November 20, 2019

Accidental Friendly Fraud

From large technology purchases to everyday household goods, more and more consumers order products or services online and have them shipped to their doors or delivered to their devices. That is great for sales, however, digital fraud is an expanding problem across all types of goods. Retailers are predicted to lose around $130B from digital fraud between 2018 to 2023, reaching $7.2B by 2020. Friendly fraud is a big contributor to those losses, especially accidental friendly fraud, but it is also not well understood, and hasn’t been easy to solve.

In some friendly fraud situations, the customer has realized there are ways to beat the system in order to keep goods without paying for them. This is a type of intentional friendly fraud that is difficult for businesses to anticipate. However, in accidental friendly fraud, consumers call their credit card companies to request more information about a purchase simply because they don’t recognize a charge. Without clarifying information about a charge, they conclude that the charge isn’t accurate and ask the bank to refund them the money.

There are several reasons why a friendly fraud chargeback might be initiated. Shared card fraud is a typical example of accidental friendly fraud. In this situation, a family member with a credit card makes a purchase and the primary cardholder isn’t aware of the charge. When the cardholder makes a credit card payment, they fail to recognize the charge and immediately assume it is fraudulent.

Consider this hypothetical example: While home after school one afternoon, a 13-year-old, Shane, surfs on the family tablet and decides to download a new game. This is the new game that all of his friends are playing and as an enthusiastic adolescent gamer, he fails to ask his mom for permission. Shane simply navigates to the app store, finds the game, accepts the charges, and clicks to buy. The tablet’s app is connected to his parent’s credit card, which processes the sale.

A couple of days later, Shane’s mom checks her credit card statement and is surprised to see a charge for $23.99 from Fictional Digital Entertainment company. She doesn’t recognize the name of the merchant and assumes that her credit card number has been compromised and immediately calls her issuing bank to cancel the charge. The issuing bank takes her word for it and initiates a chargeback. Mom assumes the case is closed. However, although it was an easy fix for the customer, it is a complicated process of resolution for the business that sold the game. The business is hit with a chargeback and in some cases, if chargebacks are severe, the business can face excessive chargeback programs. Fictional Digital Entertainment has lost the sale, the revenue for the sale, and faces a chargeback fee. Meanwhile, Shane is happily playing his game (until he is grounded for forgetting to take out the trash on trash day.)

It came down to this: when the customer called their bank to contest a charge, the issuing bank lacked the information needed to clarify when and where the purchase was made and with what email address. That’s where Kount’s Friendly Fraud Prevention Solution with VMPI integration can add key information to help customers reference purchases.

Kount’s research indicates that users are less likely to contest a charge if they are presented with evidence that shows them the purchase was made from their computer, at a specific location, such as home.

Friendly Fraud that is Actually Merchant Error

There are several situations when merchant error can lead to a friendly fraud chargeback. One of the reasons why it is important for a business to have a deeper understanding of the type of fraud that is specific to their business is that chargebacks can flag errors that need resolution in a business process.

If a product arrives damaged, late, or was misrepresented in sales materials, this could also lead to a friendly fraud chargeback. Perhaps there is a problem with a third-party shipping address, or maybe the delivered product lacks a customer service phone number for ease of returns. There could be many reasons why a consumer is unhappy with a purchase and rather than reach out directly to the business, they call their bank to refute the charge because it is easier.

Kount’s Solution to Friendly Fraud

Kount’s Friendly Fraud Prevention Solution featuring an integration with Visa’s Merchant Purchase Inquiry Program (VMPI) helps prevent chargebacks and offers a first-line defense against erroneous transaction disputes. By enabling a conversation with the consumer to clarify transaction details, it acts as a collaboration tool for improved communication that helps prevent these calls from turning into chargebacks. The VMPI integration facilitates improved customer service and communication.

This information also leads to important business insights. Kount’s intelligence and advanced analytics not only helps businesses identify criminal versus friendly fraud, but also helps them pinpoint areas for improvement. These areas for improvement may include enhancing operational efficiencies, such as customer experience, margins, and revenue.

With Kount’s Friendly Fraud Prevention Solution, businesses can reduce friendly fraud with expanded visibility into purchase details and reduce dispute timelines from days or weeks to minutes.

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