Friendly fraud is one of the most difficult forms of fraud to identify and manage, especially for small to mid-sized eCommerce businesses. In this article, learn how to detect friendly fraud, and effectively stop it.

It's clear that friendly fraud is becoming an increasingly difficult problem for merchants to handle. In 2021, it's reported that 8 out of 10 merchants have seen an increase in friendly fraud. 

With the increase in fraud attacks, it's important that merchants have a proper fraud prevention strategy in place that will effectively minimize the damage associated with fraud.

This article will help you understand the nature of friendly fraud, what it is costing you, and how to prevent it moving forward. So read on and learn how you can stop yourself from being a victim of this ever-increasing crime.

What is Friendly Fraud?

Friendly fraud occurs when someone declares an unauthorized charge on their account, and the charge is not actually false. This kind of fraud is also known as chargeback fraud. In this case, the customer is trying to get money back from a transaction that was completely legitimate.

As a bank only has very few methods of detecting this, it can be a serious problem.

What is Friendly Fraud Costing Me?

When someone files a chargeback claim, the issuing bank can reverse the transaction, impacting your bottom line. It is akin to direct theft, and it is especially problematic because it's very difficult to detect before it happens.

Because it can happen long after the transaction occurred, it's hard for merchants to identify whether the chargeback claim is legitimate, or fraudulent. People can claim that they are only seeing the transaction after they receive their bank statements a long time after the incident.

On top of this, merchants lose out on additional fees associated with the chargeback claim. If this happens too often, the card issuer may choose to stop doing business with the merchant, which can be detrimental to businesses that operate primarily online. 

If you're interested in learning more about the direct and indirect costs associated with chargeback fraud, be sure to read our eBook, The eCommerce Guide to Chargeback Management. 

Fraud Prevention Solutions

Several options are available to detect such fraud and then block it. For example, a collaboration between merchants and card issuers can help root out the problem by detecting repeat offenders. You can even automate this to help stop specific customers from being a problem.

The use of artificial intelligence and machine learning have become a strong defense against friendly fraud. Fraud prevention solutions that leverage this technology can pinpoint fraudulent transactions much more precisely than a team of fraud analysts by looking for the common traits associated with these bad orders. This can include:

• When a first time customer makes a particularly large order
• When a customer asks for you to send something they have bought to a different place than their billing address
• If a customer places an order from a high risk region
• If a customer buys several small things in a row

Finally, keeping records of previous transactions with all your customers can empower any A.I. detection method. Also, it can help you if you need to prove fraud later down the line. It's critical that you retain this data to increase the accuracy of your fraud prevention solution.

What Are Your Next Steps?

Now that you have a greater knowledge of what friendly fraud is and how to stop it, you should take every step to ensure your transactions are secure. To help with this, our specialists are on hand to give you all the advice that you need. So, get in touch to request a demo and we should be able to advise you on what help we can give you moving forward.