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What is friendly fraud?

What is friendly fraud and how can you deal with it?

‘Friendly fraud’ is a contradiction in terms. There’s nothing friendly about fraud, especially when your customer is behind it. 

Sometimes also known as ‘first-party fraud’ or ‘chargeback fraud,’ friendly fraud is when a legitimate customer contacts their issuer to chargeback a card purchase, claiming they don’t recognize or didn’t make it. They then keep the goods or benefit from the service purchased without paying for it.

Around one-third of all disputed payments are friendly fraud, according to a 2018 study by Javelin Research. That’s no small problem, given that chargebacks are a $30 billion a year headache for the industry.

Friendly fraud is worse for merchants selling online or through mobile channels. 41% of their chargebacks are attributable to friendly fraud compared to 35% for physical store-based merchants. In-app digital goods merchants have it harder still. Nearly half of the chargebacks they experience are thought to be the result of friendly fraud.

The bottom line is that friendly fraud is both a burden and a cost for merchants. And in this article, we’ll help you understand:

  • What friendly fraud is and how it happens
  • The industries most at risk from friendly fraud
  • The steps you can take to combat friendly fraud

Why friendly fraud happens

A reason cards have become such a popular payment method, especially online, is because of the protection they offer consumers through the chargeback mechanism.

Chargebacks are a key part of the rules set out by all the major card schemes. They provide customers with the ability to reverse the payment made to a merchant for a variety of reasons, including, but not limited to:

  • Merchants failing to deliver the goods or services ordered
  • Merchants delivering goods that are defective or not as described
  • Merchants charging the customer the wrong amount or duplicating the payment
  • Merchants making an unauthorized transaction

The chargeback rules and processes are stacked in favor of the consumer initiating the chargeback. Issuers generally don’t require much evidence other than the cardholder’s assertion to chargeback a transaction. The burden of proof then falls on the merchant, who must prove the cardholder participated in the transaction or received the goods as promised.

Consumers can also use this mechanism to make fraudulent chargeback claims. These generally fall into two groups:

  • Consumers who deliberately game the system by initiating chargebacks for the goods and services they’ve correctly received. An example of this would be an individual falsely claiming that they hadn’t received the pair of trainers they ordered. 
  • Consumers who initiate a chargeback for goods or services that were incorrectly ordered or ordered without their knowledge. An example of this would be an individual requesting a chargeback after their son or daughter used their card to make in-game purchases.

In either case, chargebacks are a time-consuming and costly process. Data shows that merchants bear around $20 billion or two-thirds of the industry-wide cost of chargebacks each year. In fact, for every dollar disputed, merchants incur $1.50 more in costs. So much so, the fully-loaded costs of managing the chargeback process frequently exceed the value being disputed.

3 industry verticals susceptible to friendly fraud

Friendly fraud is a risk for merchants in every industry. Yet, in some sectors, the risk is especially acute.

Video gaming

Friendly fraud is a common problem in the video gaming industry. This type of fraud may occur when a gamer decides to spend money on upgrade packs to beat a certain level and regret it later. Or, as we’ve seen in many headlines in recent years, it can also occur when purchases are made without the cardholder’s permission – kids using their mum’s credit card to make purchases without asking.


Online retailers are at constant risk of friendly fraud simply due to how easy it is for a consumer to say they didn’t receive the goods they ordered or that the goods are faulty. The growth of ecommerce due to the COVID-19 pandemic has seen instances of friendly fraud reach new heights.


While the travel industry has always dealt with its fair share of friendly fraud – the International Air Transport Association estimates that airline fraud costs airlines and travel agencies more than $800 million per year – the COVID-19 pandemic supercharged the risk. Airlines and other travel companies have received a wave of chargebacks over the past year, with travelers looking to get their money back from canceled trips. And while many of these chargebacks are legitimate, many are also likely to be instances of deliberate or friendly fraud.

Practical advice for tackling friendly fraud

Friendly fraud prevention is better, cheaper and less painful than the cure. Our first two areas of advice focus on preventing customer queries or complaints from escalating into chargebacks. However, when you receive a chargeback, you can contest it. 

