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Financial Fraud Law

‘Friendly Fraud’ Chargebacks a Growing Threat for Internet Merchants

 Scammers have recently chosen a new route to fool businesses—“friendly fraud,” an illegitimate type of chargeback or card dispute. “Friendly fraud” consists of consumers making an online purchase and then contacting their bank, stating that the transaction was not their doing, resulting in a chargeback.
According to recent survey results, the incidence of friendly fraud (among chargebacks) has increased from 23 percent to nearly 70 percent in the past three years alone. The growth rate appears to be linked to the growing use of card-not-present transactions. Traditional brick and mortar retailers are being quickly replaced by a fast growing Internet marketplace, which leans heavily on the use of keyed-in credit card transactions where no physical customer was present. Whether due to ignorance or actual intent to defraud the merchant, consumers and credit card companies can leverage the loopholes provided through the chargeback vehicle to dispute a non-traditional electronic transaction, resulting in the creation of greater liabilities for all parties involved.
Increased chargeback costs equate to higher prices to the consumer, increased fees paid by the banks, and more risk in the eyes of the transaction processor. What was developed as a check and balance safety valve, designed to keep merchants honest, has been rapidly morphing into a no-win vicious cycle between banks, merchants, and the actual customers related.
Chargebacks are a frustrating aspect of Internet sales, as merchants typically lose revenue with each charge dispute. “Friendly fraud” thrives in the Internet sales market due to the lack of physical authenticity of the transaction.
According to Chargebacks911, a merchant can never guarantee that the business won’t receive a “friendly fraud” chargeback. However, merchants will benefit from being as prepared as possible. Chargebacks911 suggests that online vendors:
1. Engage in more communication – less is not more on this topic. Merchants should provide customers with multiple opportunities to easily contact them, and should handle their resolutions, as quickly as possible.
2. Require a signature upon delivery of goods. The signature, in addition to information gathered online, helps relieve merchants of any wrongdoing in the resolution of chargeback disputes.
3. Keep customer records and account history to track suspicious activity and lower the risk of accumulating chargebacks.