What makes friendly fraud complex is that it’s not always intentional. Sometimes consumers simply don’t recognise a purchase – and during the Black Friday rush, when baskets fill up fast, that risk increases. 

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, and in peak sale periods like Cyber Week, chargebacks can quickly add up to thousands in lost revenue.  

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. With Black Friday and Cyber Week driving a surge in apparel sales, this type of fraud often spikes. 

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 – and during the year’s busiest shopping days, that loss is magnified. 

• 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. And if it happens during the Black Friday period, you risk losing not only revenue but also future loyalty. 

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 – especially important when sales spike during peak shopping weeks. 

• 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.”