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What is friendly fraud?

What is friendly fraud?

What is friendly fraud?

What is friendly fraud?

Friendly fraud can cause financial loss, admin headaches, and reputational risk. Explore different types of friendly fraud and how to prevent chargebacks.

Friendly fraud can cause financial loss, admin headaches, and reputational risk. Explore different types of friendly fraud and how to prevent chargebacks.

Trust-and-security

Trust-and-security

Trust-and-security

Sep 18, 2024

The term friendly fraud feels like a contradiction. How can a term with the word ‘friendly’ in it cause such a headache for businesses? In fact, despite its name, friendly fraud accounts for as much as 70% of global credit card fraud.

Friendly fraud is when a consumer makes a purchase using their credit card and then disputes the charge, claiming they didn’t make the payment or never received the product. 

Often, this type of fraud isn’t committed maliciously but is caused by other reasons: misunderstandings, forgetfulness, dissatisfaction with a purchase, or even someone – such as a family member – using a card without the owner’s knowledge.

But, friendly fraud can cause massive problems for businesses: financial loss, admin headaches, stock issues. Even reputational risk. So, it’s imperative that you know how it happens – and how to prevent it. 

That’s what this article explores. It covers types of friendly fraud, the consequences, how you can deal with it, and how to avoid it.

The term friendly fraud feels like a contradiction. How can a term with the word ‘friendly’ in it cause such a headache for businesses? In fact, despite its name, friendly fraud accounts for as much as 70% of global credit card fraud.

Friendly fraud is when a consumer makes a purchase using their credit card and then disputes the charge, claiming they didn’t make the payment or never received the product. 

Often, this type of fraud isn’t committed maliciously but is caused by other reasons: misunderstandings, forgetfulness, dissatisfaction with a purchase, or even someone – such as a family member – using a card without the owner’s knowledge.

But, friendly fraud can cause massive problems for businesses: financial loss, admin headaches, stock issues. Even reputational risk. So, it’s imperative that you know how it happens – and how to prevent it. 

That’s what this article explores. It covers types of friendly fraud, the consequences, how you can deal with it, and how to avoid it.

The term friendly fraud feels like a contradiction. How can a term with the word ‘friendly’ in it cause such a headache for businesses? In fact, despite its name, friendly fraud accounts for as much as 70% of global credit card fraud.

Friendly fraud is when a consumer makes a purchase using their credit card and then disputes the charge, claiming they didn’t make the payment or never received the product. 

Often, this type of fraud isn’t committed maliciously but is caused by other reasons: misunderstandings, forgetfulness, dissatisfaction with a purchase, or even someone – such as a family member – using a card without the owner’s knowledge.

But, friendly fraud can cause massive problems for businesses: financial loss, admin headaches, stock issues. Even reputational risk. So, it’s imperative that you know how it happens – and how to prevent it. 

That’s what this article explores. It covers types of friendly fraud, the consequences, how you can deal with it, and how to avoid it.

The term friendly fraud feels like a contradiction. How can a term with the word ‘friendly’ in it cause such a headache for businesses? In fact, despite its name, friendly fraud accounts for as much as 70% of global credit card fraud.

Friendly fraud is when a consumer makes a purchase using their credit card and then disputes the charge, claiming they didn’t make the payment or never received the product. 

Often, this type of fraud isn’t committed maliciously but is caused by other reasons: misunderstandings, forgetfulness, dissatisfaction with a purchase, or even someone – such as a family member – using a card without the owner’s knowledge.

But, friendly fraud can cause massive problems for businesses: financial loss, admin headaches, stock issues. Even reputational risk. So, it’s imperative that you know how it happens – and how to prevent it. 

That’s what this article explores. It covers types of friendly fraud, the consequences, how you can deal with it, and how to avoid it.

