Customer disputes of any sort are a time suck for business owners. They also siphon your profits and affect your relationship with banks and payment processors. They’re frustrating - but instances of friendly fraud are perhaps the most difficult to deal with!

What is friendly fraud chargeback, exactly? This is the occurrence of a customer - either intentionally or unintentionally - disputing a legitimate transaction. 

Maybe they forgot they made the transaction and don’t recognize the billing descriptor on their credit card statement. Or, maybe one of their kids bought something online without telling them. There’s a chance they’re outright abusing the chargeback process in an effort to get free stuff.

Whatever the case, you don’t have to just accept this as a “part of doing business” in the digital age. We’ll walk you through how to prevent friendly fraud below along with tips on how to fight fraud chargebacks head on.

The best advice we have to offer on this frustrating problem is to leverage technology to manage your chargebacks on your behalf. 

Our chargeback company prevents up to 95% of disputes from occurring in the first place and can help you win up to 67% of chargebacks that do slip through the cracks. You don’t have to lift a finger, either. Learn more about how it works today!

What is Friendly Fraud Chargeback?

So, what is friendly fraud chargeback? It’s a unique type of fraud in which the customer is the one committing the offense. They open a dispute despite receiving the goods or services they paid for. 

Sometimes, it can be an honest mistake. In others, it can be a deliberate attempt to secure a refund while retaining the product or service. The outcome is more or less the same for businesses.

These disputes can be difficult to contest since the cardholder’s claim may seem plausible to the issuing bank. This type of chargeback has become more common with the rise of eCommerce, where the customer isn’t physically present to verify their purchase.

Common Causes

There are a number of reasons a customer might initiate a chargeback after receiving goods or services, including:

• Unrecognized Transactions: This can happen due to unclear billing descriptors or when a family member makes a purchase without informing the cardholder.
• Buyer’s Remorse: Some customers may experience regret or financial strain after the purchase, in turn filing a chargeback instead of pursuing a return/refund through the proper channels.
• Shipping and Delivery Issues: A customer may initiate a chargeback if they feel a product was not delivered as expected, or if delivery was delayed - even if the product eventually arrives.
• Subscription Services: Automatic renewals and recurring charges for subscription services can lead to friendly fraud if customers forget about the subscription or feel they weren’t given ample time to cancel their subscription.

Impact on Your Business

Some statistics show that more than 80% of customers have initiated a chargeback rather than seeking a refund just because it’s more convenient. Another survey saw approximately 23% of cardholders admitting to engaging in friendly fraud.

Either way, this is a real problem. So, how do chargebacks affect a business? Here are the most common outcomes for companies:

• Financial Losses: A chargeback not only reverses the revenue from the disputed transaction but also comes with additional fees. Frequent chargebacks can add up over time, cutting into your bottom line.
• Increased Chargeback Ratios: A high chargeback ratio can lead to higher processing fees, penalties from payment processors, or even the termination of your merchant account. This can jeopardize your ability to accept credit card payments, in other words, preventing you from doing business online.
• Operational Strain: From gathering evidence to disputing the chargeback with the issuing bank, your team’s attention is diverted from more productive and relevant tasks, slowing your business down and preventing you from reaching more pressing goals.
• Damage to Reputation: Persistent chargebacks can harm your business’s reputation, not only with payment processors but also with customers.

If your chargeback ratio becomes too high, you risk being placed on monitoring programs by card networks, which could lead to further financial and operational penalties. The Visa dispute monitoring program is one example of this.

This is why you need to learn how to prevent chargebacks as a merchant and how to win a chargeback as a seller, which we’ll talk about in a moment. First, let’s provide a clearer differentiation between friendly fraud vs true fraud. 

Friendly Fraud vs True Fraud: What’s the Difference?

To effectively fight a friendly fraud chargeback you need to know how it’s different from traditional fraud.

As we just discussed, friendly fraud involves a legitimate cardholder initiating a chargeback despite having received the goods or services. Maybe they don’t recognize the transaction on their statement, forget about a purchase or subscription, or experience buyer’s remorse. 

