Friendly Fraud vs. Chargeback Fraud

According to statistics, credit card fraud and identity theft aren’t as common as we fear. Of all the fraud-driven cases of chargeback, only about 30% are true fraud cases. The other 70% or so are so-called “friendly fraud” cases, where a customer accidentally disputes a legitimate charge because of the customer’s error or genuine misunderstanding. Both cases are bad for business, because while friendly fraud cases could end with your customer’s money ultimately back in your account at the end of the process, your business may still be responsible for chargeback fees, and the chargeback won’t be expunged from your bank record.  Rack up too many chargebacks–even if they are all resolved in your favor–and that could trigger an audit or even the suspension of your merchant account.

How can you tell the difference between friendly fraud and chargeback fraud? The new Visa Claims Resolution system (VCR) can help. The Visa Claims Resolution system has sped up the investigation process for chargeback disputes. It has also made resolution simpler by reducing dispute categories from 22 to 4, and making them much more transparent. Of the 4 categories, there are now 16 distinct types of disputes. They include things like ‘expired card’ and ‘cancelled recurring transaction’ which are much harder to fake.

Direct disputes

Those well-defined boundaries make it easier to distinguish genuine mistakes from fake claims. A confused customer is more likely to file their complaint under consumer disputes, processing error, or authorization, because they know exactly what went wrong. They know they typed in the wrong date, wrong amount, or that their goods arrived damaged. A fraudster is more likely to go for the more vague ‘fraud’ category, because the other three categories are easier to verify and they could get caught in a lie.

The level of communication can be a hint as well. Genuinely irate customers typically check in frequently, sending emails, initiating chats, calling customer care, and even complaining on social media. They have nothing to hide. Fraudsters want to stay below the radar in order to keep running their scam over and over, so they file their chargeback demand, and then often descend into radio silence, even when your business tries to reach out to them. These fraudsters may make a purchase then deliberately reverse it, doing so with multiple products, services, and brands, habitually and simultaneously.

Innocent mistakes

A sincere customer will sometimes request a chargeback when they see a name they don’t recognize on their credit card statement. This can happen if your holding company appears on their credit card statement, and is different from your DBA, brand, product, or store name. Even worse, some merchant account providers put their names instead of your company’s name on your customers’ statements, which is all but guaranteed to cause confusion.  Better merchant account providers (such as Charge.com) allow you to have the DBA (Doing Business As) name that you prefer appear on your customer’s credit card statements.  If there is any chance of confusion, then it’s always a good idea to make sure to let your customers know how the charge will appear on their credit card statement at the time they make their purchase, and then again when they receive their product or service, if that is at a later time.

If your customer tries to reach you and can’t, there’s a good chance they’ll request a chargeback. So if you can talk to the customer and reassure them, it may resolve the issue amicably. Avoid this mess by double-checking your billing names, displaying a clear refund policy, and making yourself available to customers. It could be as simple as using your social media account actively outside of office hours. That way customers know they can always tweet, WhatsApp, or inbox you.  Also, keep in mind that, even if you are in the right and your customer is wrong, it still might be preferable to offer the customer a refund in order to avoid a chargeback.  Remember, the customer is always right, and it’s not personal–it’s just business.

For more information on telling the difference between friendly fraud and chargeback fraud, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.