One of the threats merchants have to deal with when accepting payment cards is chargebacks. All major card schemes set out chargebacks, so cardholders can reverse unauthorized charges to their accounts and recover stolen funds.
A common chargeback you should know about is friendly fraud. Friendly fraud chargeback was established as a consumer protection mechanism to protect customers using credit cards online. However, the chargeback process created a loophole that allows customers to commit fraud themselves.
So what actually is friendly fraud? What forms does it take? And how can you prevent chargeback fraud?
What Is Friendly Fraud?
Friendly fraud, sometimes known as first-party fraud or chargeback fraud, happens when a cardholder makes a purchase and then disputes the charge with their bank. The cardholder can then keep the item or benefit from the purchased service without paying for it.
Friendly fraud covers both malicious and accidental fraud. The challenge is proving that a consumer acted maliciously to defraud your company. This is because “friendly fraudsters” are essentially indistinguishable from regular customers, and guidelines of chargebacks are stacked in favor of the cardholder requesting a refund from the issuing bank.
Types of Friendly Fraud
There are several types of friendly fraud. Here are the common ones.
1. Cyber-Shoplifting
Sometimes, consumers make legitimate purchases with the intention of committing
