Take a look at these numbers on friendly fraud:
- 70%: The percentage of all chargebacks that are friendly fraud, according to industry records.
- $14 billion: The amount of money eCommerce merchants in the United States alone lose to friendly fraud, according to a study by Javelin Strategy & Research.
- 81%: The percentage of merchants that reported increased friendly fraud, according to the same Javelin Strategy & Research.
A 2020 report by Verifi found that merchants who fail to prevent friendly fraud could face an average chargeback rate of 0.5% to 1%, with the potential to increase up to 10%. So what in the world is friendly fraud, and how do you prevent it effectively?
Keep reading for all the answers.
What Is Friendly Fraud?
Friendly fraud (also called chargeback fraud) is an intentional (and sometimes unintentional) abuse of the chargeback system. Friendly fraud occurs when a customer disputes a legitimate bill on their credit card, resulting in a chargeback to the merchant.
In most cases, the customer may have forgotten about the purchase or not recognize the transaction on their statement. However, in some cases, the customer may intentionally commit fraud by claiming they did not receive the goods or services they purchased or that the charge was unauthorized.
Friendly fraud has significant impacts on merchants, which include:
- Revenue loss,
- Chargeback fees,
- Merchandise loss
- Damage to their reputation, and so much more.
Thankfully, with the strategies below, you can prevent friendly fraud effectively –and recover lost revenue when scammers try to beat the system.
Read also: Chargeback fees and how to avoid them legally
Why Friendly Fraud Is Difficult To Stop
To understand why friendly fraud can be hard to crack, we take the reader back to why cardholders commit friendly fraud.
Why do cardholders commit friendly fraud?
Our research shows that cardholders commit friendly fraud because of the following:
- Buyer’s remorse. Cardholders often dispute a transaction because they regret purchasing, either because they found a better deal elsewhere or because the buyer later found out they could not afford it.
- Misunderstanding of service terms. Some friendly fraud stems from ambiguous service terms. For example, the buyer may not have realized that a subscription would renew automatically or that a product had certain limitations.
- Unauthorized card use. While this is true for legitimate cases, industry data have shown that some buyers use this reason code to escape transaction responsibility.
- Family/friends. Some friendly fraud cases are also due to a family member or friend purchasing on the cardholder’s behalf, and the card owner does not recognize the transaction or does not want to pay for it.
- Fraudulent intent. In many cases, cardholders commit friendly fraud intending to defraud the merchant or the card issuer.
Friendly fraud claims are often difficult to disprove because of the nature of the cases.
You may be hesitant to challenge the chargeback to avoid damaging your relationship with the customer and risk losing the customer’s business.
Also, the chargeback system primarily protects consumers. The burden of proof demonstrating that the transaction was legitimate is on you, the merchant. That’s especially tough to do when the buyer intentionally provides false information or misrepresents their experience.
In some instances, card issuers may be biased towards the customer when reviewing chargeback disputes, meaning you’re automatically guilty until proven innocent when a cardholder files a chargeback. Learning how to prevent revenue loss due to friendly fraud is critical.
How To Prevent Friendly Fraud For Your eCommerce
You’re jeopardizing your company if you’re not trying to stop chargeback fraudsters in their tracks. Repeated chargebacks can damage a merchant’s reputation, causing negative reviews, reduced customer trust, and eventual loss of merchant accounts.
Use these tips and best practices to ensure you don’t fall into that black hole:
#1: Have Clear and Accurate Product Descriptions
Are your product descriptions and pricing information clear and accurate to avoid confusion and misunderstandings?
Having clear and accurate product descriptions is crucial to preventing expectation gaps. Use these tips to make your product description better:
- Use Detailed Descriptions. Provide detailed descriptions of products, including information about features, size, materials, and any other relevant data customers may need to make informed purchasing decisions.
- Provide High-Quality Photos. Product photos can make or mar the purchasing decision. They help customers better visualize the product, leading to more accurate expectations and fewer misunderstandings.
- Use Consistent Messaging and Language. Use consistent language throughout their website and product descriptions to avoid confusion and ensure accuracy.
- Provide Dimensions and Measurements. Accurate measurements and dimensions for products help customers better understand the size and scale of the product, reducing the likelihood of misunderstandings.
- Highlight Unique Features. Amplify unique features or characteristics of products to help customers understand the product’s value proposition and differentiate it from competitors.
- Address Potential Concerns. Use excellent copywriting to address potential customer issues, such as materials, manufacturing processes, or warranties, and build trust with the buyer to reduce the likelihood of disputes.
- Show Social Proof. Adding customer reviews and testimonials help provide additional context and build trust with potential buyers.
These tips will help you prevent misunderstandings and disputes leading to chargebacks. That’s for legitimate cases. More so, clear and accurate product descriptions help improve customer satisfaction and loyalty, increasing sales and revenue.
#2: Provide Prompt Customer Service to Pre-empt Disputes
Being available and responsive to customers can help resolve customer issues or concerns, reducing the likelihood of chargebacks.
Below are some strategies and tools to help you provide timely and responsive customer service across multiple channels to mitigate disputes and prevent chargebacks.
- Use Live Chats and Onsite Searches. Live chat helps merchants quickly respond to customer inquiries and provide real-time support. Many live chat tools also include automation and chatbots, which can help merchants provide 24/7 support outside business hours. Equally vital, onsite search helps your customers quickly find what they need. And to not buy something they might regret and file a chargeback later.
