What’s The Prevalence of Friendly Fraud Across Different Industries?

Oct 22, 2018

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.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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