Friendly Fraud: What It Is And How To Prevent It

The e-commerce industry is growing rapidly. With the demand for online shopping higher than ever before, retailers and brands are doing everything in their power to grab consumers’ attention and more importantly, their wallets. With access to an unlimited marketplace at their fingertips, consumers’ concept of patience is hastily diminishing. Easy checkout, fast delivery, and hassle free returns are no longer luxuries or marks of superior service – they are the standard practice of the online retail territory. And while online transactions (also known as “card not present” or CNP transactions) allow companies to increase sales, they pose a serious risk to businesses in the form of friendly fraud.

What Is Friendly Fraud?

Don’t let the name fool you; there’s nothing friendly about this fraud. Also called chargeback fraud, this happens when an individual makes an online purchase and successfully receives the item, only to issue a chargeback with their card service company claiming the item was never received or that they never made the charge. The bank then refunds the individual and blocks the payment, reversing the charge to the merchant. Merchants are required to pay a non-reversible fee set by the bank, anywhere from $5 to $35 per item. While this can happen accidentally as a result of a misunderstanding, CBS reports that more than 86% of all chargebacks are intentional; either the consumer’s original intention was to get the item for free or they see it as a quick fix when they no longer want the item. Many consumers see it as a no-hassle solution with instant gratification; they can immediately regain access to their money rather than going back and forth with the merchant.