Rosalind Evans
Retailers are increasingly losing substantial amounts of money due to a phenomenon known as ‘friendly fraud.’ This issue has escalated, with many consumers disputing legitimate charges on their credit cards. A recent report sheds light on this costly trend.
Understanding Friendly Fraud
When consumers dispute legitimate charges on their credit cards, it’s called friendly fraud. According to Socure, an identity verification platform, friendly fraud leads to a staggering $100 billion loss for retailers annually. The October survey by Socure revealed that 35% of Americans have committed this fraud, and 40% know someone who has.
The Rise of Chargeback Abuse
The ease of disputing charges has increased, partly due to improved mobile banking services during the pandemic. Rodrigo Figueroa, COO of Chargeback Gurus, notes, “There are legitimate disputes, and the chargeback process was built to recognize and provide some relief for those legitimate disputes. Now we see this massive level of abuse.”
Difficulties in Identifying Friendly Fraud
Friendly fraud can be hard to pinpoint. Robert Painter from Kount, an Equifax company, explains, “There are a lot of stats around the rise of it, but it seems like it’s almost becoming this catch-all for anything we just don’t understand.” Sometimes, consumers unintentionally commit fraud, like disputing charges they don’t recognize due to unclear merchant names on credit card statements.
The Merchant’s Dilemma
Merchants bear the brunt of friendly fraud. Johnny Ayers, CEO of Socure, mentions the difficulty in discerning intent: “You start to see the behavior of this individual has a substantial standard deviation from a normal person.” The Merchant Risk Council reported that 94% of its members experienced first-party fraud in the past year.
The Impact of Excessive Chargebacks
High volumes of chargebacks can severely affect merchants, impacting their ability to process payments and resulting in fines from credit card companies. Socure’s research highlights that $89 billion of the $100 billion in friendly fraud losses are borne by merchants, with the remainder split between credit card fraud and dispute resolution costs from central banks.
Encouraging Honest Disputes
Credit card experts advocate for consumers to resolve issues directly with merchants before filing disputes. Chi Chi Wu from the National Consumer Law Center emphasizes the importance of maintaining good customer relations, stating, “One thing credit card issuers really [have to] think about before they start fighting with merchants all the time is, ‘Is this going to affect the ability to retain good customers?’”
Social Media’s Role in Fraud
Social media has also contributed to the rise of friendly fraud, with influencers sharing tips on disputing charges. Johnny Ayers remarks, “They just teach you how to steal money. All they’re doing is giving how-to guides to work around the rules.” However, Domenic Cirone from Equifax believes many disputes stem from misunderstandings rather than malicious intent, noting that most consumers are honest.
Friendly fraud poses a significant challenge for retailers, resulting in massive financial losses. While some disputes are legitimate, the rise in chargeback abuse underscores the need for better communication and verification processes. Addressing this issue requires a collaborative effort from consumers, merchants, and credit card issuers.
