Are Your Customers Committing Friendly Fraud?

• The order never arrived.
• The service was never rendered.
• They don’t recognize the transaction.
• The transaction was unauthorized.
• The goods were damaged.

They may also circumvent the bank and make a false claim directly with a merchant’s customer service team who might be quick to accommodate the request in order to keep the customer happy, including shipping a replacement without requiring the return of the alleged damaged item.

While these scenarios might not align with traditional eCommerce fraud, intentionally creating an invalid claim is indeed fraudulent; merchants must be adept at managing friendly fraud or it can be costly. Consider these facts:

What to do when good customers turn bad

1. Clearly communicate: Merchants should be upfront and clear with customers about their policies and practices, especially regarding billing, shipping, and refunds. Merchants should also immediately email order invoices and product details, and ensure that the billing descriptors are clear. This will make it easier for the customer to recognize the charge and lessen the possibility of the charge being disputed.
2. Know your customer: Merchants should use chargeback data and customer service data to analyze a customer’s profile and identify abusive claim patterns. Customers’ claim history and chargeback data (for both fraud and non-fraud issues) will help pinpoint friendly fraud and improve prevention methods. Merchants should look for customers who are repeatedly filing disputes or contacting customer service teams directly to get a refund. In order to combat friendly fraud, it is very important for merchants to know their customers and, more importantly, know the repeat offenders. By maintaining a list of customer names, shipping addresses, and other data points from customers claiming non-receipt, damaged merchandise, etc., merchants can cross reference this information when a new order is placed. If the same customer, shipping address, or other data point is repeatedly associated with claims, it is likely that this person is committing friendly fraud and the appropriate action can be taken.
3. Enforce stricter order processing: Once repeat offenders are identified, make a signature mandatory for proof of delivery for all future orders from these customers. This measure will help protect the merchant from chargeback issues and it will increase the shipping cost for the customer. Both the signature and higher shipping fee should be red flags for the customer that he is under increased scrutiny, and will hopefully deter him from making future attempts of friendly fraud. Merchants can also establish a variety of parameters around friendly fraud customers such as limiting the total dollar value of an order. Ultimately, the goal is to frustrate friendly fraudsters by making order processing stricter to prevent fraud and protect the merchant if a chargeback issue arises.
4. Put customers on notice: For chronic abusers, extreme measures might be warranted. Notify customers in writing that no further refunds will be issued due to repeated, unwarranted claims. Also, the merchant should have the customer sign an affidavit prior to processing any future orders. Doing so will help absolve the merchant of chargeback liability on any future online purchases. However, merchants should weigh the possibility of negative repercussions on social media and customer reviews against the fraud risk.
5. Leverage chargeback representment: A merchant’s chargeback team should aggressively fight and refute chargebacks that indicate abusive customer claims patterns. Engaging in representment informs the bank that the merchant is not liable and, most importantly, sends a message to the card issuer that more due diligence is required the next time the customer requests a bank issued refund by initiating a chargeback.

Friendly fraud case study

During the investigation the merchant confirmed that magazines and catalogs were no longer shipped by mail—a change that was made two years prior. The carrier investigation report was also provided as additional evidence to make the chargeback representment more powerful. The combined evidence made a strong case that the customer received her merchandise and was issuing a false claim.

Representment outcome: The first chargeback representment was decided in the merchant’s favor. However, the customer did not give up. The customer maintained her claim of non-receipt and filed a second dispute, which sparked a pre-arbitration chargeback cycle. The pre-arbitration chargeback claim was again challenged by the chargeback team using the documented compelling evidence. The credit card issuer did not dispute the transaction further in arbitration and the case was ultimately won in the merchant’s favor.

From this real life example, it’s clear the lengths some customers will go to commit friendly fraud. It also demonstrates the time consuming, labor intensive nature of fighting friendly fraud. It requires not only knowing your customers, but knowing when to fight. And once the battle stance is struck, merchants must be prepared with fact-based, compelling evidence—because right or wrong, the burden of proof falls to the merchant.

Not all customers are created equal… How well do you know yours?

Detecting fraud is a balancing act that Radial does with a proven combination of machine learning, big data, and human intelligence to deliver the highest approval rates in the industry while guaranteeing zero fraud liability. Best of all, our full-service payments and fraud offerings are backed by our conversion promise: we get paid nothing unless your order converts.