The Not-So-Friendly Side of Friendly Fraud: What Businesses Need to Know

Picture this: A customer places an order from your online store. You process the payment, ship the products, and everything seems to be going smoothly. But then, after receiving and using the items, the customer decides they want a refund. Instead of reaching out to you, they dispute the charge with their bank, claiming they never made the purchase or that they didn’t receive the goods or services.

This is a prime example of friendly fraud—when a legitimate cardholder makes a purchase but later disputes the charge, falsely claiming it was unauthorized or that the product or services weren’t delivered. Unlike criminal fraud, which involves stolen payment information, friendly fraud usually occurs due to misunderstandings, unintentional actions, or buyer’s remorse.

But how does friendly fraud differ from criminal fraud? Let’s take a look:

	Friendly Fraud	Criminal Fraud
Cardholder	The actual cardholder makes the purchase but later disputes it.	A fraudster uses stolen payment details to make the purchase.
Intent	Sometimes unintentional (e.g., buyer’s remorse, confusion), but can often be intentional when buyers exploit the dispute process.	Always intentional, with the aim to steal money or goods.
Common Causes	Forgotten purchases, unclear billing descriptors, family use, buyer’s remorse.	Hacking, phishing, stolen card details.
Business Impact	Revenue loss, chargeback fees, reputational damage, operational costs, and risk of account termination.	Revenue loss, chargeback fees, reputational damage, operational costs, and risk of account termination.
Resolution Process	Better chance of recovering disputed funds.	Recovery is typically more challenging.

While it may seem harmless to the customer, the impact on businesses can be significant. Lost revenue, chargeback fees, and operational costs add up quickly. Friendly fraud now accounts for up to 75% of all fraud-related chargebacks, particularly in online and digital industries. Part of why it’s grown so quickly is that customers face little consequence for disputing legitimate charges, whether they claim they didn’t make the purchase or never received the goods.

According to industry reports, global losses from friendly fraud now exceed $25 billion annually. As online shopping continues to grow, friendly fraud has become a major challenge for merchants across industries, from retail to subscription services.

How Friendly Fraud Impacts Businesses

When a customer disputes a legitimate charge, you lose the sale—and face chargeback fees. Over time, these losses can add up, particularly for businesses using traditional payment processing services.

It’s not just the financial hit. Friendly fraud puts extra pressure on customer service teams, who spend time handling disputes and managing chargebacks. Worse, proving friendly fraud can sometimes be challenging, meaning businesses often have no choice but to absorb the cost.

Common Causes of Friendly Fraud

So, what causes friendly fraud in the first place? In some cases, it’s simply a matter of confusion—customers might not recognise a transaction on their bank statement, especially if the billing descriptor is unclear or doesn’t match the store name.

Sometimes, family members use a credit card without permission, leading to unintentional disputes. For example, children may make purchases on a parent’s device without realising the cost, prompting the parent to dispute the charge later. Subscription services can also be a source of friendly fraud; customers might forget about auto-renewals and dispute the charge instead of cancelling.

But friendly fraud isn’t always accidental. Some customers exploit the chargeback system intentionally, seeing it as an easy way to get products or services for free, believing there will be no repercussions. This misuse is particularly common in digital and subscription-based businesses, where customers may dispute charges even after fully using a service.

Strategies to Reduce Friendly Fraud

Luckily, there are some practical steps you can take to get ahead of friendly fraud. It starts with something as simple as using clear billing descriptors that match your store name, so customers can easily recognise charges and avoid confusion.

It’s also important to educate your customers about your return and refund policies—when they know their options, they’re far less likely to jump straight to filing a dispute.

To make sure your business is covered, here’s a quick checklist of key actions to help you reduce friendly fraud:

• Clear Billing Descriptors: Make sure your business name shows up clearly on customer statements so they can easily recognise the charge.
• Automated Chargeback Management: Streamline the chargeback process with automated tools that keep disputes from piling up.
• Customer Communication Tracking: Keep a record of customer interactions so you can resolve disputes quickly and accurately.
• Educate Customers on Return/Refund Policies: Be clear about your return and refund policies upfront—this prevents confusion and disputes.
• Monitor for Patterns of Friendly Fraud: Use data analytics to track patterns and trends in friendly fraud activity.
• Chargeback Alerts: Stay on top of chargeback alerts so you can respond fast and minimise potential losses.
• Represent Invalid Chargebacks: Push back on illegitimate chargebacks to reclaim lost revenue and show customers that friendly fraud isn’t an easy way to get a refund.

By following these steps, you’ll have a solid foundation for preventing friendly fraud. But to truly stay ahead of the game, you need the right technology working behind the scenes.

The Role of Technology in Fighting Friendly Fraud

When it comes to battling friendly fraud, having the right tools in place can make all the difference. Fraud detection software, automated chargeback management, and data analytics are essential in staying ahead of friendly fraud.

But it’s not just about identifying fraud—it’s about having a seamless system in place to respond quickly. With advanced payment solutions and automated chargeback processes, you can manage disputes efficiently without slowing down your business. Data analytics also provide powerful insights, helping businesses spot trends, predict fraud, and adjust strategies in real time.

The question is: how can you make sure you’re equipped with the best tools? That’s where Fibonatix comes in.

How Fibonatix Can Help Your Business Tackle Friendly Fraud

Friendly fraud can disrupt your operations and hurt your bottom line, but with Fibonatix as your partner, you can stay ahead of these challenges while offering your customers a secure and smooth payment experience.

Here’s how we can support your business:

• Customised Fraud Detection Solutions: At Fibonatix, we offer tailored fraud detection systems that are designed to catch suspicious activities early, reducing the risk of fraudulent disputes before they escalate.
• Streamlined Chargeback Management: Managing chargebacks can be time-consuming, but our automated systems ensure that you’re equipped to handle disputes quickly and efficiently, protecting your revenue while minimising operational strain.
• Advanced Payment Gateway Solutions: We provide seamless payment gateway solutions offering customers a frictionless experience while safeguarding your business from potential fraud.
• Data-Driven Insights: With Fibonatix, you’ll have access to real-time data analytics, helping you spot patterns in fraudulent behaviour and adjust your strategies accordingly to prevent future issues.
• Comprehensive Support and Consulting: Whether you need assistance with compliance, guidance on handling disputes, or advice on optimising your payment processes, our team is with you every step of the way.

Contact us today to find out how Fibonatix can help you prevent friendly fraud, keeping your business running smoothly while safeguarding your revenue.