Here’s some helpful advice to help you pick your battles and successfully defend friendly fraud chargebacks.

Improve customer communications

Unrecognized transactions are a key driver of friendly fraud. If the information on customer card statements is unclear, customers are more likely to contact their card issuer. If customers have no way of linking a transaction with your business, it’s nearly impossible for them to query it without contacting their issuer.

Ensure the billing descriptor that flows through onto customer statements is clear. If you’re selling online, adding the website address could act as a memory jogger.

Clearly communicate terms and conditions. This is not only good business practice; it’ll also help prevent chargebacks for goods/services not received or not as described at the time of the sale. Include return, refund and cancellation policies. Make sure the frequently asked questions on your website are easy to find and up to date.

Offer a best-in-class service

Provide contact details. This will make it easy for customers to resolve queries with you in the first instance. According to Javelin Research, customers bypassed merchants and went directly to their issuer in around three-quarters of cases. However, in more than eight-in-ten cases, contacting the merchant first prevented a chargeback.

There are other ways to offer best-in-class service, which also helps prevent friendly fraud chargebacks. Ship goods before charging the customer’s card. If goods are out of stock, no longer available or the delivery will be delayed, let the customer know. Managing the customer’s expectations, offering them an alternative or canceling the transaction are all great ways to prevent a complaint from turning into a chargeback.

If you’re part of the subscription economy and offer free trials or introductory promotions, follow industry best practices. Get express consent from the customer for a regular or recurring payment at sign-up. Offer an easy way to cancel the subscription or payment method each time you bill. Notify customers before each recurring payment and provide a receipt. If it’s a trial, add this in the statement descriptor.

Pick your battles

Understand which chargebacks you can contest and the costs of doing so. This may come down to risk appetite. Consider your risk tolerance for disputes. This may differ by sales channel, business line or geography. For example, suppose you operate in a sector where there’s a gap between taking orders and delivering goods. In that case, there’s potential – almost unavoidably – for higher chargebacks than in sectors with immediate fulfillment.

Providing compelling evidence that the customer participated in the transaction and/or received the goods helps defend friendly fraud chargebacks. Configure your internal processes to capture the customer’s account order history, clearly showing all transactions. Collect and retain signed delivery receipts from the customer, courier tracking documentation, or the customer’s IP address, description, date and time of download, if you sell digital services.

Leverage Strong Customer Authentication rules

The introduction of Strong Customer Authentication (SCA) in Europe is a potential game-changer for preventing friendly fraud. That’s because it shifts liability away from the merchant and onto the issuer. It also encourages merchants to be more diligent with fraud detection and share liability where the cardholder experience is more important than the liability shift.

It offers a layer of protection for both merchants and issuers against the fraudulent use of accounts. PSPs and banks now guarantee merchants payment for certain successful online transactions that have been authenticated with 3DS2. More importantly, 3DS2 is an opportunity to share more data and help issuers with risk-based authentication provide better experiences at the checkout.

Discover if your payment service provider is ready to help you fight fraud

Your PSP should be a critical partner in your fight against fraud, friendly or not. Here are three questions you can ask to find out whether they’ve got the tools and expertise you need.

How much data are you leveraging to combat fraud?

Robust fraud protection requires lots of payment data — the more granular the better. The more a system knows, the more it can recognize when something looks odd.

Do you have in-house fraud experts?

The best fraud prevention strategies leverage both best-in-class technology and human expertise. The data may show you what’s happening, but it’s the experts that can tell you why and what to do about it.

How quickly can you solve this problem for us?

Any provider that says they can solve your problem quickly is misleading you. Fraud is fluid. If it’s stopped in one place, it’ll move to another. It’s a long-term game. And you need a payment provider that recognizes and is there to support you fight fraud for the long term.

Overcoming friendly fraud

Dealing with customer disputes, chargebacks and instances of friendly fraud are a reality of accepting payments. But there are plenty of tactics and tools at your disposal to minimize friendly fraud and all the costs and complexities involved.

Our disputes API provides recommended solutions and advice on responding to each dispute, helping you with case-by-case decision-making, resolving disputes faster and reducing the administrative costs involved.