The e-commerce industry is growing rapidly. With the demand for online shopping higher than ever before, retailers and brands are doing everything in their power to grab consumers’ attention and more importantly, their wallets. With access to an unlimited marketplace at their fingertips, consumers’ concept of patience is hastily diminishing. Easy checkout, fast delivery, and hassle free returns are no longer luxuries or marks of superior service – they are the standard practice of the online retail territory. And while online transactions (also known as “card not present” or CNP transactions) allow companies to increase sales, they pose a serious risk to businesses in the form of friendly fraud.

What Is Friendly Fraud?

Don’t let the name fool you; there’s nothing friendly about this fraud. Also called chargeback fraud, this happens when an individual makes an online purchase and successfully receives the item, only to issue a chargeback with their card service company claiming the item was never received or that they never made the charge. The bank then refunds the individual and blocks the payment, reversing the charge to the merchant. Merchants are required to pay a non-reversible fee set by the bank, anywhere from $5 to $35 per item. While this can happen accidentally as a result of a misunderstanding, CBS reports that more than 86% of all chargebacks are intentional; either the consumer’s original intention was to get the item for free or they see it as a quick fix when they no longer want the item. Many consumers see it as a no-hassle solution with instant gratification; they can immediately regain access to their money rather than going back and forth with the merchant.

The Challenge

Friendly fraud is a serious and growing problem for retailers. Although businesses can combat a chargeback, the steps to do so are extensive and time-consuming. It’s often the company’s word versus the customer’s, and because the majority of people committing this type of fraud don’t fit the traditional fraud profile, the customer typically wins. Rather than investing time and resources into fighting these cases, many businesses are accepting it as a cost of doing business.

Accepting friendly fraud as a cost of doing business may do even more damage. Statistics show that 50% of those who file a friendly fraud chargeback and get away with it will do it again within 90 days. And considering that the company incurs bank fees on top of losing the cost of the item, each friendly fraud chargeback is worth not one, but 1.5 chargebacks. With the majority of merchants choosing to absorb these costs rather than fight them, the issue is quickly becoming a serious problem. In fact, the FBI has identified friendly fraud as one of the top threats to e-commerce today.


While EMV technology helps reduce the threat of fraud for brick and mortar stores, it does nothing to protect e-commerce merchants. In fact, the migration to EMV actually shifts fraudulent activity to online channels. E-commerce businesses must develop a preventative strategy to protect themselves against friendly fraud. While multilayered authentication, biometrics, and other related security technologies play an important role in a strong preventative strategy, you must not overlook the important role customer service plays in preventing chargebacks.

Make it easy for customers to contact you, regardless of the time of day. Consumers shop online at all hours and they expect customer service to operate the same way. When a customer cannot reach a business, they are more likely to turn to their bank. Additionally, customers are more likely to trust a business that is actively engaged with its customers. It gives a human connection to your brand, which builds brand loyalty. Exceptional customer service might not deter deliberate fraudsters from going forward with the chargeback, but it can lower the chargeback rate for unhappy customers and misunderstandings.

The rise in friendly fraud makes it more important than ever for retailers with brick-and-mortar locations to improve the in-store customer experience, giving customers a reason to step away from their computers and walk through store doors. Not only does more in-store foot traffic have the capacity of reducing chargeback fraud, brick-and-mortar locations can increase sales and grow their business; according to World Property Journal, 40% of shoppers spend more than they planned when shopping in a store, opposed to only 25% of shoppers who did so when shopping online. In order to be successful, retailers need to add value to the purchasing process to make it worth the trip. By leveraging technology, these retailers can evolve customer transactions into personalized experiences that can’t be achieved through the Internet alone.

When merchants accept friendly fraud as a cost of doing business, they inadvertently perpetuate the cycle of fraud.  By enacting a strong preventative strategy, following business best practices, and leveraging the security of brick-and-mortar locations, you set your company up for success. Should a situation arise, you can challenge the chargeback with confidence.


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