What is Friendly Fraud and How to Prevent it in Your Business?

If you run a business, you need more than ever to be able to process credit and debit card payments. It gives you the ability to sell online and to conduct enough store transactions to turn a profit. With this ability, though, comes the problem of chargebacks. Every time you have to refund a purchase, it costs you money. Particularly vexing are situations where everything about the sale is legitimate. These instances of friendly fraud can cut into your bottom line, and even your ability to continue to process payments.

What Is Friendly Fraud?

Friendly fraud comes when your customers demand refunds on their purchases. You complete the transaction, process the payment, and provide the goods or services purchased. After all of that, the customer comes back to demand a refund. It may be a situation where the customer did not receive what he or she ordered, or for other reasons honestly believes he or she is entitled to the refund; this is what separates friendly fraud from more malicious kinds of fraud.

Still, the result is the same: you lose the value of the goods sold as well as any extra fees the chargeback brings from your payment processing provider. You essentially pay for what you sold, in addition to what the processing provider charges you. You may even be barred from processing certain kinds of payments if it happens too often.

How to Ward Off Friendly Fraud

While you may never fully eliminate friendly fraud, you can take steps to limit it. One comes through communication. If you put in writing what your return policies are and have your customers sign off on them, you have more room to legally fend off efforts at friendly fraud. Talk to your customers, and make it easy for them to reach you if needed.

In addition, electronic communications give you the ability to collect information from your customers with every payment transaction. It can help you follow-up if the customer disputes a transaction, and gather what you need to resolve those disputes quickly and effectively. Further, if you have repeat friendly fraud perpetrators, you can track that as well. If a person has multiple instances of returns on merchandise he or she claims not to have received, you can build in shipment tracking or other methods to protect yourself against more chargebacks.

Balancing Customer Relations With Fraud Protection

A concern for many businesses comes with worrying about customer relations when you fight against friendly fraud. If your customers are costing you money, though, you are right to protect yourself. Communication can usually help you clear up any disputes with honest purchasers, so you preserve and even build on those relationships. Meanwhile, your business relationship with the processing provider remains intact, and you only lose those customers who are preying on you.

Take the steps you need to build policies and practices that protect your company and your bottom line.

What is Friendly Fraud and How to Prevent it in Your Business?

About the Author

Dustin Sparman, SVP of Sales, Strategic Accounts Group

Dustin leads Nuvei's Strategic Accounts Program, along with its partner team. With over 10 years of electronic payments industry experience, he was previously managing partner of a successful payment processing company.

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