3 ways ecommerce sites can prevent friendly fraud

Important fraud prevention insight for retailers and eCommerce merchants.

• Fight Return Fraud With These Three Strategies
  Most brick-and-mortar stores have a return rate of 5% to 10%, while that rate jumps to 15% to 40% for online retailers. Even though a majority of returns are legitimate, retailers shouldn’t underestimate the impact of return fraud.

Original post by Fraud.net

Friendly fraud is a menace to online merchants. Find out who’s behind these schemes, and how e-commerce businesses stop them.

Janet does a lot of her shopping online. She recently was laid off from her job though, and money has been tight. She placed a large order for groceries from a well-known retail website and paid for them using her credit card. The groceries arrived safely on her doorstep, but she realized the company hadn’t used a tracking number. After pondering for a bit, she called her credit card company and reported that she never received the items. She initiated a chargeback claim.

There are many ways that people commit online fraud, but as you can see, “friendly fraud” may be one of the hardest to detect and protect against.

What is friendly fraud?

Friendly fraud (also known as chargeback fraud or e-commerce fraud) occurs when a customer like Janet buys an item online using their credit card but then claims the charges are invalid in order to obtain a refund after receiving the goods.

This type of fraud is nicknamed “friendly fraud” because the claims can be either the result of honest customer confusion or false reports by intentionally malicious customers.

When friendly fraud occurs

Friendly fraud can occur when a customer contacts their credit card company and initiates a chargeback process for a variety of reasons, including:

• The customer doesn’t recall making the purchase.
• The item received differs from its online description.
• The customer didn’t receive the item they ordered.
• The customer canceled the order but still received the item.
• The customer returned the item but didn’t receive a refund.

Commonly, a physical card isn’t present in cases of friendly fraud. Instead, customers like Janet shop online or with a call center agent. In these cases, it often is hard for the merchant to prove receipt of the purchase if a chargeback situation occurs. This is called a “card-not-present” (CNP) chargeback.

In 2017, CNP fraud was so difficult to prove that U.S. companies lost a total of $4 billion to it. Furthermore, the loss is predicted to reach $6.4 billion by 2021, largely due to the surging popularity of online shopping.

Banks are also making the chargeback process relatively easy for consumers, who can file the chargeback with the financial institution instead of dealing with the merchant directly to receive a refund. They also tend to side with the customer, which makes it difficult for the merchant to prove fraudulent intention.

In addition to the lost dollars from the items charged back (like Janet’s groceries), it’s important to note that the merchant also often has to pay additional costs such as chargeback and processing fees and shipping costs – not to mention the cost of the lost >> READ MORE