Friendly Fraud: It’s A Family Affair
For many people, the word “family” conjures positive associations of home, togetherness, and belonging. In the card-not-present payments sphere, however, “family” brings to mind something a little less warm and fuzzy: fraud and chargebacks.
What we really mean is that many cases of “friendly fraud” arise from family members sharing accounts, storing payment credentials on different devices, and making purchases without the cardholder’s knowledge or permission. Children and teenagers are often the culprits, but not always—spouses may make purchases behind one another’s backs, or forget to inform each other of a purchase that was made.
Then the cardholder gets their bank statement at the end of the month, sees a charge they didn’t approve, and immediately disputes it with their bank. The dispute will often happen whether or not the cardholder realizes who was responsible for making the purchase.
How and Why Family Friendly Fraud Happens
Kids have been stealing their parents’ credit cards and trying to make unauthorized purchases since the days of 1-800 numbers and mail order catalogs, but it took ecommerce to really kick the problem into overdrive. The trend in the industry is to make online payments easier and more seamless, and it’s consumers who are demanding that just as much as merchants. On top of that, the current state of technology has made it easier than ever to store payment information across multiple accounts and devices for ease of use.
This has made life easier for merchants and consumers in many ways, but it also means that unsupervised toddlers, sneaky teenagers, and anyone else with an itch to make a purchase can do so with just a few simple taps on a touchscreen.
The internet is full of enticing things for young people to buy. Some of the most frequent instigators of unauthorized family purchases include streaming video and music, in-app purchases in video games, one-click shopping options on sites like Amazon, and website subscriptions.
The Impact of Friendly Fraud
These interfamilial purchases that result in friendly fraud disputes aren’t just an occasional nuisance. They’re actually responsible for quite a large number of chargebacks and lost revenue. Nearly 75% of all digital purchases are games and music, and it is often younger people driving those transactions, using credit cards that belong to their parents or guardians. Mix stored payment credentials with the most technologically savvy generation of young people ever born and you have a recipe for a vast number of purchases that may or may not have received the blessing of the cardholder.
Issuing banks and merchants seem to have very different perspectives on friendly fraud rates. Issuing banks report that friendly fraud accounts for 17% of the chargebacks they see, while merchants believe the number to be as high as 32%. Why the discrepancy? Cardholders will often present their reasons for disputing a charge in the language they think the bank wants to hear, and the bank doesn’t hear the merchant’s side of the story unless the merchant submits a representment and fights the chargeback.
Additionally, it’s easier than ever to dispute a charge with your bank. Most issuing banks now allow their customers to dispute a charge from within their mobile banking apps. Nearly three quarters of surveyed merchants believe that it’s too easy to dispute credit card charges nowadays, and a slim majority of issuing banks (53%) concurs.
Friendly fraudsters who get away with it very frequently become repeat offenders—as many as 83%, according to some analysts. Some people do so knowing that they’re perpetrating fraud, while others justify it to themselves as simply the way ecommerce works these days. Unfortunately, some parents may find that disputing charges with their bank is easier than maintaining effective parental controls on their devices!
How Merchants Should Respond
For merchants, the factors that lead a person to dispute a charge made by a family member have little bearing on the proper way to respond. Friendly fraud is still fraud, and cardholders who dispute transactions that result from their own carelessness are doing harm to merchants by invoking the chargeback process instead of seeking redress from the merchant involved.
Which is to say, if a customer contacts you to let you know that their child or other family member made a purchase without permission, the right thing to do is reverse the transaction and refund their money. This works to your advantage not only by preventing a chargeback, which would cost you considerably more than a straight-up refund, but it also helps to bolster your reputation as a merchant that cares about their customers and takes a humane approach toward the all-too-common issues many parents and consumers have to deal with.
However, not every customer will give you this chance to make things right. When a transaction is made with all the correct information and authentication checks, it is not the merchant’s obligation to take the chargeback hit on behalf of the customer.
Merchants should fight back against friendly fraud chargebacks by submitting receipts and other documentary evidence showing that the transaction was made in accordance with the rules and requirements of the banks and card networks involved.
After all, for every toddler who accidentally bought random things on their parents’ tablet, there is an adult who gave the “my kid did it” excuse to their bank to dispute a purchase that they knowingly made but later regretted.
Friendly fraud arising from shared accounts and devices is not a problem that is likely to go away anytime soon. Best practices for security and authentication will always take a backseat to expediency and convenience for a large segment of consumers.
Merchants in certain industries, such as game publishers, may have some leeway to adjust the ways their products handle in-app purchasing or stored credentials in order to minimize the problem of children making purchases without permission. Beyond that, the best thing to do is provide excellent customer service to customers who alert you to purchases they didn’t intend to make, and fight chargebacks to the best of your ability whenever they occur.