Friendly fraud happens when a shopper makes a legitimate purchase but later requests a chargeback that isn’t warranted or is founded on invalid claims. The term was derived from the notion of friendly fire—an attack from a supposed ally.
Friendly fraud is more formally referred to as first-party fraud and differs from third-party fraud resulting from criminals using stolen cardholder information. However, the result of all fraud cases is the same–the merchant unfairly sacrifices revenue.
Cardholders usually commit friendly fraud for one of five reasons:
- The cardholder views a chargeback as a more convenient alternative to a refund request made with the merchant.
- The cardholder doesn’t recognize a purchase or has forgotten about the purchase and files a chargeback as an accident or misunderstanding.
- The cardholder is looking for a workaround because the refund time limit has expired or the merchandise was non-refundable.
- The cardholder requests a chargeback as an intentional act to get something for free.
- A family member authorized a purchase (often without the cardholder’s knowledge or consent), but the cardholder doesn’t feel obligated to pay. This is sometimes referred to as family fraud.
The way cardholders go about requesting their illegitimate chargebacks varies. Examples might include:
- Alleging merchandise wasn’t delivered when it actually was
- Saying an authorized transaction was unauthorized
- Claiming the merchant didn’t cancel an order as requested, but the cancellation request was never actually made
Fighting Friendly Fraud
Merchants have the right to submit a chargeback response if the dispute is friendly fraud. This allows the merchant to prove the validity of the original transaction, expose the fraudulent behavior, and recover revenue the chargeback revoked.
If merchants are able to supply the required compelling evidence in the given timeframe, the issuer will review the case and reassess the initial chargeback decision. Successful chargeback responses will overturn the friendly fraud, withdrawing funds from the cardholder’s account once again and returning them to the merchant.
Manual vs. Automated Responses to Friendly Fraud
If the chargeback is a case of friendly fraud, there are two ways to create and submit a response: manually or automatically.
Because manually creating and submitting responses is a labor-intensive, time-consuming, error-prone process, many merchants don’t bother. They simply accept the friendly fraud and sacrifice the revenue.
However, automation offers a valuable alternative to manual processes. It empowers merchants to recover revenue that has been unfairly lost in an efficient, cost-effective way.
If merchants work with Midigator, the entire chargeback response process can be automated. Midigator has the best success (highest win rates) of any other solution when it comes to fighting friendly fraud.