Friendly fraud, or so called chargeback fraud, occurs when a customer makes an online purchase with his own credit card, but later claims the transaction was not authorized and requests chargeback from the issuing bank after receiving the purchased goods or services.
In case merchant is not able to prove the chargeback has been submitted fraudulently, the bank will return the original transaction, the funds will be taken from the merchant’s account and merchant will be fined.
Friendly fraud is becoming a real problem for lots of online merchants. A customer can lodge a chargeback for a variety of reasons: to get something for free, to reduce account balance or because he doesn’t realize that another member of his household made the purchase in his name. It is very difficult for the merchant to prove that the customer is erroneous about authorizing the transaction.
Defending a business against friendly fraud is not an easy task, but let’s list some ways to reduce this kind of fraud.
Firstly, the programs like Verified by Visa and MasterCard SecureCode can be a great help for merchants to reduce chargebacks and damage due to friendly fraud. Using these programs can give a zero chargeback liability to the merchant and the acquiring bank, because the cardholder’s issuing bank become responsible for any fraudulent activity.
If you sell physical products, confirm that they will be shipped to the billing address of the credit card. Always use the Address Verification System (AVS) to make sure that the billing address matches the address on file with your customer’s issuing bank.
You can also reduce the cardholder’s ability to dispute by requesting the customer’s signature on delivery at the billing address indicated in credit card profile.
It would be useful to create negative databases of card numbers that have been associated with friendly fraud. By keeping the names, you will be able to prevent future sales to those people.
Also, valid CVV2 checks can help you to win friendly fraud chargeback disputes. CVV2 is a credit card security measure consisting of 3 or 4 digits that can be found on the back of the card or on the front of the card after the card number. This security code is required to be entered in order to prove ownership and the possibility of physical access to the card.
Another tip to win the dispute is to keep accurate customer records, like the customer’s phone number, IP address, shipping information and all detailed notes of customer’s correspondence.
It is also important to set up a simple return policy for all purchases including product guarantees, time frames, requirements or fees. So it would make it easier for your customers to send things back to you if they are unsatisfied.
Some merchants think that it is better to make it difficult because they think that it will help them to avoid the acceptance of returned goods. However, most often it leads to cancelled credit card transactions and additional fees and fines for the merchant. So, as soon as a purchase is made, it is necessary to provide the information about your return policy.
We hope that by taking these simple steps, you will be able to decrease the damage and protect yourself from costly chargebacks caused by friendly fraud.