Friendly fraud chargeback can be one of the most infuriating customer service problems for merchants to face. These chargebacks occur when customers dispute legitimate transactions as unauthorized or fraudulent in order to get a refund on the transaction or merchandise returned for credit. Unfortunately, it’s not a problem that is going away anytime soon. In this article, you will learn what is friendly fraud chargeback and how to prevent it from happening to your business.
Friendly fraud is a term used to describe chargebacks initiated by customers who have not been subjected to any fraudulent activity during the transaction. The chargeback process can be due to many reasons, such as dissatisfaction with a product or service or inadvertent mistakes in booking transactions with merchants.
For example, some merchants offer free shipping for orders above a certain amount. If the consumer ships their order to the wrong address, they might dispute the transaction as fraudulent to get a refund on the shipping costs. This is often done instead of contacting the merchant.
The following are different types of friendly fraud chargebacks that merchants can encounter.
The most common type of friendly fraud is the customer’s confusion. Customers might think that their chargeback is legitimate because they did not receive the whole product or for other reasons. A customer might not understand the nature of the transaction and mistakenly believe that there has been wrongdoing on the part of a merchant.
Another way is when customers don’t realize that the purchase was not made with a credit card but instead with some form of alternative payment method such as a gift card or PayPal. Some types of customers may falsely believe that their credit card company covers these transactions, and so they contact the issuing bank to dispute the charge, thinking it is a fraudulent transaction.
A customer might also falsely claim they did not get the item because, in reality, they were not happy with the service or the product. Most often, this is because customers are unable to attribute their dissatisfaction to the merchant or service provider directly. Instead, they blame the financial institution for authorizing the payment. But at times, even merchants responsible for a bad transaction can receive chargebacks from their customers. Especially, if customers believe that it was in some way their fault.
Bad customer experience like poor goods or service quality is another reason for customer dissatisfaction. To avoid such chargeback claims, a merchant should provide the best customer-friendly services and negotiate all the issues.
Sometimes, friendly fraud can even extend to family members. Family fraud occurs when family members, usually children, make purchases without their parents' permission. Parents often issue chargebacks when goods arrive because they didn't buy that.
Friendly fraud chargeback is not the same as true fraud, also known as a card not present fraud. Card not present transactions happen when a credit card number is stolen from a merchant. They then use it to make fake purchases.
This is a different process from that of friendly fraud chargeback, where customers themselves make purchases with legitimate cards at merchants but then dispute them later on. It can be difficult to identify friendly fraud chargebacks. It’s easy for merchants to spot cases of true fraud. But in cases of friendly fraud, it can be difficult for them to prove that there was no wrongdoing on their part.
When friendly fraud chargeback occurs, the merchant loses out on the sale revenue as well as any shipping and handling revenue. In addition, merchants incur additional costs for resolving the dispute. Customers who receive chargebacks may or may not be held liable for this loss. But, in many cases, transaction amounts charge back to the customers.
The consequences of friendly fraud chargeback can be severe for merchants. In many cases, the chargeback may take a merchant’s entire profit from a single transaction. And in extreme cases, it can even ruin a merchant’s credit rating and business.
There are ways for merchants to prevent friendly fraud chargeback. Merchants can ensure that the customers who place an order have all the necessary information, especially their shipping and billing addresses. This will enable them to spot any possible issues before the transaction is submitted for processing.
During the checkout process, merchants can also choose to have follow-up questions, such as a password or a PIN code, as another layer of security. This can help prevent situations where someone might use another person’s credit card without their consent. And finally, merchants can add information on their website about the nature of transactions and clarify the ways in which transactions are processed and how customers should respond if there are any problems with the service. All these are effective friendly fraud prevention.
Friendly fraud chargeback can be a complicated process for merchants to deal with. In many cases, merchants are left to prove their innocence through the chargeback process. Otherwise, they face losing their business's income and profits. As you can see in the above article, customers who initiate friendly fraud chargebacks often do not have malicious intent. Instead, they were simply confused or dissatisfied with their purchase and mistakenly believed they were entitled to a refund. It may even be wrongdoing on the merchant's behalf.