What is Friendly Fraud?
Online purchases have looked different in 2020, as digital transformation accelerates rapidly due to the coronavirus pandemic. With consumers looking to do just about everything digitally, from buying necessities to entertainment, purchase patterns have changed. At the same time, cancelations of events and travel are abundant, and refund policies due to these cancelations can be confusing. So, confused consumers looking for a refund or seeing a new, unrecognizable line on their credit card statement may initiate a chargeback. This can be a form of friendly fraud.
So far this year, many eCommerce companies are experiencing more attempts at chargebacks from both criminal fraud and friendly fraud. Chargebacks from all fraud are rising at 20% year-over-year, which costs businesses $118B in revenue. Friendly fraud has grown faster than criminal fraud and is up 41% over the last two years, even before the pandemic. Businesses may not know they have a friendly fraud problem because there are so many types of friendly fraud however it can significantly impact a businesses’ revenue.
What is Friendly Fraud?
Friendly fraud occurs when a consumer makes an online purchase with their credit card and then disputes the charges with the issuing bank rather than requesting exchanges or refunds or confirming unrecognized charges on their statements.
In some cases, the customer has malicious intent to dispute the payment and keep the goods or services, but more often, consumers call their credit card companies to request more information about a purchase simply because they don’t recognize a billing descriptor or have enough information to trigger their memory of the purchase. They conclude that something nefarious is going on with their credit card number.
For businesses that have been aggressive at managing criminal fraud, it is estimated that the remaining fraud is typically 70% friendly fraud, 20% criminal fraud and 10% legitimate disputes. Not all friendly fraud is the same and within this remaining percentage, there may be several different reasons why friendly fraud occurs.
Types of friendly fraud
- Accidental friendly fraud: A consumer made a purchase but doesn’t recognize it due to limited information on a bank statement.
- Intentional friendly fraud: A consumer made a purchase and recognizes the purchase, but still requests a credit from the issuing bank, claiming they did not make the purchase.
- Merchant error: A merchant doesn’t provide adequate support to avoid a chargeback. This can include limited merchant descriptors on a bank statement, poor customer service, etc.
- Shared card fraud: Many consumers share a card with family members. As a result, if one person uses the card and doesn’t inform the other, this can lead to friendly fraud.
- Policy abuse fraud: Allows users to return items within a certain time limit without needing to provide a reason. It does not typically limit the number of times you can return or request a refund. However, many companies take action if they feel a shopper is abusing the policy.
- In-flight chargeback: When a business issues a refund, the time it takes to process could be several days to several weeks, however consumers expect the refund to be instantaneous. When the refund isn’t quick enough, the customer often calls the bank and it can be refunded twice.
Kount’s solution to friendly fraud
To help businesses alleviate the impacts from friendly fraud, and isolate why and how it occurs, Kount offers a friendly fraud chargeback prevention solution that provides a complete platform to protect against both friendly and criminal fraud. The solution accurately identifies criminal fraud, friendly fraud, and legitimate disputes.
Kount’s solution features an integration with the Visa Merchant Purchase Inquiry (VMPI) program. VMPI enables businesses to provide purchase details directly to the cardholder to help them recognize a charge before a chargeback is initiated. The result is that it saves businesses time and money in fraud resolution.
Datamart, Kount’s advanced data analytics, analyzes fraud and then isolates the legitimate disputes from friendly fraud. Through Kount’s rich data and intelligence based on the Identity Trust Global Network, businesses can see, review, and analyze where their specific fraud is coming from. What products seem to have the highest number of chargebacks, what areas of the country are problem locations, or what payment types have the most challenges? Kount’s powerful information tools can help solve the source of the fraud.
Kount’s solution gives businesses the tools to identify and resolve operational inefficiencies to increase sales margins, improve user experience, customer satisfaction, and customer retention rates.
Businesses gain these benefits through Kount’s solution:
- Save the sale by helping customers recognize legitimate purchases, therefore deflecting chargebacks
- Reduce dispute timeframes from weeks to minutes by communicating with issuers in real-time
- Stop double refunds by communicating the status of refunds already in-flight
- Reduce revenue losses by preventing chargebacks and the loss of goods or services
- Improve customer experience and satisfaction by promoting customer loyalty with improved communication and faster resolution
- Pay only for positive outcomes with no set-up costs, monthly minimums or long-term commitments