The term “friendly” can make it confusing. While sometimes it’s accidental, that’s not always the case. Customers may intentionally file a chargeback, exploiting the system to get their money back while keeping the product or service. It’s only called “friendly fraud” because it’s a real customer initiating the dispute.

On the other hand, true fraud involves a transaction made with stolen credit card information or other forms of identity theft. In this case, the actual cardholder is unaware of the purchase until they notice the unauthorized transaction on their statement.

They then rightfully dispute the charge, leading to a chargeback. True fraud is carried out by a third party who has no connection to the cardholder. 

As frustrating as it may be, you’ll have a hard time fighting true fraud since the onus is on you to do due diligence on who is making the transaction.

That being said, you came here to learn about friendly fraud chargeback issues - which you CAN fight. But first, let’s talk about how to prevent friendly fraud.

How to Prevent Friendly Fraud in the First Place

Many occurrences of friendly chargeback fraud are the result of a misunderstanding. So, here are some tips on preventing the issue in the first place.

Clear and Transparent Communication

Always make sure your customers know exactly what they’re buying, how much it costs, and what the return policy is. When customers know what to expect, there’s less chance of confusion that could lead to a chargeback.

This also involves avoiding overpromising and underdelivering as a business. While you want to market your products or services effectively, you don’t want to deceive the customer or set unrealistic expectations. Always provide clear and accurate descriptions and photos.

After a customer places an order, they should be immediately sent an order confirmation email showing them what they bought, when they can expect it, and what to do if they want to cancel their order.

Accurate Billing Descriptors

Ever had a customer say they didn’t recognize a charge? It’s probably because the billing descriptors used don’t align with your product or business as a whole. 

This can be fixed by making your billing descriptors match your business name, or better yet, including a phone number in the descriptor. This way, customers can reach out to figure out what exactly they were billed for rather than resorting to a chargeback. 

Customer Authentication Techniques

Prevent unauthorized purchases by adding extra layers of security, like two-factor authentication (2FA) or requiring the CVV code at checkout.

This not only confirms that the real cardholder is making the purchase but also helps cut down on disputes caused by someone else using their card. You won’t have as many occurrences of a child using their parents’ saved credit card information for online purchases this way!

Subscription Reminders

The whole point of subscription-based business models is to bring in consistent revenue and provide a seamless experience for your customers. 

However, you should still send out a quick reminder before billing for renewals before actually charging the customers’ card. A 3-5 day timeframe is sufficient to give the customer a chance to cancel their subscription.

Be Liberal With Refunds

Refunds are frustrating, but they pale in comparison to chargebacks. As we discuss in our comparison of chargebacks vs refunds, you’re almost always better off helping the customer navigate the return and issuing a refund than ignoring the issue or telling them they’re out of luck. They’ll inevitably file a dispute with their bank instead.

While it might feel like a loss in the moment, it’s often cheaper and less of a hassle than dealing with the fallout of a chargeback. You could end up getting some positive word of mouth from acting in good faith, too!

Delivery Tracking for Larger Orders

We highly recommend using delivery tracking and requiring a signature for higher ticket items. It gives you solid proof that the customer received what they ordered, which is essential if they try to claim they didn’t get it or that it wasn’t what they expected.

How Do I Fight a Chargeback for Friendly Fraud?

Even the best preventative measures won’t eliminate all instances of friendly fraud chargeback. So, how do I fight a chargeback for friendly fraud? We’ll walk you through the process below.

Try to Resolve the Issue With the Customer First

When you receive the frustrating notification a chargeback has been opened against you, see if you can reach out to the customer and resolve the issue directly. 

Review the chargeback reason code and see what their dispute is - do they not believe they authorized the transaction? Did they mean to cancel their subscription? Are they not satisfied with the product/service received? 

Whatever the case, sometimes a simple conversation can clear up misunderstandings, especially if the chargeback was filed out of confusion. 

