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Rooting Out Friendly Fraud: What Retailers Need to Know

by Pauline Farris
What you can do to mitigate chargeback fraud.

Conducting business online comes with a level of risk. There is no guarantee that a transaction always will be safely completed. For any company selling products on an eCommerce website, chargeback fraud is one of the most common risks that threatens their bottom line.

Chargeback fraud, or friendly fraud, occurs when a consumer gets a bank to return funds on a purchase made online after they’ve already received the product. In other words, the customer gets the product, but the online retailer doesn’t get paid. 

Unfortunately, it’s not hard to request chargebacks: 8 out of 11 credit card issuers let people dispute a purchase (leading to a potential chargeback) at the click of a button. “Friendly Fraudsters” exploit this convenience, and like other habitual criminals, will do so multiple times if there are no systems in place to stop them. 

Online retailers that intervene early can stop or reduce the risk of losing revenue to friendly fraud. Here are the basics of friendly fraud and some guidelines to help you circumvent chargeback abuse.

Friendly Fraud 101

Before we get into how to prevent fraudulent chargebacks, we need to look at what the process actually entails. Friendly fraud only happens when customer-side chargeback requests are approved by their credit card provider after they’ve placed an order with an online business. Because the card provider requires no proof that the goods were not received or that the transaction was not authorized, this “customer is always right” benefit of the doubt effectively allows customers to order items, quickly ask for chargebacks—without your business’s knowledge—and receive their order, along with a bank-side refund. And guess who eats the cost? You, the merchant.

This type of fraudulent behavior is abused due to less-than-stellar business and refund policies featured by eCommerce websites, many of which are outdated and out of touch with the latest credit card scams. The reasons for friendly fraud range from deliberately fraudulent to chargebacks resulting from a lack of communication due to poor customer support. Whatever the reason may be, your business will lose revenue if proper protective measures are not put in place.

Guidelines for Minimizing Friendly Fraud

Now that we have the basics out of the way, let’s take a look at several steps you can take to minimize or outright eliminate the impact of friendly fraud on your business. It’s worth noting, however, that you should always attempt to contact the individual suspected of fraudulent behavior before taking legal or bank-related action. 

Legitimate chargeback requests are always a possibility, even without the customer’s direct communication with your support staff. Consider any chargeback as legitimate and justified from the customer’s standpoint before deciding otherwise. With that said, let’s now take a look at some preventive measurements worth considering.

1. Implement Recognizable Bill Descriptors 

Bill descriptors are typically used by businesses and legal bodies to identify their entity on a credit cardholder’s account statement. If a customer makes a purchase from your retail store using a credit card, the billing descriptor you designate for your business account will appear next to the charge. 

To make friendly fraud more difficult, you should create a unique bill descriptor for your business. By default, businesses are assigned randomly generated strings of alphanumeric code, which are only partially effective in stopping fraudulent chargebacks. Your bill descriptor could be anything from your business’s name to the name of your flagship product to your office address. 

Choose a unique and easily recognizable descriptor that will distinguish your retail business from others at a glance. This will make it much easier to detect any form of chargeback or individual cardholders who may have ordered items from your store.

2. Collect Customer Data 

When it comes to data collection, your options are limited, for obvious legal and ethical reasons. That said, you should make it a habit to collect transaction data from any and all clients who approach your retail business. Having this data will make it easier to identify repeat purchases, suspicious chargebacks, unusual order patterns or any other attempts at friendly fraud.

For example, if a Canada-based cardholder orders multiple items from your Greece-based business in rapid succession, you should take note of these transactions. This type of monitoring will require you or your representatives to keep a close eye on transactions made to your retail business. As previously noted, social engineering plays a crucial role in detecting and eliminating friendly fraud before it fully manifests itself. This requires employee awareness of and cooperation with your company’s information security best practices.

3. Define and Publish a Clear Refund Policy

Your company website and eCommerce storefront should feature purchase and refund policies as prominently and early as possible. These policies serve to protect your business from all types of fraudulent behavior and copyright infringement while allowing you to control how people engage with your retail business, down to the most minute detail.

Your refund policy should reflect how you feel about refunds as a company, whether or not you condone them, and under which conditions the policy applies. To ensure that your policies are understood by customers from around the world, you can use a professional translation platform like The Word Point. Publicly available policies protect your business from a legal standpoint and make it easier for you to prosecute friendly fraudsters in a court of law.

As an added security measure, you can make it mandatory for new customers to accept your purchase and refund policies before they are permitted to order an item from your online store. This ensures that people are aware of your rules of conduct and discourages customers from attempting illegitimate chargebacks in the future.

4. Follow Up on Chargebacks

Lastly, make sure that your customer support agents get in touch with customers or clients who request bank-side chargebacks. Some customers simply don’t see these types of chargeback requests as illegitimate and initiate them for a plethora of reasons. Follow up on all chargeback requests and explore why individuals may have asked for their money to be returned without contacting you explicitly. 

That said, your customer support lines should be readily available to assist would-be customers 24/7. Place live chat buttons across your website to make it easier for customers to get in touch with you if they want a refund, for whatever reason. Create a communication channel for your customers to engage with, and your friendly fraud instances, legitimate or not, should drop off drastically.

In Summary

Reevaluate your sales policy, add clearly a clearly defined chargeback and fraud section to it, and make sure you track orders and transactions as they come to your retail business. The fact of the matter is that friendly fraud is difficult to root out completely, due to factors mostly beyond your control. What you can do, however, is ensure that fraud and illegitimate refunds are scrutinized and minimized as much as possible so that they don’t hurt your revenue stream.

About the Author 
Pauline Farris speaks Portuguese, English, Spanish and Italian, having traveled the world to learn other languages and immerse herself in new cultures. Today, she is proud to be a voting member of the American Translators’ Association and an active participant in the Leadership Council’s Portuguese Language Division. She is also the author of the blog Translation Client Zone.