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Friend and foe? Combating e-commerce 'friendly fraud'
While financial cybercrime against card-not-present retailers has many forms, "friendly fraud" has emerged as a particularly painful thorn in the side of e-commerce merchants. Defined as a situation in which a customer disputes a legitimate credit card transaction, falsely claiming fraud or non-delivery of goods, friendly fraud is extremely hard for retailers to identify and nearly as costly to their business as criminal fraud.
When a customer calls to dispute a transaction, the bank usually credits the customer's account immediately, pending further investigation. This is known as a "chargeback". Chargebacks occur for many reasons, including "non-delivery of goods", "credit not processed" and "item not as described", but chargebacks for "fraud" are the most common.
70% of all e-commerce chargebacks are identified as fraud, according to Mastercard. What most merchants have experienced, however, is that fraud doesn't always mean the purchase was unauthorised. More and more, cardholders are committing friendly fraud due to buyers' remorse or financial hardships.
Friendly fraud is difficult to anticipate or identify. Unlike a true fraud chargeback, which can often be predicted through scoring or behavioral risk models, a good customer can turn into a friendly fraudster at any time, without warning.
For this reason, many merchants feel that friendly fraud is impossible to detect or prevent. The fact is, there are ways to reduce friendly fraud - and committing to reduce friendly fraud gives you the added benefit of reduced refund rates.
See the tips to help merchants recognize and prevent friendly fraud on E-Commerce Times here.
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