Intentional vs unintentional friendly fraud

What makes friendly fraud complex is that it’s not always intentional. Sometimes consumers simply don’t recognise a purchase. One common example is a subscription they signed up for and forgot about. Another is when a family member buys something and the cardholder doesn’t recognise the purchase and initiates the chargeback process, even though the purchase was made honestly. This is known as family fraud.

On the other hand, consumers who intentionally commit friendly fraud are usually doing it for personal gain. This could be because of buyer remorse when buying a high-price item or committing refund abuse – when a consumer exploits a return or refund policy for personal gain. It can also be because they feel dissatisfied with the quality of the product or service they bought and initiate a chargeback instead of contacting the business directly to solve the matter.

What makes friendly fraud complex is that it’s not always intentional. Sometimes consumers simply don’t recognise a purchase. One common example is a subscription they signed up for and forgot about. Another is when a family member buys something and the cardholder doesn’t recognise the purchase and initiates the chargeback process, even though the purchase was made honestly. This is known as family fraud.

On the other hand, consumers who intentionally commit friendly fraud are usually doing it for personal gain. This could be because of buyer remorse when buying a high-price item or committing refund abuse – when a consumer exploits a return or refund policy for personal gain. It can also be because they feel dissatisfied with the quality of the product or service they bought and initiate a chargeback instead of contacting the business directly to solve the matter.

What makes friendly fraud complex is that it’s not always intentional. Sometimes consumers simply don’t recognise a purchase. One common example is a subscription they signed up for and forgot about. Another is when a family member buys something and the cardholder doesn’t recognise the purchase and initiates the chargeback process, even though the purchase was made honestly. This is known as family fraud.

On the other hand, consumers who intentionally commit friendly fraud are usually doing it for personal gain. This could be because of buyer remorse when buying a high-price item or committing refund abuse – when a consumer exploits a return or refund policy for personal gain. It can also be because they feel dissatisfied with the quality of the product or service they bought and initiate a chargeback instead of contacting the business directly to solve the matter.

What makes friendly fraud complex is that it’s not always intentional. Sometimes consumers simply don’t recognise a purchase. One common example is a subscription they signed up for and forgot about. Another is when a family member buys something and the cardholder doesn’t recognise the purchase and initiates the chargeback process, even though the purchase was made honestly. This is known as family fraud.

On the other hand, consumers who intentionally commit friendly fraud are usually doing it for personal gain. This could be because of buyer remorse when buying a high-price item or committing refund abuse – when a consumer exploits a return or refund policy for personal gain. It can also be because they feel dissatisfied with the quality of the product or service they bought and initiate a chargeback instead of contacting the business directly to solve the matter.

Types of friendly fraud

There are many reasons why consumers commit friendly fraud. These are the two most common types:

Chargeback fraud

Chargeback fraud is when a consumer disputes a legitimate transaction, falsely claiming they didn’t authorise it. The intent here is to secure a refund while retaining the product or service received. This is extremely costly for businesses, as they lose the value of the product and receive a chargeback fee from their payment provider. 

Refund abuse

Refund abuse fraud happens when a consumer returns a product to an online store or retailer claiming they’re unhappy with it or it’s damaged, even though it’s completely fine, or they have tampered with it. 

Another popular type of refund abuse is when a consumer buys clothing for an occasion, wears it once, and then sends it back to the retailer. Customers that abuse refund policies sometimes get to keep the product or get a new one sent to them.

There are many reasons why consumers commit friendly fraud. These are the two most common types:

Chargeback fraud

Chargeback fraud is when a consumer disputes a legitimate transaction, falsely claiming they didn’t authorise it. The intent here is to secure a refund while retaining the product or service received. This is extremely costly for businesses, as they lose the value of the product and receive a chargeback fee from their payment provider. 

Refund abuse

Refund abuse fraud happens when a consumer returns a product to an online store or retailer claiming they’re unhappy with it or it’s damaged, even though it’s completely fine, or they have tampered with it. 

