Friendly Fraud Paradox: How Technology Has Disrupted Consumers

Friendly fraud is truly a paradox. There’s nothing friendly about fraud. Friends are familiar, honest and trustworthy; fraudsters are imposters, deceitful, and fake. The misnomer makes it difficult to comprehend just how significant the friendly fraud problem is. In fact, it’s estimated that it accounts for 35% of fraud loss.

Friendly Fraud Overview

In order to understand the evolution of fraud—both friendly fraud and true fraud—it can be helpful to define each. Friendly fraud is often perpetrated by confused customers who either did not recognize a transaction on their monthly billing statement, forgot about a transaction, or were unaware of a transaction (that may have been made by a spouse or relative). They may also be confused about the best way to contact the merchant and opt instead to contact their issuing bank. The long and short of it is that they don’t have malicious intentions.

Chargeback fraud, on the other hand, are perpetrated by both customers and fraudsters, both of whom have bad intentions. This may include initiating a chargeback due to item not received (even though the customer received the item), due to item damaged or broken (even though the item arrived as expected), or merchandise not as described (even though the merchant’s site had clear descriptions and photos and the item arrived that arrived matched those descriptions). These people go out of their way to avoid “reconciling” their issues with the merchant because it only offers an additional avenue for them to get caught. Instead, they bring the complaint to their issuing bank, where they hope that the bank sides with them and that the merchant hasn’t maintained great records.

Why No One is Standing Up

It seems as though friendly fraud is becoming more commonplace, which begs the question: why isn’t anyone standing up to friendly fraud or doing anything to change the system? A lot of the answer seems to be rooted in our cultural norms. The two biggest culprits leading to this monster issue include:

• The desire for instant gratification
• Lack of accountability and responsibility

Instant Gratification

In the era where smartphones can accomplish pretty much any task in mere minutes and where live chat is usurping customer care lines, it’s no surprise that the need for instant gratification is driving up friendly fraud rates. The majority of customer prefer to use live-assist channels for customer service interactions rather than self-service customer channels. The percentage of online adults who have used live-assist channels (like talking to an agent on the phone or online chatting with a live person) in the past 12 months is greater than those that have used self-service channels (like FAQs on a website or touch tone voice self-service). Research also reveals that 41% of consumers expect an email response within six hours.When customers don’t get their way—or don’t get their way in their desired timeframe—they seek out alternative means to get what they want, leading to friendly fraud.

Customer Accountability

Customer accountability is another area that is contributing to increased instances of friendly fraud. Consumers are adept at avoiding consequences and merchants have bent in a way that enables this to happen when it comes to disputes. Since friendly fraud arises from legitimate purchases where the customer authorized the transaction, it makes it difficult to detect via traditional fraud controls. Instead, these chargebacks devolve to “he said, she said” disputes that err largely in favor of the consumer. Customers have a lot of leeway when it comes to authorizing purchases and then going back and telling a fib about their purchase.

Merchants that aren’t keeping adequate records of transactions, which can be used as compelling evidence in chargeback cases, are unable to fight the chargeback. The end result is lost revenue, lost merchandise and additional fines and fees incurred along the way.

Merchant Responsibility

The merchant bears some responsibility for the current state of friendly fraud chargebacks. Customer service is a key issue and influencer on friendly fraud chargebacks and many merchants miss the mark. According to a 2018 customer service benchmark report, 62% of companies do not respond to customer service emails and the average response time to handle a customer service request is 12 hours and 10 minutes. It’s a key area where merchants stand to make progress on the front of friendly fraud.

Merchants should focus on these areas of improvement to reduce friendly fraud chargebacks:

• Maintain records: Maintain good transaction records and ensure that product details are updated on your website. Also, garner insights from the data surrounding instances of friendly fraud and see if patterns can be identified to get to the root of the problem.
• Update billing descriptors: Merchants should use easily recognizable billing descriptors on cardholders’ statements. This prevents confusion.
• Improve customer service: Make sure your customer service centers are properly staffed to answer calls and respond to emails in a timely manner. Conduct training so that your agents understand the appropriate way to handle customer concerns and disputes for a positive outcome.
• Fight back: Fight and represent chargebacks to recover revenue.

Technology is a double-edged sword: it facilitates more streamlined payments while also enabling customers to get away with little white lies that cost merchants money. By being proactive, merchants can nip friendly fraud issues in the bud and protect hard-earned revenue.