Fraud & compliance

Chargebacks 101: What is friendly fraud?

For merchants like you, friendly fraud is anything but friendly. In fact, it can have a detrimental effect on your bottom line. Unfortunately, cases of friendly fraud have been increasing in recent years with the rise of ecommerce.  

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So, if you own an online store, it pays to understand friendly fraud, its negative effects on your business, common causes, and how to dispute these claims. 

What is friendly fraud? 

It occurs when a customer is dissatisfied with your product or service and thus requests a chargeback from their card-issuing bank rather than a refund from you. It’s called “friendly” fraud because, on the surface, the chargeback request seems honest. In reality, it’s anything but honest. 

Why is this so bad?  

If you offer a refund, you only lose out on the sale. But when a customer requests a chargeback, you not only lose out on the sale but also the merchandise.  

You then have to pay chargeback fees.  

You have to invest in overhead expenses to dispute the chargeback.  

And you risk being deemed a high-risk merchant, which comes with stringent rules, rolling  reserves, and higher fees (or a loss of payment processing privileges altogether). 

It’s no surprise merchants hate friendly fraud.  

Common types of friendly fraud 

A customer should only request a chargeback from their card-issuing bank if their credit card was stolen and fraudulent purchases were made. The chargeback process protects them from having to pay for the thief’s purchases.  

Friendly fraud, on the other hand, doesn’t occur because of true fraud. It occurs for reasons like this: 

  • The customer claims the quality of the product purchased wasn’t as expected. 
  • The customer says their online purchase was never delivered. 
  • The customer says a refund wasn’t processed for a returned item. 
  • The customer says they cancelled an order but were still charged. 
  • The customer says they didn’t make a purchase when in reality they just forgot they did so.  

Hostile or benign 

Friendly fraud can be hostile or benign.  

A customer who requests a chargeback because they don’t want to go through a long refund process is committing hostile friendly fraud. They know they shouldn’t be filing a chargeback, but they do so anyway 

Benign friendly fraud occurs mistakenly, such as a parent claiming a fraudulent charge was made on their credit card because they don’t recognize the charge when in reality their child was the one who made the purchase. 

While some of these chargeback claims might be honest and valid, some customers may just use these claims as excuses to keep the merchandise and get their money back.  

How to dispute cases of friendly fraud  

You can’t completely reduce credit card fraud online and in store. But when your business receives a chargeback, you do have the opportunity to dispute it. If you have the proof required to prove that a chargeback claim is a case of friendly fraud, you can get the chargeback thrown out, so you get your money back for the transaction. 

Here are some tips to help you successfully dispute such claims: 

  • Have an efficient tracking and shipping system in place for online orders, so you can easily verify whether a customer received an order. 
  • Have a clear refund policy stated on your website to dispute these types of claims. 
  • Create an organized paper trail, so you can easily find past invoices, delivery notices, and other key documentation that will help you win your case. 
  • Add an online account order history that shows all transactions customers make.  
  • Collect as much customer data as you can and store it safely. 

Friendly fraud is on the rise. Take the right steps to prevent it and fight back. 


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Ben Smith

Ben brings 20 years of experience to his role as IT Director for BNA Smart Payment Systems. Among his many directorial duties, he is responsible for the selection, acquisition, development, installation, maintenance, and support of IT infrastructure. Ben also establishes and leads a cross-functional architectural committee, acts as a technical expert and a critical technical resource across multiple disciplines, and consults on all system implementation, modification and integration activities. He graduated with Honours from Durham Collage in Computer Programming, and takes yearly training courses for security and development technologies to remain up-to-date. Outside of work, he loves playing hockey and skating with his family, and also enjoys gardening and cooking.

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