- Use Social Media Marketing to Build Trust. Social Media helps you respond to customer inquiries and complaints, update order status, and promote new products or promotions. Engage with customers on any Social Media platform they mentioned your company on, and only escalate the issue to another channel after showing a willingness to address it. For example: if someone Tweets about an order issue, respond to the tweet in public and call them into a private chat to get more details and reduce the likelihood of unnecessary attention. Then escalate to a call or email.
- Track Customer Complaints With Ticketing System. Consider tracking and managing customer inquiries and complaints to limit the chances of missing customer complaints due to busy schedules. Zendesk could come in handy here.
- Provide Self-Service Options. At least 69% of consumers first try to resolve their issues independently. Providing self-service options like an FAQ page or knowledge base can help customers quickly find answers to common questions and reduce the need for direct customer support. Or the customer using chargeback to seek remediation.
- Use an Omnichannel Support Platform. Depending on the stage of your eCommerce, an omnichannel support platform can help merchants provide consistent and seamless customer service across multiple channels, including email, phone, live chat, and social media.
- Human-proof Customer Feedback. Use tools like social listening and online reputation management platforms like Statusbrew, Podium, and Birdeye to track customer feedback and respond to reviews promptly. As much as AI bots help provide relevant support, monitoring customer feedback and reviews can help you identify and address potential trickier issues before they become disputes or chargebacks.
Read also: How to deal with fraudulent Shopify chargebacks in 2023
The magic of excellent customer service is that it helps your customers cut you slack – they can always talk to you before they talk to their bank. Further, you must also keep detailed records of transactions, customer interactions, and communications to have a resource bank to pull from when a scammer forces their way with friendly fraud.
#3: Use Strong Fraud Detection and Prevention Systems
Invest in reliable fraud detection and prevention systems to identify and prevent fraudulent transactions before they occur.
Criminals are constantly targeting your business. Take a look at the numbers:
- Geolocation. When customers place new orders, geolocation technology tracks their physical address in real-time and compares that with the details they have on file to ascertain you’re dealing with the right person.
- Proxy Piercing. Scammers often beat geolocation with proxies that disguise their IP addresses, making it difficult for your system to flag suspicious orders. You can pierce through a proxy address and track the user’s location with a proxy piercing.
- Address Verification Service (AVS). AVS evaluates the customer’s billing details against your address on file to ensure consistency.
- Velocity Checks. Sometimes, fraudsters provide an accurate address, while an actual buyer could mistakenly type the wrong address. In such instances, AVS flags the wrong person. With Velocity Checks, you can track order-related documentation accurately for better decisions. Velocity checks also track repeated orders from a scammer looking to jump the gun and flag such orders as suspicious.
- Biometric payment system. With this tool, you can prevent fraudulent transactions by forcing users to authenticate payments with a passcode/thumbprint that unlocks their phone to provide another positive ID. It also tokenizes mobile payments.
- Fraud Blacklists. The fraud blacklist tool helps you block order requests from either countries or regions known for high online fraud volumes or buyers with given payment methods. You can also block IP addresses from specific areas.
- 3-D Secure. With this tool, you can authenticate buyers as authorized cardholders by sending them PIN codes to prevent chargeback fraud.
- Fraud Scoring. With this tool, you can detect fraud by examining transactions with indicators, such as risk level.
The more data you collect to verify your buyers’ identity and ownership of the card used for the transaction helps prevent fraudulent chargebacks.
#4: Automate Your Chargebacks
The dispute mediation process requires extensive resources, labour, and time commitment. It’s an uphill battle for merchants.
Automated chargeback recovery tools like Chargeflow gives merchants extreme performance and accuracy gains that manual chargeback dispute processes cannot match.
With Chargeflow’s automated chargeback management service, you can streamline every aspect of the dispute management process to recover chargeback fraud without lifting a finger. The system uses AI-assisted algorithms to pull data from over 50 customer touchpoints, making evidence gathering easier and faster. It makes evidence-gathering and record-keeping seamless.
You can effectively prevent revenue loss and avoid chargeback fees. Plus, you can accurately detect and respond to cases in real-time. That way, you will never run out of time to fight unmerited disputes.
Apart from the speed and accuracy of chargeback response, you also have helpful analytics and insights to understand your dispute activity and pinpoint fraud loopholes, thereby reducing the frequency and impact of chargebacks. That also equals improved business performance over time.
Again, your chargeback response is only as good as the ROI. Many vendors lose more money fighting friendly fraud. Hence, most of these merchants choose to write off these chargebacks as a cost of doing business. Not anymore. Research shows that automated chargeback recovery yields superior dispute resolution outcomes, helping merchants avoid financial losses and maintain customer relationships than manual processes.
In conclusion, friendly fraud is a growing business sustainability risk for merchants of all sizes and verticals. And disputing friendly fraud chargebacks is a significant challenge for merchants because they involve complex issues of customer experience, evidence, and card issuer bias.
For better outcomes, we recommend that you review your customer service efforts, use anti-fraud tools to strengthen your systems and automate your chargebacks to pre-empt revenue losses.
About the Author:
Tom-Chris Emewulu is Chargeflow’s Digital Evangelist. With 7+ years of digital marketing experience, he crafts compelling, data-driven SEO articles that put brands on page 1 of Google search. Forbes, DW, Business Insider, Businessss2Community, and many other publications have featured his works. You can find him on Social Media via @tomchrisemewulu.
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