There is not a single company in this world that has never experienced an online fraud. To reduce fraud, entire departments were created and millions spent to improve security. Although it seems that in order to understand whether a transaction is fraudulent or not, it is enough to determine whether the payment was made by a cardholder or a criminal who stole confidential information and posed as a cardholder. In reality, it is far from that simple.
After all, even if the purchase was made by the cardholder, it may be illegal and fall under the category of fraud. The only exception is that it is called friendly fraud.
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What is friendly fraud and what are its dangers?
Chargebacks are a real problem for any company. Unfortunately, very often the company pays for such problems with its own money. Chargebacks can occur due to actual fraud or due to a mistake made by the seller. A third cause of chargebacks is friendly fraud.
In the case of friendly fraud, the customer orders the product and successfully pays for it with his or her card or account. This is what all honest customers do and that is the end of the buying process. Scammers go further and initiate a chargeback, saying that the money on their card was stolen. As a result, these scammers receive merchandise for which they did not pay a dime.
Another friendly fraud scheme is to pay for goods using stolen payment information. Aware of the high risk, the scammers enlist the help of intermediaries by sending goods to their address.
The main problem with a friendly fraud is often the high probability that the fraudsters will satisfy their claims. However, decisions in favor of the sellers are very rare.
How do I protect myself from a friendly fraud?
Although it is difficult to detect and prove the truth about friendship fraud, it does not mean that the seller should accept the situation and do nothing. It is very important to use all available tools to prove your case.
- The 3D Secure protocol can be considered a protection against fraud. If a payment is completed using 3D Secure, it cannot be disputed later, as long as the merchant has provided the buyer with the full service. Such an operation is similar to a payment with entering a pin code.
- The use of the CVV2 code can prove friendly fraud. This code is known only to the cardholder and is not stored in any merchant database. Criminals cannot see this code either, so we can safely say that the payment was made by a valid cardholder. The code on the receipt can be used to dispute a chargeback.
- Another way to reduce friendly fraud is to verify the customer’s address. When the cardholder proves that the transaction was not authorized, the customer’s address must be verified and if the AVC is a positive match, it will become clear that the customer is not telling the truth. After all, the criminal cannot know the payment address of the account. Also, when a case of friendly fraud is detected, the merchant can analyze the customer’s past orders and understand how often the customer has made orders, what the average amount of the check is and how much it differs from the last purchase that is being disputed. In addition, if this instance of customer theft is not their first, that’s a reason to suspect such a customer of friendly fraud.
- Make a call to the customer and ask them questions related to the purchase that is being disputed. Be sure to record this call to use as evidence of your case in the future.
- Always keep all documentation. You can ask the delivery company for signatures of the orders and make sure that the customer actually received the order if they claim otherwise.
- However, the easiest and at the same time effective way to prevent friendly fraud is to provide high quality customer service. The fact is that many customers simply don’t understand the difference between a refund and a chargeback. When they buy a product that from their perspective does not have the features they need, they want help and to fix that situation. If the company provides poor customer service, customers have no choice but to request a refund. However, if the company maintains high standards of customer service, the latter will be sure to ask for your help and competently solve the problem, instead of immediately requesting a chargeback.
Of course, the latter recommendation is not relevant in cases where the buyer deliberately goes to the crime. In this case, if your company loses a dispute with the buyer in an obvious case of friendly fraud, you will have nothing to do but document the chargeback, and if this case is not the first, simply not accept orders from such a customer.
Unfortunately, there is currently no way to protect your company from a friendly fraud, but by following all of the recommendations in this article, your company can significantly reduce its risks.