Accidental friendly fraud and how to prevent it
From large technology purchases to everyday household goods, more consumers are ordering products and services online than ever. eCommerce retail purchases grew 81% between May 2019 and May 2020, according to an ACI Worldwide analysis.
Within that, the sportswear and sporting goods, housewares and DIY supplies, and gaming sectors saw the most growth.
That figure is great for sales, but digital fraud has expanded, in parallel, for all types of goods. In 2020, consumers reported $3.3 billion in fraud and identity theft losses, according to the Federal Trade Commission. That figure was up from $1.8 billion in 2019.
Unfortunately, accidental friendly fraud — or accidental fraud — may be a major contributor to fraud losses for consumers and businesses. Let’s explore what accidental fraud is and how to prevent it.
What is accidental friendly fraud?
In the case of accidental friendly fraud — or accidental fraud — a consumer made a legitimate purchase but doesn’t recognize the charge on their bank statement. Of course, not all cases of friendly fraud are accidental. In some cases, customers commit intentional friendly fraud when they find ways to keep products without paying for them. Otherwise, three common scenarios may lead to accidental fraud.
- A customer mistakes charges for fraud when the descriptor on the statement doesn’t match the company name or product purchased. When the customer doesn’t recognize the purchase, they call their bank or credit card company to dispute a fraudulent charge.
- A customer shares a credit card with a spouse or partner. In this case of accidental friendly fraud, the primary cardholder isn’t aware of a charge their spouse or partner makes. When the cardholder makes a credit card payment, they don’t recognize the charge and mistake it for fraud.
- A customer makes a legitimate but unauthorized purchase. This type of accidental fraud is common in the gaming industry. Often, young gamers make in-app or in-game purchases on parents’ or guardians’ credit cards. The purchases are legitimate, but cardholders may still contact their banks or credit card companies to dispute the accidental charges.
- A customer reaches out to a business, requesting a refund, which may take several days to process. When funds aren’t returned quickly enough, the customer calls their bank, claiming the business didn’t deliver on its promise. Because the bank doesn’t know when or if the business approved the refund, it issues a chargeback. In this “double-refund chargeback,” the business loses revenue twice and is subject to additional chargeback fees.
When customers need to report a case of accidental friendly fraud, they call their credit card companies. If their credit card company can’t help the customer recognize the charge, they may conclude that the charge isn’t accurate and refund the customer’s money. Accidental fraud can lead to chargebacks post-authorization and inventory loss for businesses. So it’s important for businesses to understand how friendly fraud affects them.
Use case: Accidental friendly fraud in gaming
While home after school, a 13-year-old gamer downloads a new game to the family tablet. Without a second thought, the gamer accepts the charges for the game, and the sale processes on the cardholder’s bank account.
Several days later, the gamer’s parents are reviewing their credit card statement and see a charge to a gaming company they don’t recognize. Because they don’t recognize the business name, they assume their credit card number was compromised and call their bank to dispute the charge. The issuing bank sides with the parents, refunds their money, and initiates a chargeback.
Although this was an easy fix for the customer, the case of accidental fraud initiated a complicated process for the gaming company. Not only has the company lost the sale of the game, but they face additional fees. Unfortunately, the gaming company didn’t know about the chargeback until it was too late to intervene.
And the credit card company didn’t have enough information about the purchase to help the customer understand where the charge originated. In this case, a dispute and chargeback management solution could have helped the gaming company resolve the dispute and avoid the resulting fees.
How to prevent accidental friendly fraud
Kount’s Dispute and Chargeback Management solution is ideal for businesses that want to resolve disputes and avoid fees from accidental fraud and criminal fraud. From a single Kount dashboard, businesses can manage, act on, and resolve disputes as they happen. This solution can help businesses manage and learn more about how disputes and fees affect them, post-authorization.
Kount’s solution is the best way to prevent accidental friendly fraud and eliminate chargeback challenges post-authorization. It gives businesses access to essential tools like chargeback alerts that work with major card brands and notify them when customers initiate disputes. It also gives businesses the ability to communicate purchase details with card brands and customers. This fast, improved method of communication can prevent disputes by giving businesses a way to intervene and refund purchases or stop the shipment of goods quickly.
Finally, Kount’s advanced analytics tools allow businesses to find trends and patterns in customer disputes. This information can lead to important business insights that help businesses identify criminal versus accidental fraud. Using these analytics, businesses can pinpoint areas for improvement in operations that can improve revenue and the customer experience.