Over the past few months, an increasing number of businesses have chosen to shift their operations online as a result of Covid-19. However, many of these businesses are not prepared for some of the new an emerging trends related to online credit card fraud.
An increase in “friendly fraud” is one such trend. It happens when a customer makes an online purchase for a product or service using their credit card, but later contacts the credit card issuer to dispute the charge and force a refund, claiming that the merchant made an error.
This is different from traditional fraud where an unauthorised third party uses someone else’s card details to make an illegal transaction.
Friendly fraud represents up to a $31 billion loss for the industry per annum. It has been on the rise for years and some research suggests that even before Covid-19, for ecommerce merchants, friendly fraud accounted for a higher percentage of fraud losses than traditional fraud. The trend is likely to have accelerated during the pandemic as more and more of us shopped online.
There are many reasons why a customer might commit friendly fraud, some more malicious than others.
Common instances of friendly fraud can be put down to simple reasons such as customer confusion, where queries over the status of an order, or how a refund process works, can lead to a customer to contacting their bank rather than the merchant directly.
For example, if a customer experiences a delay in an order being delivered, they may contact their issuer stating that they have not received the goods that they paid for and ask for the card issuer to step in and refund them. Another example is a customer who has already requested a refund from the merchant, but contacts their card issuer to dispute the transaction because they haven’t yet received the money.
Family members – particularly children and teenagers – using shared accounts can lead to purchases being made that are later disputed by the account owner who never authorised it. This type of friendly fraud is likely to rise as more merchants offer family accounts and more of us have been staying at home during the pandemic.
As consumers start to pay more attention to their outgoings, financial pressures can lead them to claim refunds or raise disputes on purchases they have made willingly, but ultimately regret or forget. These ‘friendly fraudsters’ might have no ill intention, particularly if they forgot about having purchased something and didn’t recognise a charge on a statement, but can still cause headaches for merchants.
Ultimately, it is the merchant that will face the costs, loss, and even reputational damage from drawn-out procedures – especially bearing in mind the amount that friendly fraud is worth to industries. It is vital that therefore businesses have the right protections in place to combat it, particularly those who are new to trading online.
To help merchants resolve disputes in a collaborative way, and encourage repeat business, Barclaycard Payments has provided three top tips to preventing friendly fraud.
1. Understand your customer
Preventing ‘friendly fraud’ can be much harder than stopping ‘traditional’, third party fraud, which is much more predictable. Protecting a business is about predicting human behaviour, which is more complex in times of stress like we are experiencing now. It’s crucial, therefore, that businesses are analysing all customer behaviour to build buyer profiles, and tracking buying habits to spot and flag unusual activity.
For added protection, some payment providers offer services that use intelligent data analytics to provide greater context of a purchase and ultimately help prevent ‘friendly fraud’. For example, by linking the original order details from the merchant to the issuer, all the particulars linked to a purchase – the item, the buyer’s device and IP address, and the shopper’s history – are present in case of a dispute.
2. Ensure you are communicating clearly
Merchants often have policies that cardholders don’t understand or that have changed recently as a result of Covid-19. This leads to a lot of customer confusion and inadvertent friendly fraud. These instances can be reduced by having more prominent and visible terms and conditions.
In addition, ensuring suppliers provide prompt email confirmations, alerts for package tracking, and delivery notifications, can help reduce risks from the outset as customers are fully updated on their purchases and know the status of their order. Likewise, merchants should look to set clear billing descriptors when taking payment, to help consumers quickly recognise a purchase they have made on their credit card statement.
3. Create a comprehensive, proactive customer service experience
Introducing a seamless customer service experience – and making it simple for customers to get in contact with the merchant to resolve any issues – is paramount to minimising friendly fraud cases.
Covid-19 has led to delivery delays across the country, so any delivery delays should be communicated to customers as soon as possible, to decrease the risk of chargebacks before the product has even been delivered. If necessary, suppliers should look to extend returns policies to ensure consumers have sufficient time to return undesired items – and ensure it is as easy as possible to do so.
As friendly fraud can often occur for genuine reasons, it’s impossible to prevent it completely. But it is in the interest of both the merchant and the card issuer to resolve disputes and create positive outcomes for customers.
David Jeffrey is director of product at Barclaycard Payments