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You may have heard the term, “friendly fraud.” It’s no surprise, then, that there’s nothing friendly about it. And it’s quickly becoming a major problem for merchants across the globe.
Friendly fraud, also called friendly-fraud chargebacks or cyber-shoplifting, occurs when a customer makes a purchase online and then files a dispute with his or her credit card company, claiming that the charge was fraudulent or that the product was never delivered.
In cases of friendly fraud, not only is the merchant required to refund the payment that’s being disputed, but it also gets slapped with an unfriendly chargeback fee, which can be up to $100 for each claim.
Online shopping is on the rise, and friendly fraud is increasing with it. Since 2011, friendly fraud among e-commerce merchants has increased by 41%. Indeed, a recent study found that 86% of chargebacks are deliberate, which translates to a lot of lost money for businesses. Visa estimates that in 2012, merchants lost $11.8 billion due to friendly fraud.
Mistakes happen—we’re human after all—and even though a legitimate chargeback may make steam come out of your ears, the chargeback process has been put in place for a reason. The real problem arises when criminals take advantage of the system. Here are several tips that will help you prevent friendly fraud before it becomes a major drain on your business.
1. Require credit card verification numbers. Also known as security codes, these are the numbers that are located on the back of a credit card, near a customer’s signature. Merchants cannot store security codes, which means that hackers don’t have any way to steal them digitally. So, when you request a security code along with an online purchase, it’s a very safe bet that the card is being used by the cardholder and not a data thief.
2. Make customer service easily accessible. When an incorrect charge shows up on a bill, filing a report with a financial institution should really be consumers’ last resort. Instead, they should first contact the merchant to avoid the messy and lengthy chargeback process.
To help facilitate this, merchants must make it easy for consumers to contact them through 24/7 call centers, and customer-service representatives should be trained to handle these calls with delicacy. It’s never appropriate to accuse a customer of friendly fraud.
It’s also interesting to note that approximately 17% of consumers dispute charges without contacting the online merchant. Why? It’s tough to say for sure, but there’s a good bet it’s because they’re committing fraud.
3. Get a proof of signature during the checkout process and upon delivery. As an online merchant, it’s always better to be safe than sorry. By requiring customers to provide an e-signature before checkout, it provides documentation to help protect your business from future friendly fraud. The same goes with a proof of delivery signature. When you have the signature of a customer who accepted delivery of your package, it makes it really hard for that customer to come back and say that the product never arrived.
4. Get help from a professional merchant services company. Chargebacks are messy. If you don’t deal with them in a short window of time, you could be forced to pay fees and penalties that could have been avoided entirely. It’s always a good idea to have a merchant-services company on your side.
With friendly fraud becoming more common, one of the best tools a company can have in its arsenal is a payment processor with great client service with open lines of communication. Your processor should be fielding your questions and going to bat for you, so you can focus on doing what you do best: Building relationships with your customers and increasing your revenue.
—Tami Cohorst is vice president of Abtek, Waterford, Mich. Reach her at tami@abtekusa.com.
