Friendly fraud is when a cardholder claims a refund for a purchase they or their relatives actually made. The scam has become popular and a burden to merchants, even pushing market experts like Ethoca, a commerce firm to investigate its prevalence across different industries. And the result; while friendly fraud occurs across all industries, the frequency is higher in specific sectors.
The survey included 775 companies from different industries. Ethoca asked merchants to specify the percentage of chargebacks occurring due to friendly fraud or “false claims.” The findings were enlightening, but not astonishing because the growing threat of false claims is not news to many.
Nearly 1 in 3 subjects said friendly fraud made up less than 25% of their chargebacks. From a superficial look, it may not seem like a red flag; but in real sense, any case of friendly fraud causes incredible harm to issuers, retailers, and cardholders. Think of it; false claims, consumer frustration due to unnecessary rubbing of shoulders, and unnecessary loss of time and revenue solving a problem that’s otherwise avoidable.
But what made the alarm sound was the fact that almost 1 in 5 surveyed businesses said friendly fraud made up more than 88% of their chargebacks. And many fear these rates may go higher.
How do these figures change when the occurrence of friendly fraud is broken down by sector?
Online Gaming & Betting
They reported the highest rates of false claims or friendly fraud, nearly 90%. And in most cases, it is caused by a gambler’s remorse. A player who makes 100 deposits each worth $10 and loses all bets may be upset and proceeds to claim all 100 transactions—aware that they used the whole amount in stakes.
Airlines/Travel
35 % of the survey participants in this category said friendly fraud makes only 25 percent of their chargebacks. These rates may seem low in comparison to other industries, but the high price tied to every disputed ticket sale that triggers a chargeback is what magnifies it to a substantial financial problem.
Picture this: an air ticket worth $750 could cost an air travel service provider twice as much after considering associated costs, like the refund, the chargeback fee, losses because the ticket can’t be resold, and other nonrefundable airline taxes/fees.
Digital Goods & Services
Digital goods like music and video streaming are naturally vulnerable to friendly fraud. For instance; a teen can easily stream a movie (with their dad’s credit card) without their parents’ knowledge. On noticing the charge, the parent may dispute it— a type of friendly fraud known as benign. It refers to when cardholders claim charges because they honestly don’t recognize them. But the overall impact of benign is too massive to overlook.
Last Words
Find out the figures for your sector and why such chargebacks occur in your industry. That way, you can get ready to combat friendly fraud and prevent chargebacks.
*Chargeback disclaimer: chargeback Shield is not an insurance service. EMB does not sell insurance and Chargeback Shield is not insurance, it is an alert system.