Friendly fraud has been a huge issue for merchants for some time now. What might seem harmless from a customer’s perspective has serious negative effects on a merchant’s operation. One average, one in five consumers knowingly submit fraud claims, with false disputes contributing to $125 billion in annual chargeback losses for merchants worldwide.

What is Friendly Fraud?

Friendly fraud takes place when a customer makes a purchase with a credit or debit card but then disputes the charge with their bank for one reason or another – but they don’t actually have a legitimate reason to do so. This is also known as chargeback fraud.

When a cardholder makes a legitimate dispute, it involves them becoming a victim of true fraud. This also includes failing to receive the product or service they paid for and the merchant being unhelpful or unresponsive. Ideally, a cardholder should reach out to the merchant to resolve the issue before filing a chargeback.

Common Causes of Friendly Fraud

There are several different reasons why a customer might file a chargeback. If a customer is confused about a purchase, forgot that they made the purchase or sees a recurring charge, they may contact their bank and say that the charge wasn’t authorized. If a customer is dissatisfied with their purchase or feels tricked, they may also file a dispute that the charge is illegitimate. Chargebacks can also occur when a customer wants a refund but the merchant refuses to give it to them.

The Difficulties of Friendly Fraud Disputes

In short, friendly fraud occurs due to a mix of reasons from customers, from honest mistakes to intentionally using the system. Chargebacks are a huge headache and source of stress for merchants. The processing of fighting friendly fraud is also incredibly time consuming. Here are just a few of the common issues merchants face:

1.Identifying fraudsters. Merchants struggle to distinguish potential friendly fraudsters and the actual intent behind the dispute. Even long-term, trusted customers can forget a purchase from time to time or fail to recognize their name on their bill and file a chargeback.

2. Consumer distrust. Unfortunately, one of the most devastating effects of chargebacks is the loss of consumer trust. Even relationships with valued clients can fall apart when they engage in a chargeback honestly, leading to loss of future sales and referrals.

3. Lack of coverage. While there are services like anti-fraud solutions that promise to cover the costs of fraud chargebacks, they do not prevent friendly fraud. Ultimately, this means a significant percentage of chargebacks continue to cause devastating losses for merchants.

Bottom line: merchants today need help from more innovative solutions that can help them with discovery, assessment and resolution of friendly fraud. Merchants across the globe stand to benefit from chargeback revenue loss solutions that effectively meet today’s challenges.

Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of chargeback insurance providers. He also writes non-fiction, on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice-cream on his backyard porch, as should all right-thinking people.