Fighting friendly fraud – a major concern among merchants - AiConnects.us
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Fighting friendly fraud – a major concern among merchants

Ai Editorial
Home > Editorials  > Payment & Fraud Editorials  > Fighting friendly fraud – a major concern among merchants

26th October, 2021

Merchants have witnessed accelerated adoption of e-commerce and other card-not-present purchasing options over the past 18 months. The same has resulted in an increased rate of chargebacks.

It is vital to understand the chargeback cycle and also evaluate the financial impact, comparing the transaction volume in 2020 and in 2021, what to expect etc. Is the forecast a cause for concern?

Also, friendly fraud and criminal fraud continue to be problematic for merchants, according to the 2021 Chargeback Field Report, focused on chargeback management in card-not-present payments.

Some highlights from the report, released by Chargebacks911:

  • Nine in 10 respondents claimed that friendly fraud was a concern for their business. However, only 29 percent said they are successfully addressing the issue. The report featured merchants in the US (255) and UK (160). Many merchants are unable to identify friendly fraud, and attribute a significant portion of friendly fraud disputes to criminal fraud. The report states: There is a positive correlation between adoption of card-not-present purchasing options by consumers and chargeback abuse: it’s more di­fficult to verify cardholders’ identities, and to disprove cardholders’ dispute claims. In a post-Covid environment—with more consumers than ever selling online—it’s no surprise that friendly fraud instances would continue to grow.
  • Overall, merchants witnessed a rise in chargebacks owing to both friendly fraud and criminal fraud. 67 percent of merchants who tracked criminal fraud trends within their business noted an increase in fraud incidents between 2018 and 2021. Of those merchants, the average reported increase was 21 percent. Merchants with a higher average ticket value were more likely to cite criminal fraud as a growing problem. Merchants with an average ticket value between $211-$350 cited an increase of 33 percent.
  • Despite changes imposed by card networks, the term “chargeback” is still more commonly used than “dispute.” However, the majority of respondents use the terms interchangeably. For its part, Chargebacks911 uses “dispute” to refer to the act of challenging a transaction taken on the part of the cardholder, or the cardholder’s issuing bank. In contrast, “chargeback” is used to refer to the technical process by which the dispute is resolved.
  • Among merchants who challenge illegitimate chargebacks, the average merchant will respond to 43 percent of claims. However, there is significant discrepancy in how that process is handled.
  • An e­ffective fraud prevention solution is an important part of an overall chargeback management strategy. Merchants should, however, be careful not to over rely on pre-transaction fraud filters since many chargebacks with fraud reason codes are actually instances of friendly fraud.

By Ritesh Gupta

Ai Team

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