collin made the purchase, Microsoft would still have to pay the chargeback fee. The process of gathering all the information and data together to prove that Collin authorized the purchase, then submit the evidence is a lot of hassle on the merchant's end to correct a customer's confusion.

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Cardholders have their reasons for product returns and disputes. But that doesn't mean you have to just 'take it' in order to do business.

The best way to resolve a dispute is to understand what motives them to file one in the first place. This article helps you understand this behavior. Click here to learn more.

Collin Gets The Verdict

Collin gets the news from his issuing bank that he has lost the chargeback. He can’t believe he has lost because there is no way he made that charge to Microsoft. Over dinner Collin was telling his wife that he has lost the chargeback and his thirteen year old son realized what had happened. He informed his dad the Microsoft charge was actually for an Xbox game that he had asked for permission to buy.

Now everything makes sense. Collin had told his son that he could buy the newest NBA 2K game and just to put it on the credit card saved on the Xbox account. With slight embarrassment he realized his mistake.  

The New Way of Doing Things

With the new Real-time Resolution this friendly fraud situation goes a lot different. Real-time Res will stop disputes before they become chargebacks by providing issuers and cardholders with real-time order, usage, and delivery data. When Collin goes to dispute the charge he will first receive all the information about the transaction. He would see that the Microsoft charge was actually a purchase made for the Xbox game “NBA 2K18”. The user name that made the purchase “cole5433” which is Collin’s son. Then everything clicks. Collin had forgotten it was his credit card that was the on his son’s Xbox account. Collin had given his son permission to buy the new game he wanted. He had also forgotten that Xbox purchases go through the Microsoft store.

Collin doesn’t dispute the charge and Microsoft doesn’t receive a chargeback.

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