The FBI listed “friendly fraud” as one of the top threats to card-not-present commerce. The credit card industry estimates that, in 2013, friendly fraud accounted for more than $40 billion in losses. As consumers continue to increase spending over the phone and Internet, the problem continues to rise. From 2011 – 2014, friendly fraud grew by more than 40%.
What is Friendly Fraud?
Friendly fraud is what happens when a consumer makes a purchase, where nobody saw them in person (by phone or online) and received the merchandise or service, and then got a refund from the bank. The refund comes because of a chargeback, 86% of which are fraudulent.
This is a sensitive issue for retailers. While they want to live by the mantra of “the customer is always right”, more and more they realize that many customers are simply stealing from them – not so different from shoplifters. The chargeback process was put in place to protect consumers and to streamline returns when consumers file a complaint about a bad transaction. The pendulum has swung far to the advantage of the consumer, where the merchant is assumed guilty until proven innocent. They are not afforded the opportunity to prove that the consumer willingly purchased something that they indeed received. Instead, the money is returned to the consumer, the merchant is charged a non-reversible fee, and they likely won’t regain the product back in their possession. The consumer is out nothing.
Since the steps for investigating a chargeback are tedious and labor-intensive, most merchants don’t bother with them, especially for lower-cost items. And with the growth of card-not-present purchases, there isn’t all the time to do the due diligence. All this makes friendly fraud easy to pull off. Incredibly, consumers often commit this crime without malicious intent. They simply believe that it’s a faster resolution to go the chargeback route. They don’t understand that contacting their bank instead of the merchant for a refund is not the same thing. Nor do they understand the negative consequences for the merchant.