What is “Accidental Friendly Fraud” & How Does it Differ From Deliberate Chargeback Abuse?
Have you ever had the feeling that your customers are out to get you?
That’s what it can feel like while you’re getting inundated by chargebacks and fraud. It’s even worse when you start digging into those disputes and discover that most of the claims made by customers are inaccurate or misrepresent the truth. After a while, you might wonder if you should take it personally.
The truth is that most chargebacks are filed without a valid reason for a dispute. But, it’s also the case that most invalid chargebacks are unintentional on the buyer’s part.
Usually, the cardholder genuinely believed they had good reason to dispute a charge. The buyer is probably not trying to hurt your business. In fact, they may not even realize that a chargeback was filed at all. But, regardless of what the buyer intended, the end result is the same.
In this post, we’ll take a look at accidental friendly fraud. We’ll see how it differs from other chargeback sources and examine what you can do to protect your business.
Recommended reading
- What is Chargeback Fraud? How do You Protect Yourself?
- Stop Buyer’s Remorse: Tips to Beat the Second-Glance Blues
- Return Fraud: What It Is, and How Merchants Can Fight It
- The Top 10 Tips for Chargeback Fraud Prevention in 2024
- What is “Family Fraud”? How Can You Stop it?
- Amazon Return Fraud Threatens Marketplace Sellers
What is Accidental Friendly Fraud?
- Accidental Friendly Fraud
Accidental friendly fraud refers to a situation in which a customer abuses the chargeback process, but does so without any malicious intent.
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Friendly fraud occurs when a customer files a chargeback without a valid reason. The distinguishing element of friendly fraud is that it isn’t committed by a professional criminal. Instead, it comes from one of your own customers.
For example, the buyer might have an issue with their purchase and initiate a chargeback instead of trying to first obtain a refund from you.
Does that mean your customers are deliberately trying to steal from you? In some cases, yes. There are plenty of cases of intentional friendly fraud, where the customer’s goal is to get something for nothing. Most of the time, however, friendly fraud is the product of a misunderstanding rather than malice.
The average cardholder has no idea how payment processes like chargebacks work. If the buyer calls the bank to inquire about a purchase, the only insight they might have is whether their money reappears in their bank account or not. In some cases, buyers request chargebacks on valid transactions without even realizing what they’re doing. This is what we’re talking about when we say “accidental friendly fraud.”
How To Tell Deliberate & Accidental Friendly Fraud Apart
Drawing a line between intentional and unintentional friendly fraud can be difficult. It’s hard to know the cardholder’s true intentions. But, let’s give an example.
Imagine a customer who wants to return an item they legitimately purchased. But, the buyer waited too long, and now the return policy time limit has lapsed. The cardholder knows this, so they bypass the merchant and call the bank to demand a chargeback.
Of course, procrastination isn’t a valid reason for a chargeback, so the customer lies and says they never received an item, or that they requested a refund, but it was never processed. The buyer gets a chargeback, and you end up paying the price.
Another form of deliberate chargeback abuse is cyber shoplifting. This happens when a cardholder understands how the chargeback process works and deliberately requests invalid chargebacks to try and steal from you.
In contrast, buyers who commit accidental friendly fraud won’t know they’ve done anything wrong. They file chargebacks without realizing that they weren’t entitled to do so, and without knowing the consequences that you’ll suffer as a result.
Learn about valid & invalid reasons for chargebacksHow Does Accidental Friendly Fraud Happen?
When a cardholder has an issue with a purchase, they should always try to resolve it with the merchant directly.
The chargeback process is meant to be a last resort. The cardholder should contact the bank only if they cannot resolve the problem any other way. Failing to abide by this standard chargeback procedure is considered friendly fraud.
The problem is that many cardholders are unaware of this. They suspect fraud and immediately ask the bank to fix it. Their primary concern is getting their money back, regardless of whether it’s the right thing to do.
So, let’s look at some scenarios that could lead to an accidental friendly fraud chargeback:
Unclear Billing Descriptors
Billing descriptors are the line items on a cardholder’s monthly statement. They indicate where each particular transaction was made. Using vague billing descriptors or corporate names can obscure who you are. And, if the customer doesn’t recognize you by name, they may dispute the charge.
Purchases by Family Members
It’s not uncommon for younger consumers to make in-app purchases without a parent’s knowledge or approval. The parent/cardholder doesn’t recognize the charge on their statement and disputes the (technically legitimate) transaction. Such incidents are referred to as “family fraud.”
Canceled Recurring Transactions
If you process a charge on a subscription account that should’ve been canceled, you could get hit with a recurring billing chargeback. The cardholder might have forgotten the recurring transaction or sent a late cancellation request to interrupt the automatic billing. Whatever the reason, if the charge isn’t expected, it can easily lead to a dispute.
Delayed/Double Refunds
Customer refunds can take time, but cardholders aren’t always patient. If a refund isn’t processed as quickly as the customer expects, they may call their bank and accuse you of merchant fraud. Even worse, a buyer may dispute a charge after initiating the refund process, leading to a “double refund.”
