Expert: Why friendly fraud is costing retailers

Default Image

Kristina: What is friendly fraud?

Srii Srinivasan, CEO, Chargeback Gurus: “Friendly fraud” refers to chargebacks that arise out of legitimate transactions. When a customer doesn’t recognize the charge on their bank statement, or when they later come to regret the transaction, they may contact their bank to have the charge reversed without going through the merchant first to inquire about the charge or ask for a refund. The “Cardholder” may or may not be intended user, but the chargeback process is being misused by the consumer.

Kristina: What makes this type of fraud troublesome for retailers/brands? 

Srii: Friendly fraud is on the rise, and it presents a growing problem that e-commerce merchants cannot ignore. Merchants and banks lost a combined total of $31 billion dollars due to chargebacks in 2017, and that only represents the actual transaction amounts. When you factor in the time, labor, and money spent in dealing with chargebacks, their actual cost is much higher. We estimate that merchants lose 2 to 3 times the transaction amount when dealing with chargebacks. Some chargebacks have a legitimate basis and can’t be avoided, but friendly fraud chargebacks can–and should–be vigorously disputed.

Kristina: How can brands and marketers better detect friendly fraud?

Srii: It is very challenging to detect friendly fraud, because so often it just happens out of the blue, which is why it is so frustrating. But brands and marketers can take proactive measures to PREVENT friendly fraud and we recommend these steps to minimize friendly fraud:

1. Set realistic expectations about your product and services. An over-hyped product and deceptive marketing practices can lead to friendly fraud.
2. Simple return and refund policies can help merchants prevent friendly fraud.
3. Top notch customer service, trained personnel and 24/7 support has been proven to reduce friendly fraud.
4. Communicate with your customers about their orders and rebills before and after billing to keep them aware of the transactions. Surprises often lead to consumer disputes.
5. Enable AVS and CVV validation features in your gateway to avoid Not-Authorized billing disputes.
Kristina: When friendly fraud is detected, what can be done about it?

Srii: Every chargeback tells a story. Merchants should identify the root causes of their chargeback to prevent future disputes. If they do not have the analytics to detect the source of chargeback, use third party providers like Chargeback Gurus to help you identify and prevent future disputes.

Merchants should dispute chargebacks if they have all the right compelling evidence and have fulfilled their obligation when delivering their product or service.

If it’s a bogus chargeback, block the customer to avoid future fraudulent claims. It is estimated that fraudsters will make three or four attempts if merchants do not act against chargebacks.

Kristina: Do brands/marketers need to better educate their customers about friendly fraud? 

Srii: Customers often show little to no interest in learning about fraud. But it is the responsibility of the merchant to take precautionary measures to prevent against friendly fraud. The focus of the consumer is to buy the product, so they end up ignoring information about chargebacks. Often customers do not understand how their disputes can affect the merchants.

However, to help make sure they can effectively mitigate losses, merchants need to have clear and repetitive communication with their customers to ensure the customer is aware of the transaction, terms of sale, return/refund policy. Also, merchants must make it easy for customers to reach out to them to cancel product or service orders.

A few simple steps will go a long way in minimizing their losses to friendly fraud.



Kristina Knight-1
Kristina Knight, Journalist , BA
Content Writer & Editor
Kristina Knight is a freelance writer with more than 15 years of experience writing on varied topics. Kristina’s focus for the past 10 years has been the small business, online marketing, and banking sectors, however, she keeps things interesting by writing about her experiences as an adoptive mom, parenting, and education issues. Kristina’s work has appeared with, NBC News,, DisasterNewsNetwork, and many more publications.