Friendly fraud is when a customer requests a chargeback for a relatively innocuous reason, such as a family member making a purchase without the customer realizing, the customer genuinely forgetting that they had made a purchase, or some mistake relating to the customer not understanding something such as a return policy. The key distinction between friendly fraud and other forms of chargeback fraud is that the customer is not knowingly, intentionally committing fraud.
Frequently Asked Questions
Looking at the reason code associated with a dispute should provide some information about the underlying cause of a chargeback.
While chargeback policies generally prioritize the rights of cardholders, there are some key merchant chargeback rights, including:
Chargeback insurance does exist but its level of coverage varies wildly. Merchants would be well served to research any policies before purchasing coverage.
Preventing chargeback fraud is a multi-faceted endeavor. It may require the use of chargeback prevention tools and proactive fraud-prevention policies. It is important to recognize key indicators of potential fraud such as conspicuously large orders or repeated small orders from the same card. It is also important to know the differences and similarities between chargeback fraud (intentional abuse of the chargeback system by a cardholder), friendly fraud (unintentional misuse of chargebacks by a cardholder), and true fraud (identity theft or stolen payment credentials).
Chargeback fees vary depending on the circumstances of the chargeback and the policies of the financial institutions involved. They usually fall in the range between $20 and $100.