Confusing Return Policies
No merchant likes refunds. Trying to discourage returns by enforcing a strict or confusing refund policy will backfire by incentivizing more chargebacks. If the process seems like a hassle, the cardholder will call the bank instead.
Confusing Chargebacks & Refunds
Chargebacks and refunds are separate actions, but few cardholders know the difference. To buyers, chargebacks and refunds are just two different methods of getting the same result.
Is Accidental Friendly Fraud Illegal?
Accidental friendly fraud is a contentious issue because it occupies a legal gray area. Abusing the chargeback process is technically a form of wire fraud. That said, chargeback abuse usually goes unpunished.
Banks are pretty lenient towards cardholders on this issue. They understand that the chargeback process is confusing, so they rarely impose penalties if a cardholder requests a chargeback without a valid reason. It can and has happened, of course, as we saw in the case of the “chargeback Karen” that went viral in Spring 2024. But, punitive action is usually reserved for blatant and repeated chargeback abusers.
In extreme cases, especially where there's a pattern of fraudulent behavior, merchants may decide to take legal action against the cardholder. The merchant may file suit in small claims court to try and recoup the money lost.
Given the fact that the fraud is accidental, many consumers are totally unaware of the potential legal ramifications of their actions. Even then, most merchants don’t necessarily even want cardholders punished; they just want the chargebacks to stop.
Consequences for Cardholders Who Get Caught Committing Friendly Fraud
Even if a buyer isn’t legally penalized for accidental friendly fraud, there are still consequences they may have to deal with, depending on the scale of the incident (or incidents). Buyers may see:
The Impact of Accidental Friendly Fraud
According to Visa, roughly three out of four chargebacks are probably based on invalid claims. Given that chargebacks are going to cost merchants $54.5 billion this year, that puts the cost of accidental friendly fraud at roughly $40.88 billion. That’s not even accounting for additional costs borne by banks and other parties involved in the payment ecosystem.
How many of those claims are filed by accident, though? According to survey data published by Chargebacks911®, the number one reason why cardholders file chargebacks is finding charges on their statements that they don’t recognize. Nearly 18% of cardholders surveyed said this happened “very often,” while nearly 50% said it happened “somewhat often” or “sometimes.”
At the same time, 58% of cardholders in the same survey say they “often” or “sometimes” get confused by merchants’ billing descriptors. So, it stands to reason that many of those charges being disputed are legitimate. The cardholder saw a valid charge, was confused by the billing descriptor and, assuming that it was fraud, called the bank to dispute it.
How to Prevent Accidental Friendly Fraud
You should be picking up on a recurring theme by now. Accidental friendly fraud is something that happens after the transaction had already been approved and processed.
Fraud filters and detection techniques are almost exclusively designed to identify and block situations where a card is being used suspiciously. Friendly fraud is a post-transaction threat, though. There’s no way to know if a given purchase will be disputed later.
The best way to approach accidental friendly fraud prevention is to implement a multi-level fraud management strategy that can help to lower your risk of fraud overall. This would include:
- Communicating with customers throughout the order process
- Simplifying and clarifying billing descriptors
- Notifying subscribers before charging for recurring payments
- Using tracking/signed delivery confirmation on larger orders
- Granting refunds and cancellations as soon as requested
Preemptive measures can't stop all friendly fraud. However, it can cut the problem down significantly.
Learn more about friendly fraud preventionLook to The Experts for Help
Accidental friendly fraud doesn’t happen in a vacuum. Everything from misinformed cardholders to missteps in your own policies and procedures can trigger unintentional chargebacks.
To protect your revenue, you need an end-to-end risk management strategy for both preventing and fighting unwarranted disputes. That’s too big an undertaking for most in-house fraud-fighting teams, though.
If you’re starting to take chargebacks personally, it may be time to consider professional assistance.
Chargebacks911® delivers the most comprehensive, customized solutions available, as well as the only performance-based ROI guarantee in the industry. Contact us today to learn more.
FAQs
Can you get in trouble for accidental friendly fraud?
Yes, you can get in trouble for accidental friendly fraud. Even if unintentional, these disputes can lead to penalties from credit card networks and damage to your relationship with your payment processor.
What is an example of friendly fraud?
An example of friendly fraud is when a customer makes an online purchase, receives the item, and then contacts their credit card issuer to dispute the charge, falsely claiming they never received it. This type of fraud is often unintentional, arising from misunderstandings or forgetfulness, but it can still lead to significant financial losses for the merchant.
How to tackle friendly fraud?
To tackle friendly fraud, merchants should focus on clearly communicating purchase details and transaction descriptors to customers, thereby reducing misunderstandings that lead to disputes. Additionally, using sophisticated fraud detection and prevention tools can help identify and mitigate potentially fraudulent activities before they escalate.
What happens if you accidentally report fraud?
If you accidentally report fraud, your account may be flagged by the credit card network, leading to potential penalties and a damaged relationship with your payment processor. It's crucial to communicate with your bank or issuer promptly to resolve the misunderstanding and prevent further repercussions.
What happens if I accidentally dispute a charge?
Accidentally disputing a charge can result in your account being flagged by the credit card network, leading to potential penalties. It's essential to promptly communicate with your bank or issuer to resolve the misunderstanding and avoid further repercussions.
