Beat Chargeback Fraud aka Friendly Fraud - 7 Tips
Table of Contents
- How to Prevent Friendly Fraud
- Fighting Friendly Fraud Chargebacks
- When Outsourcing Makes Sense
- What Happens if You Lie About a Chargeback?
Fraudulent chargebacks are on the rise, and they present a growing problem that eCommerce merchants cannot ignore. Merchants and banks lost a combined total of $31 billion dollars due to chargebacks in 2017, and that only represents the actual transaction amounts. When you factor in the time, labor, and money spent in dealing with chargebacks, their actual cost is much higher. Some chargebacks have a legitimate basis and can't be avoided, but friendly fraud chargebacks can and should be vigorously disputed.
"Friendly fraud" refers to chargebacks that arise out of legitimate transactions. When a customer doesn't recognize the charge on their bank statement, or when they later come to regret the transaction, they may contact their bank to have the charge reversed without going through the merchant first to inquire about the charge or ask for a refund. The "fraud" part may or may not be intentional, but the chargeback process is being misused by the consumer.
Banks must shoulder some of the responsibility for friendly fraud growing to become such a problem over the last few years. In trying to keep their customers happy, they have eliminated fees and minimum required payments associated with chargeback requests, and do not critically investigate the reasons customers request them.
By making it so easy to ask for a chargeback, banks have encouraged customers to use it as their go-to response to an unfamiliar or regretted purchase.
These changes may increase customer satisfaction for banks, but they make for a serious headache for merchants. As it's become more common knowledge how easy it is for a customer to file a chargeback and get a refund, many unscrupulous customers have started taking advantage of the system.
How to Prevent Friendly Fraud
Friendly fraud can be difficult to prevent because any valid transaction can potentially lead to it. Typical security measures, like AVS and CVV matching, won't prevent it at all. Even a longtime, faithful customer can perpetrate friendly fraud.
However, there are concrete steps you can take to reduce the likelihood of it occurring. Here are seven tips we have found to be effective at combating friendly fraud.
Make sure your descriptors are easy for customers to identify. Many chargebacks occur because customers don't recognize the charge on their bank statement. Make sure your business or store name is part of the descriptor so that customers can easily identify the origin of the charge.
Set realistic expectations about your products and/or services. A deeply dissatisfied customer who feels misled or deceived may feel like it's pointless to go back to you to resolve their issue. Don't make promises that your products can't keep.
Maintain honest and ethical business practices. Fraud is a two-way street—you can't expect your customers to treat you ethically if you're trying to take advantage of them.
Offer friendly, 24/7 customer service. A customer who can't get ahold of you to deal with a problem they're having is likely to lose patience and turn to their bank instead. If your customer service staff is easy to reach and trained to provide comprehensive, friendly assistance in resolving customer complaints, these problems are less likely to turn into chargebacks.
Blacklist customers who file chargebacks. It is estimated that customers who file a dispute are known to take advantage of the merchant again at least 2 – 3 times if merchants do not take any preventive measures. Blacklisting the negative customers will prohibit the abusers from taking advantage of your business again. You have to weigh the cost of losing future sales from customers like these against the risk of getting more chargebacks from them.
Fulfill orders on time and track return shipments. Shipping delays happen, but customers who think their order is never going to arrive have a high likelihood of requesting a chargeback. Ship promptly, track all packages coming and going, and issue refunds immediately upon receipt of a return.
Notify customers when you process their order, and before and after processing recurring payments. Any time there's a delay between an order being placed and a card being charged, it's a good idea to send a reminder to the customer about what they're being charged for. This is especially true with recurring payments for subscriptions and the like—customers have a tendency to develop amnesia about signing up for these billings.
Fighting Friendly Fraud Chargebacks
When friendly fraud chargebacks make it through your best prevention efforts, you should fight them through the chargeback representment process.
Representment requires you to gather evidence proving that the transaction was legitimate and the product or service paid for was delivered, refuting whatever false claims the customer has made.
Of course, in order to submit this information, you'll need to be gathering it for all your transactions. That's why it's crucial to implement anti-fraud tools to verify each customer's identity as best you can, and keep those records on hand for 180 days at the bare minimum. Similar records should be kept of shipping information for products, customer activity information for online services, and anything else that can help verify that the customer did in fact get what they paid for.
When Outsourcing Makes Sense
Outsourcing your chargeback management to a company that specializes in such things can be a worthwhile, cost-effective approach for many businesses. These companies can not only help you optimize the tools and practices that will prevent friendly fraud, they can also provide immediate responses to incoming chargebacks, write compelling rebuttal letters, and compile the right kind of evidence that will increase your odds of successfully disputing fraudulent chargebacks.
While there is some standardization across the industry for the chargeback process, there is still some variation in how the process works for different card networks, and there can be different unspoken opinions for what evidence is considered compelling. An experienced representment team will know how best to present your case depending on the individual circumstances and parties involved, and statistics show that professional chargeback management teams are vastly more effective at winning disputes than merchants who handle cases themselves.
Friendly fraud is not going away, so it is imperative that merchants use the best methods at their disposal to stop these chargebacks from costing them their hard-earned revenue. Preventing and fighting friendly fraud chargebacks can be the difference between a business sinking or swimming in hard times, and merchants who are lax with their friendly fraud protection will often find themselves taken advantage of by bad actors.
What Happens if You Lie About a Chargeback?
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