Explain the transaction, offer a refund if necessary, or propose an alternative solution. Getting the customer to close the dispute before escalation is a win, even if it results in a loss of revenue in the form of a refund!

Collecting Comprehensive Evidence

As soon as you get hit with a chargeback alert the clock is ticking. The chargeback time limit can vary depending on the issuing bank and payment processor in question, but you typically have 7-30 days to make your case.

So, if the customer doesn’t respond or is unwilling to come to an agreement, get to work gathering your evidence. This includes transaction records, customer communications, shipping and delivery confirmations, and any other documentation that supports your case. 

The goal is to demonstrate that the transaction was legitimate and that the customer received the product or service as described. You’re trying to prove that to the issuing bank that either: 1) the customer is mistaken or 2) the customer is acting fraudulently on purpose.

Crafting a Persuasive Rebuttal

With all relevant evidence on hand, it’s time to put together a rebuttal letter to send to the issuing bank - this is known as representment in chargebacks.

It should be a clear and concise argument that addresses the customer’s claim and presents your evidence in a logical order. Be sure to reference the specific details of the transaction and explain why the chargeback is unfounded. 

The more organized and convincing your rebuttal, the better your chances of winning the dispute. Remain emotionless throughout - you can use our chargeback response template to set yourself up for success.

Monitoring and Escalating the Dispute

If the issuing bank sides with the customer, you may need to escalate the dispute to pre-arbitration chargeback or arbitration, depending on the situation. 

At this stage, you’ll need to reinforce your case with any additional evidence or arguments, while also preparing for the potential financial and operational impacts if the dispute is not resolved in your favor.

You may be wondering…how often do merchants win chargebacks? Unfortunately, the odds are not in your favor. Banks tend to side with customers by default, since chargebacks were originally designed as a consumer protection mechanism.

That being said, lower-risk businesses only with 20-30% of disputes - while high-risk businesses will be lucky to win between 10-20% of their disputes. But, leveraging the Disputifier system can help you boost your win rates as high as 70%!

Put the Stress of All Types of Chargebacks Behind You With Disputifier!

Friendly fraud is just one of the many types of chargebacks you might encounter when doing business online. While there are nuances across all these disputes, the need for a consistent, reliable defense is clear. That’s why you need the best chargeback prevention companies. 

Disputifier uses Verifi and Ethoca chargeback alerts to prevent up to 95% of chargebacks in the first place. The moment a customer opens a dispute it automatically issues a refund depending on the parameters you have in place, closing the chargeback right away.

Meanwhile, fraud scanning tools can eliminate up to 99% of issues with false-positive protections in place to make sure you’re not canceling legitimate orders. 

There are even order not received mitigation features in place so that your customers don’t dispute orders that are taking too long or lost in transit. Not only will it cut these disputes by 80%, but it will increase customer satisfaction as well.

In the unlikely event a chargeback slips through the cracks, Disputifier will fight it on your behalf so you don’t have to lift a finger. We fight so many chargebacks that we’re constantly improving our win rates through A/B testing and template customization. 

The best part? You only pay when we win the chargeback for you! So, whether you’re constantly dealing with friendly fraud chargeback or some other form of dispute, put the problem in the past with Disputifier today.

Bringing Our Friendly Fraud Guide to a Close

There’s no question that friendly fraud can be a frustrating problem for businesses, whether it’s a result of miscommunication or one of your customers taking advantage of the system. Hopefully, this guide has left you with a clear understanding of what you can do to prevent and fight these disputes, though. 

Want to learn more about dispute management? We have tips on how to protect against chargebacks for item not as described, chargeback for services not rendered, what happens if a merchant does not respond to a chargeback, chargeback vs dispute, merchant chargeback insurance, Visa rapid dispute resolution, and more in our blog.

Otherwise, start taking control of your chargeback process today with Disputifier. Let us help you prevent chargebacks and win more disputes, safeguarding your business reputation and profits!