Friendly Fraud Chargeback Management

Despite the dozens of reason codes you may encounter, a fundamental fact about chargebacks is that they all fit into one of three categories: true fraud, merchant error, and friendly fraud. To fight and prevent chargebacks, you have to know what kind you’re dealing with.

While managing true fraud and merchant error chargebacks can be challenging, the approach is straightforward: deploy stronger anti-fraud protections and fix the operational errors that are causing disputes. Friendly fraud chargebacks, on the other hand, must be analyzed and managed on an individual level. What are the best practices for chargeback management where friendly fraud is concerned?

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The past year has been a busy one for ecommerce, and while that means more revenue for merchants, it also means more fraud and chargebacks. Opportunistic fraudsters will ramp up their attacks when online shopping is booming, knowing that the high traffic volume gives cover to their activities and leaves merchants with less time to detect them.

At the same time, spikes in demand can leave merchants short-handed and more likely to make errors. And then there’s friendly fraud, coming from both customers and fraudsters alike, each chargeback masquerading as a legitimate dispute.

Valid true fraud and merchant error chargebacks can’t be fought—the merchant has to accept responsibility for them and work harder at proactive prevention.

Friendly fraud chargebacks are, by definition, based on false or invalid claims, and merchants should always fight them through the representment process.

Because each friendly fraud chargeback requires an individual response, and can appear on the surface to be true fraud or merchant error chargebacks, combating friendly fraud is one of the more resource-intensive aspects of chargeback management.

What are Friendly Fraud Chargebacks?

A friendly fraud chargeback is any chargeback that is based on false or incorrect claims.

Friendly fraud chargebacks break down into their own three subcategories:

Intentional friendly fraud, also known as chargeback fraud or “cyber-shoplifting,” is perpetrated by fraudsters who are deliberately lying to their banks to get a chargeback and obtain goods for free. For example, a fraudster might order a product, and once it arrives, falsely claim that they never received it.

Unintentional friendly fraud is the kind that’s actually friendly—sort of. These chargebacks come from actual customers who are confused or forgetful about a transaction they made, and are making an honest mistake when they dispute it.

A good example would be when a merchant uses a merchant identifier that doesn’t tie back to their store or brand name. When the cardholder sees the charge on their statement, they don’t recognize it, so they assume it’s fraud and dispute it.

In the gray area between these two categories is a third, in which customers feel morally entitled to get their money back and are using the chargeback process to do so even though they don’t actually have a valid claim.

A cardholder who disputes an in-app purchase made by their unsupervised child would fall under this category, as would a cardholder who misses an event and tries to get a chargeback for their non-refundable ticket.

How Should Merchants Manage Friendly Fraud Chargebacks?

Manage Chargeback In-House Or OutshoreWhichever subcategory they fall under, the common denominator of friendly fraud chargebacks is that they are illegitimate and therefore can be fought and reversed through the process of chargeback representment.

This is when the merchant represents the disputed charge, along with evidence that proves the cardholder’s claims are baseless. If the issuing bank agrees with the merchant’s argument and evidence, the chargeback will be reversed and the merchant gets their money back.

Before you can fight a chargeback, the first thing to do is determine whether or not it’s really friendly fraud.

Every friendly fraud chargeback will come bearing a reason code that specifies the nature of the cardholder’s claim. Once you know the reason code, you can investigate the transaction to determine whether or not the cardholder is telling the truth. If the documented facts don’t support their claim, the chargeback may well be friendly fraud.

Oftentimes, the reason code will also provide insights into what kind of evidence is required for chargeback representment. If the cardholder is claiming that they never received their order, for example, you would want to submit proof of delivery with your representment.

To provide the optimal responses and the most relevant evidence, it’s important to be knowledgeable about current card network regulations as well as the specific policies of your payment processor.

Representment can be very effective at defeating friendly fraud, but it takes a lot of time and labor. You have to research every chargeback, review information about the reason code, compile the right evidence, submit the represented charge on time, and monitor the outcomes so you can adjust your strategy as needed.

How Can Merchants Prevent Friendly Fraud Chargebacks?

Preventing friendly fraud is difficult because it can come from so many different sources, but there are some things you can do.

Unintentional friendly fraud can be avoided by providing customers with detailed and easily accessible information about their purchase. Using recognizable merchant descriptors and providing order confirmation and updates via email can be a good start.

That third, ambiguous category of friendly fraud can often be mitigated through the efforts of your customer service department. Be reachable 24/7, really listen to the problems your customers are having, and work with them to find a solution that leaves them satisfied. Remember that it’s always cheaper to offer a refund than endure a chargeback.

The hardest friendly fraudsters to stop are the ones who are doing it on purpose. They’ll usually behave like good, normal customers right up to the point where they file their dispute. The best thing you can do when you suspect a customer of engaging in intentional friendly fraud is block them from making any future purchases.


Dealing with friendly fraud is one aspect of chargeback management that can’t be automated. Investigating chargebacks that may be illegitimate and coming up with an appropriate response requires human intelligence and effort. It’s not optional, either—if you take a passive attitude towards friendly fraud, you can expect to be victimized by it again and again.

It helps a lot to have a team dedicated to chargeback management, but when staffing is already stretched thin, it’s not easy to do this in a cost-effective way. Outsourcing chargeback management can be a viable solution. With the right experts on your side, you can develop and execute a chargeback management strategy that fits your budget and provides a positive ROI.

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