Accidental friendly fraud and how to prevent accidental chargebacks

From large technology purchases to everyday household goods, more consumers are ordering products and services online than ever. E-commerce purchases made up 19% of total retail sales in 2021, according to a Digital Commerce 360 analysis of U.S. Department of Commerce data. Overall, e-commerce purchases grew 14.2% between 2020 and 2021.

Those figures are great for sales, but digital fraud has expanded, in parallel. In fact, an FTC report found consumers reported losing $5.8 billion to fraud in 2021. Imposter scams made up $2.3 billion in losses while online shopping accounted for about $392 million in reported losses.

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?

Accidental friendly fraud — or accidental fraud — happens when a consumer made a legitimate purchase but didn’t recognize the charge on their bank statement. So the customer mistook the purchase for criminal fraud and accidentally disputed a charge, which led to an accidental chargeback. Of course, not all instances of friendly fraud are accidental.

1. In some cases, customers commit intentional friendly fraud when they find ways to keep products without paying for them, a growing consumer refund trend. Otherwise, three common scenarios may lead to accidental fraud.A customer mistakes charges for fraud when a billing descriptor on their statement doesn’t match the company name or product purchased. The customer doesn’t recognize the purchase, so they call their bank or credit card company and accidentally dispute a charge.
2. 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 purchase their spouse or partner makes. When the cardholder sees their monthly statement, they mistake the charge for fraud and dispute it with their bank.
3. A customer makes a legitimate but unauthorized purchase. This type of accidental fraud is a common type of online gaming fraud. 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.

When customers commit accidental fraud, they call their credit card companies. If the credit card company can’t help the customer recognize the charge, they may conclude that the charge is fraudulent, refund the customer’s money, and stick the merchant with an accidental chargeback.

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 and invest in a friendly fraud solution.

Accidental friendly fraud in the gaming industry

Picture this: A young gamer downloads a new game to the family tablet. Without a second thought, the gamer accepts the charges to buy the game, and the sale processes on their parent’s credit card.

Later, the gamer’s parent reviews 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 parent, refunds their money, and the chargeback process begins.

This is an all-too-common mobile gaming fraud scheme. In fact, a third of gamers in a recent Kount survey said they’ve disputed an in-app, in-game, or online gaming purchase with their bank or credit card company in the last year. Among them, 14% cited not recognizing the purchase as their reason for disputing. And 11.8% cited a child or spouse making an unauthorized purchase as the reason.

Although this is an easy fix for the cardholder, the case of accidental fraud initiates a complicated process for the gaming company. Not only does the company lose revenue from the sale of the game, but they face additional fees. Unfortunately, the gaming company won’t know about the chargeback until it’s too late to intervene, especially if they don’t use a chargeback alert solution. 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 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. It’s also the best way to prevent accidental friendly fraud and eliminate chargebacks post-authorization, especially in the online gaming industry.

Businesses gain access to essential tools like chargeback alerts that work with major card brands and notify them when customers initiate disputes. Businesses also gain the ability to communicate purchase details with card brands and customers so that they can 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.