What’s the Distinction Between First, Second, & Third-Party Fraud?Insights From Chargebacks911® Featured by BRC

October 19, 2023 | 2 min read

What’s the Distinction Between First, Second, & Third-Party Fraud?

Chargebacks are commonly tied to fraud. However, as noted in a recent feature for the British Retail Consortium, fraud is not a singular matter.

The British Retail Consortium is a leading trade organization for retailers operating in the UK and European markets. The BRC’s membership comprises over 5,000 businesses delivering £180bn of retail sales and employing over one and a half million employees.

As noted in the piece, fraud can be segmented into three different concepts. Third-party fraud refers to the type of identity theft scams and other criminal activity with which most readers are likely familiar. Second- and third-party fraud are less well-known, but no less threatening.

“Second-party fraud can emanate from error-prone rules at a financial institution that unintentionally trigger fraud notifications, but it can also be defined as a scheme by which a person willingly permits another individual to exploit their personal information or identity to pose as a legitimate user, where the purpose is to scam the merchant,” the piece notes. For instance, a money laundering scheme in which a cardholder is an active participant counts as second-party fraud.

Then, there’s first-party fraud. “In simple terms, a first-party fraud attack denotes any deceptive practice initiated by the customer, rather than by a third-party fraudster (deliberate or accidental).” Misuse of the chargeback process, for example, is a form of first-party fraud.

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