4 Reasons Why Friendly Fraud Occurs In Your Business

As you start the path as an online merchant and e-commerce store owner, you will become familiar with all kinds of fraud. One of the more unusual ones is called friendly fraud, which occurs when a customer or client mistakenly reports a legitimate purchase as a fraudulent one and requests a chargeback or refund. While it tends to be an accident, as opposed to malicious chargeback fraud, you can still benefit from learning some of its causes to prevent future incidents. 

Unauthorized card use

Families or other organizations sometimes share the same credit card for a variety of reasons. When there is miscommunication, an individual can make a transaction without the authority of the person in charge, leading to confusion and a chargeback. While this type of incident can happen due to a mistake or carelessness, it can still impact your business, and will inevitably happen as an e-commerce entrepreneur. However, you can prevent this by providing a clear distinction between individual buyers on the billing statement, even if they use the same account. 

Forgetfulness or laziness

People can be busy and sometimes balance so many responsibilities and tasks that they can forget about transactions. Someone's short-term memory can keep up to seven items at a time, which can include details about transactions. While you cannot always improve the customer's memory, you can take measures to prevent these chargebacks and inform the customer about the transaction. Receipts and confirmations through text and email are the fastest ways to notify the individual, along with constant delivery status updates. Text messages and emails can help prevent customers from disputing charges. We like to use emails to keep customers apprised of their purchases.

Confusion between chargebacks and refunds

A common mistake among online purchasers is not knowing the difference between a refund and a chargeback. With a refund, you have control of the transaction and can easily return the funds to the cardholder for any reason. Meanwhile, a chargeback is started by the customer or client and involves the bank, which determines the legitimacy of the request. However, you can pay extra charges, face the false stigma of fraud, and have a strike against you by the bank. It’s not an easy process. Explain to customers the difference and encourage them to seek a refund instead. 

Different billing information

Information on billing statements can sometimes change or contradict other information. Often, the company goes through a rebrand or the billing descriptor is not familiar, intimidating the customer. These adjustments take time, but a chargeback can still occur, even with global networks such as Ethoca. Ensure the company name and other statement information matches correctly to prevent a costly misunderstanding.  This type of fraud may be unintentional, but it can still harm your growing business. Consider the reasons cardholders commit it to find efficient ways to prevent it. 

Has your business experienced any type of friendly fraud? If so, how did you handle it? Drop a comment in the section below.