Types of Chargebacks

Criminal Fraud: Fraud from stolen credit card numbers or other types of financially malicious activity that result in chargebacks.

Friendly Fraud: A legitimate purchase made by a consumer with their credit card is disputed with the issuing bank rather than requesting exchanges or refunds from the merchant. It can be malicious, but more often, there may be a misunderstanding.

Legitimate Disputes: Authentic customer disputes, for example when a product arrived damaged, late, or was misrepresented in sales materials.

different types of chargebacks
friendly fraud can account for 40-80% of all fraud losses

Friendly Fraud Challenges

Tackling fraud can be difficult because it’s hard to identify and distinguish between criminal fraud, friendly fraud, and legitimate disputes.

Reducing criminal fraud is a necessary first step in order to isolate and address friendly fraud, since they are often classified under the same reason codes. Friendly fraud requires a specialized set of tools that are typically not included in traditional fraud detection solutions. The ability to quickly and accurately identify and segment fraud can help mitigate challenges, improve operations, and increase revenue.

Learn more about friendly fraud and how Kount can prevent it.

Download the Use Case

Types of Friendly Fraud

type of friendly fraud

 

  1. Accidental friendly fraud: A consumer made a purchase but doesn’t recognize it due to limited information on a bank statement.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. In-flight refund : 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.

Impacts of Friendly Fraud

The total cost of friendly fraud can be far more than just the cost of the lost goods. Businesses can receive chargebacks and penalties, could be placed in chargeback monitoring programs, or even face double refunds and chargebacks.

Chargebacks and fees

Automatic chargebacks and penalties can occur with a dispute

cost of lost goods
Cost of lost goods

Businesses could lose out on the cost of goods if the consumer says the goods were never received

double refunds
Double refunds

If a refund isn’t processed quickly enough and it is refunded twice, the business loses twice the cost of the goods and receives a double chargeback

increase in chargeback ratio
Increase in chargeback ratio

Placement in Visa’s chargeback monitoring program could occur if transactions with chargebacks exceed 0.9%

Kount Friendly Fraud Prevention Solution

Kount’s Friendly Fraud Prevention Solution featuring VMPI protects against chargebacks, increases revenue, and improves customer experience. Datamart, Kount’s advanced data analytics, analyzes fraud and then isolates the legitimate disputes from friendly fraud.

 

kount's friendly fraud platform

Identify Criminal Fraud with Kount’s AI

Using supervised and unsupervised machine learning, Kount distills transaction risk into a single safety rating, Omniscore, which detects more fraud and minimizes false positives.

Deflect Friendly Fraud Chargebacks with VMPI

Reduce friendly fraud chargebacks by allowing issuing banks to request information from businesses to help cardholders recognize a transaction at the time of inquiry, and on average, deliver 5x the return on investment.

Access Datamart Advanced Data Analytics

Analyze fraud by looking at a rich data set including qualifiers such as email address, product, and data types, then isolate the legitimate disputes from friendly fraud.

Simplify Alerts and Representment Services

Fraud alerts and chargeback retrieval and representment services are available through Kount partners to help businesses gain more information about a dispute quicker.

Improve Operations

After tackling criminal and friendly fraud, look beyond chargebacks and pinpoint how to improve customer experience, margins, and revenue.

Kount Integration to VMPI

kount's integration with VMPI

Visa Merchant Purchase Inquiry (VMPI)

The Visa Merchant Purchase Inquiry (VMPI) program helps issuers and businesses reduce unnecessary payment disputes. The program allows issuing banks to request information from businesses to help cardholders recognize a transaction at the time of inquiry. This decreases the number of chargebacks issued, the cost of chargebacks, and improves the quality of chargeback data used to optimize a businesses’ fraud strategy.

Kount integration to VMPI

Kount’s integration to VMPI allows businesses to participate in the VMPI program through Kount, eliminating the need for a direct integration and ongoing technical maintenance. Once set up, Kount will receive VMPI inquiries for participating businesses and respond with customer and transaction details. Customers can be reminded in real time about their purchases, deflecting chargeback losses and fees, and on average, deliver 5x the return on investment.

Learn more about Kount’s integration to VMPI

Download the Data Sheet

Friendly Fraud Solution Benefits

Single platform

Gain a single platform for all fraud prevention that accurately detects and protects against both criminal and friendly fraud

Reduce friendly fraud

Reduce friendly fraud with expanded visibility into purchase details provided through the VMPI integration

Recover revenue

Recover revenue losses by preventing chargebacks, loss of goods, or loss of services, and on average, deliver 5x the return on investment.

Save the sale

Save the sale and deflect chargebacks by helping customers recognize purchases.

Reduce dispute timeframes

Reduce dispute timeframes from several weeks to several seconds by communicating with issuers in real-time

Stop double refunds

Stop double refunds by communicating the status of refunds already in flight

Improve customer experiences

Improve customer experiences and gain customer loyalty with improved communication and faster resolution

Advanced analytics

Gain Insights from Datamart, Kount’s advanced analytics, to identify criminal versus friendly fraud and pinpoint ways to enhance operational efficiencies, such as customer experience, margins and revenue

Tab pattern

Learn more about friendly fraud and how Kount can prevent it.

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