Another popular type of refund abuse is when a consumer buys clothing for an occasion, wears it once, and then sends it back to the retailer. Customers that abuse refund policies sometimes get to keep the product or get a new one sent to them.

There are many reasons why consumers commit friendly fraud. These are the two most common types:

Chargeback fraud

Chargeback fraud is when a consumer disputes a legitimate transaction, falsely claiming they didn’t authorise it. The intent here is to secure a refund while retaining the product or service received. This is extremely costly for businesses, as they lose the value of the product and receive a chargeback fee from their payment provider. 

Refund abuse

Refund abuse fraud happens when a consumer returns a product to an online store or retailer claiming they’re unhappy with it or it’s damaged, even though it’s completely fine, or they have tampered with it. 

Another popular type of refund abuse is when a consumer buys clothing for an occasion, wears it once, and then sends it back to the retailer. Customers that abuse refund policies sometimes get to keep the product or get a new one sent to them.

There are many reasons why consumers commit friendly fraud. These are the two most common types:

Chargeback fraud

Chargeback fraud is when a consumer disputes a legitimate transaction, falsely claiming they didn’t authorise it. The intent here is to secure a refund while retaining the product or service received. This is extremely costly for businesses, as they lose the value of the product and receive a chargeback fee from their payment provider. 

Refund abuse

Refund abuse fraud happens when a consumer returns a product to an online store or retailer claiming they’re unhappy with it or it’s damaged, even though it’s completely fine, or they have tampered with it. 

Another popular type of refund abuse is when a consumer buys clothing for an occasion, wears it once, and then sends it back to the retailer. Customers that abuse refund policies sometimes get to keep the product or get a new one sent to them.

Friendly fraud consequences

The consequences of friendly fraud can be severe. They include:

  • Revenue loss: Each fraudulent chargeback results in the loss of the sale amount, along with the cost of goods sold.

  • Increased costs: Businesses must allocate resources to handle disputes and chargebacks, increasing labour costs and administrative expenses.

  • Higher chargeback ratios: A high rate of filed chargebacks can lead to increased processing fees, as well as potentially losing the ability to process credit card payments altogether.

  • Reputational damage: Frequent disputes and chargebacks can damage a business's reputation with both payment processors and customers.

The consequences of friendly fraud can be severe. They include:

  • Revenue loss: Each fraudulent chargeback results in the loss of the sale amount, along with the cost of goods sold.

  • Increased costs: Businesses must allocate resources to handle disputes and chargebacks, increasing labour costs and administrative expenses.

  • Higher chargeback ratios: A high rate of filed chargebacks can lead to increased processing fees, as well as potentially losing the ability to process credit card payments altogether.

  • Reputational damage: Frequent disputes and chargebacks can damage a business's reputation with both payment processors and customers.

The consequences of friendly fraud can be severe. They include:

  • Revenue loss: Each fraudulent chargeback results in the loss of the sale amount, along with the cost of goods sold.

  • Increased costs: Businesses must allocate resources to handle disputes and chargebacks, increasing labour costs and administrative expenses.

  • Higher chargeback ratios: A high rate of filed chargebacks can lead to increased processing fees, as well as potentially losing the ability to process credit card payments altogether.

  • Reputational damage: Frequent disputes and chargebacks can damage a business's reputation with both payment processors and customers.

The consequences of friendly fraud can be severe. They include:

  • Revenue loss: Each fraudulent chargeback results in the loss of the sale amount, along with the cost of goods sold.

  • Increased costs: Businesses must allocate resources to handle disputes and chargebacks, increasing labour costs and administrative expenses.

  • Higher chargeback ratios: A high rate of filed chargebacks can lead to increased processing fees, as well as potentially losing the ability to process credit card payments altogether.

  • Reputational damage: Frequent disputes and chargebacks can damage a business's reputation with both payment processors and customers.

Friendly fraud prevention

Businesses can use several strategies to prevent friendly fraud. These include: 

  • Clear communication: Ensure that transaction details are clearly communicated to customers, including billing descriptions that match the business name.

