What is Friendly Fraud, and How Can I prevent it in 2021?

  • Oct 11, 2023
Pine Energy Pte Ltd

When we think of credit card fraud, we visualize the con artists, stereotypical thieves, and hackers. Unprincipled wrongdoers on a mission to stockpile identities, pilfer money and make for general havoc upon the loves of their dupes. Luckily, most card issuers have customer protection touchstones to set back illegal transactions. A chargeback happens when the bank reverses a conflict payment from the merchant and pays the cardholder’s finances. But before diving deep into the topic, let’s have a look at what friendly fraud actually is!

What is Friendly Fraud?

Friendly fraud is when a customer buys a service or goods with a credit card belonging to their relative or friend. In various cases, friendly fraud is committed intentionally to request a payment revoke later. Mostly, the cardholder is the person responsible for the “fishy” account activity. Furthermore, this person may not even realize the doubtful charge was, actually, a legitimate payment. Friendly fraud pertains to a situation in which the cardholder submits a fake report of the credit card fraud.

“Friendly fraud is more like a situation that involves a cardholder reporting a shady credit card charge, whether erroneously or with criminal intent.”

Plenty of cases associated with “friendly fraud” originate by family members making payments without the cardholder’s permission or knowledge, saving payment credentials, and sharing accounts. Often teenagers and children are the perpetrators, but sometimes spouses make an online payment and forget to inform the other person about it.

How can you differentiate between true fraud and friendly fraud?

In a friendly fraud, merchants and banks talk, particularly about chargeback fraud. In this fraud, suspicious activity is committed against the merchant, banks, and credit card processing. True fraud, contrarily, is when the cardholder is genuinely tricked. Either their card number has been squared up online, or their credit card or their identity has been slipped off and used to take their credit details.

When a customer experiences a true fraud, their primary resource is chargebacks. Chargebacks specifically exist for this reason; to save customers from true fraud. If you are handling a chargeback from a customer who has clearly experienced a fraudulent activity, it is good to not dispute that chargeback and push him for the transaction.

How can you prevent yourself from Friendly Fraud?

The fact for merchants is that friendly fraud is almost impossible to find. As stated earlier, while reviewing activity for fraud, the fraud analysts search to find if the credit card processing has been misused in any way by anybody other than the authoritative cardholder. When the cardholder is using a card, it will be absolutely impossible to know if that card is being used in a malicious way or legitimate way, given that the authorized cardholder is actually conveying the purchase. Even when a fraud analyst states that they see a legit purchase made by the genuine cardholder, as a merchant, you can protect yourself against such frauds from your client by keeping the record of the transaction in the following way;

  1. Make a phone call for validation and record it; for instance, if the average transaction of a merchant is 300$ and a customer places the order with an online payment of 6500$, that should stand behind extra investigation by the fraud analysts. And a phone call or email outreach to the consumer can be the best way to record the details and use them as evidence later.
  2. Always collect and keep track of delivery documentation; a merchant can request an official signature to make sure that the card is in the hand of the purchaser or listed recipient. Merchants nowadays request for FEDEX OR UPS request signatures to prevent the claims that the package was never delivered or stolen off. Merchant can claim that the customer holds the merchandise on the basis of the signature.
  3. Make a promise of delivering outstanding customer services; by developing a solid relationship with your customer, you can reduce the chance for them committing friendly fraud against you. If there is any problem with the service or product, and they know that you will replace the product and help them, they will ask for help before submitting a chargeback.

Conclusion: The responsibility is on you!

Be proactive about delivering outstanding customer service, and keeping a record of the transactions is a merchant’s top weapon against friendly fraud. Although this won’t root out every suspicious activity, it can certainly minimize the chances.