  • Detailed documentation: Maintain thorough records of transactions, deliveries, and communications to provide evidence in the event of a dispute.

  • Customer education: Educate customers about the refund and dispute processes to reduce misunderstandings.

  • Fraud detection tools: Use advanced fraud detection and prevention tools to identify and block suspicious activities.

When it comes to reducing friendly fraud, Mollie Product Manager Cal Callinan recommends a combination of both cautionary and preventative methods.

“Cautionary methods help you create evidence for disputes, as they help you prove that the payer was the cardholder,” Cal explains. “Always collect and save delivery information, and for high-value orders consider validating the order with a recorded phone call or email before shipping. And use recorded delivery. By doing all this, you’ll have a wealth of evidence to show in case of a disputed transaction.

“For prevention, we advise businesses to use our advanced anti-fraud tooling. This allows them to customise rules and initiate block lists, based on all available customer data points. That means Mollie users can identify customers and, in the case of a known fraudster returning to their site, stop them from making further transactions.”

Businesses can use several strategies to prevent friendly fraud. These include: 

  • Clear communication: Ensure that transaction details are clearly communicated to customers, including billing descriptions that match the business name.

  • Detailed documentation: Maintain thorough records of transactions, deliveries, and communications to provide evidence in the event of a dispute.

  • Customer education: Educate customers about the refund and dispute processes to reduce misunderstandings.

  • Fraud detection tools: Use advanced fraud detection and prevention tools to identify and block suspicious activities.

When it comes to reducing friendly fraud, Mollie Product Manager Cal Callinan recommends a combination of both cautionary and preventative methods.

“Cautionary methods help you create evidence for disputes, as they help you prove that the payer was the cardholder,” Cal explains. “Always collect and save delivery information, and for high-value orders consider validating the order with a recorded phone call or email before shipping. And use recorded delivery. By doing all this, you’ll have a wealth of evidence to show in case of a disputed transaction.

“For prevention, we advise businesses to use our advanced anti-fraud tooling. This allows them to customise rules and initiate block lists, based on all available customer data points. That means Mollie users can identify customers and, in the case of a known fraudster returning to their site, stop them from making further transactions.”

Businesses can use several strategies to prevent friendly fraud. These include: 

  • Clear communication: Ensure that transaction details are clearly communicated to customers, including billing descriptions that match the business name.

  • Detailed documentation: Maintain thorough records of transactions, deliveries, and communications to provide evidence in the event of a dispute.

  • Customer education: Educate customers about the refund and dispute processes to reduce misunderstandings.

  • Fraud detection tools: Use advanced fraud detection and prevention tools to identify and block suspicious activities.

When it comes to reducing friendly fraud, Mollie Product Manager Cal Callinan recommends a combination of both cautionary and preventative methods.

“Cautionary methods help you create evidence for disputes, as they help you prove that the payer was the cardholder,” Cal explains. “Always collect and save delivery information, and for high-value orders consider validating the order with a recorded phone call or email before shipping. And use recorded delivery. By doing all this, you’ll have a wealth of evidence to show in case of a disputed transaction.

“For prevention, we advise businesses to use our advanced anti-fraud tooling. This allows them to customise rules and initiate block lists, based on all available customer data points. That means Mollie users can identify customers and, in the case of a known fraudster returning to their site, stop them from making further transactions.”

Businesses can use several strategies to prevent friendly fraud. These include: 

  • Clear communication: Ensure that transaction details are clearly communicated to customers, including billing descriptions that match the business name.

  • Detailed documentation: Maintain thorough records of transactions, deliveries, and communications to provide evidence in the event of a dispute.

  • Customer education: Educate customers about the refund and dispute processes to reduce misunderstandings.

  • Fraud detection tools: Use advanced fraud detection and prevention tools to identify and block suspicious activities.

When it comes to reducing friendly fraud, Mollie Product Manager Cal Callinan recommends a combination of both cautionary and preventative methods.

“Cautionary methods help you create evidence for disputes, as they help you prove that the payer was the cardholder,” Cal explains. “Always collect and save delivery information, and for high-value orders consider validating the order with a recorded phone call or email before shipping. And use recorded delivery. By doing all this, you’ll have a wealth of evidence to show in case of a disputed transaction.

“For prevention, we advise businesses to use our advanced anti-fraud tooling. This allows them to customise rules and initiate block lists, based on all available customer data points. That means Mollie users can identify customers and, in the case of a known fraudster returning to their site, stop them from making further transactions.”

How to avoid chargebacks and fraud with Mollie

The most effective way to fight fraud is to use fraud detection systems that help you manage and avoid chargebacks before they occur. At Mollie, we provide a range of advanced tools to help you do this:

  • Fraud management: identify and stop fraudulent transactions, reducing chargebacks and other forms of fraud.

  • Advanced fraud detection: Use machine-learning to identify fraudulent transactions before they occur.

  • Comprehensive reporting: Gain insights into your transaction data with detailed reporting, helping you identify and address fraud patterns.

  • Block fraudsters: Create custom block lists to stop scammers from targeting your business. 

  • Security: Protect your business with Dynamic 3DS, intelligent fraud screening, and configurable risk controls. 

Discover how Acceptance & Risk helps you stop fraud and optimise conversion.

The most effective way to fight fraud is to use fraud detection systems that help you manage and avoid chargebacks before they occur. At Mollie, we provide a range of advanced tools to help you do this:

  • Fraud management: identify and stop fraudulent transactions, reducing chargebacks and other forms of fraud.

  • Advanced fraud detection: Use machine-learning to identify fraudulent transactions before they occur.

  • Comprehensive reporting: Gain insights into your transaction data with detailed reporting, helping you identify and address fraud patterns.

  • Block fraudsters: Create custom block lists to stop scammers from targeting your business. 

  • Security: Protect your business with Dynamic 3DS, intelligent fraud screening, and configurable risk controls. 

Discover how Acceptance & Risk helps you stop fraud and optimise conversion.

The most effective way to fight fraud is to use fraud detection systems that help you manage and avoid chargebacks before they occur. At Mollie, we provide a range of advanced tools to help you do this:

  • Fraud management: identify and stop fraudulent transactions, reducing chargebacks and other forms of fraud.

  • Advanced fraud detection: Use machine-learning to identify fraudulent transactions before they occur.

  • Comprehensive reporting: Gain insights into your transaction data with detailed reporting, helping you identify and address fraud patterns.

  • Block fraudsters: Create custom block lists to stop scammers from targeting your business. 

  • Security: Protect your business with Dynamic 3DS, intelligent fraud screening, and configurable risk controls. 

Discover how Acceptance & Risk helps you stop fraud and optimise conversion.

The most effective way to fight fraud is to use fraud detection systems that help you manage and avoid chargebacks before they occur. At Mollie, we provide a range of advanced tools to help you do this:

  • Fraud management: identify and stop fraudulent transactions, reducing chargebacks and other forms of fraud.

  • Advanced fraud detection: Use machine-learning to identify fraudulent transactions before they occur.

  • Comprehensive reporting: Gain insights into your transaction data with detailed reporting, helping you identify and address fraud patterns.

  • Block fraudsters: Create custom block lists to stop scammers from targeting your business. 

  • Security: Protect your business with Dynamic 3DS, intelligent fraud screening, and configurable risk controls. 

Discover how Acceptance & Risk helps you stop fraud and optimise conversion.

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Table of contents

Table of contents

Table of contents

Intentional vs unintentional friendly fraud

Types of friendly fraud

Friendly fraud consequences

Friendly fraud prevention

How to avoid chargebacks and fraud with Mollie

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MollieGrowthWhat is friendly fraud?
MollieGrowthWhat is friendly fraud?