Strategies the Pros Use to Prevent Friendly Fraud

  • Max Jones
  • October 21, 2018
  • 4 minutes

Your business deserves to profit from every hard-earned sale you make. Don’t let friendly fraud chargebacks cheat you out of revenue that’s rightfully yours!

Get an inside look at the tools and strategies the professionals use to prevent friendly fraud.

What is Friendly Fraud?

Friendly fraud is a specific type of chargeback.

Chances are, you know exactly what a friendly fraud chargeback is—you just don’t know that it’s called friendly fraud!

friend●ly fraud

/ˈfrɛ́ndli frɔ́d / noun

  1. A chargeback request or payment dispute made with false claims, an illegitimate demand for a refund – “the customer committed friendly fraud because the shirt was the wrong size”
  2. A chargeback request or payment dispute made out of confusion, a misunderstanding – “the customer forgot about the purchase, so committed friendly fraud”

synonyms: illegitimate chargeback, chargeback fraud, first-party fraud

Friendly fraud happens when a cardholder uses the chargeback process incorrectly, either as an intentional attempt to get something for free or an innocent misunderstanding.

It’s a customer dishonestly saying the merchandise never arrived when it actually did. It’s a customer forgetting about a purchase and mistakenly claiming fraud.

And, it’s about a hundred other well thought-out attempts to avoid responsibility and nearly as many accidents or misunderstandings.

Basically, when it comes to committing friendly fraud, the possibilities are endless. That’s why it is so hard to get ahead of the revenue loss. But with the right tools and tactics, you can prevent friendly fraud with greater accuracy and higher ROI.

How the Pros Prevent Friendly Fraud

Midigator® is a chargeback management platform. Our leadership team is made up of former merchants and industry experts with decades of experience.

That means we have first-hand experience with friendly fraud and a unique understanding of which strategies do and don’t work.

Here’s how we suggest merchants prevent friendly fraud.

1Resolve Disputes Before They Progress to Chargebacks

Sometimes, issuing banks are an unwilling participant in friendly fraud plots simply because they lack the insight needed to confront and challenge requests for illegitimate chargebacks.

A new dispute-resolution tool, Visa Merchant Purchase Inquiry, has the potential to change all of that.

Through VMPI, an issuer can request transaction information after a dispute is made, and the merchant can respond in real time.

With the information the merchant provides, the issuer can either clarify confusion that would otherwise lead to accidental friendly fraud or expose attempts to engage in cyber shoplifting.

If you are interested in using VMPI to prevent friendly fraud, you can simplify the integration process by partnering with a Visa facilitator.

2Analyze Your Data

It’s impossible to force customers to come to you with their complaints instead of the bank. But you can reduce the risk that customers would have complaints in the first place, eliminating the need to reach out to anyone at all.

All you have to do is identify and solve the underlying issues that would incentivize friendly fraud.

You can do this by breaking down your chargeback data into different variables and then analyzing the outcomes.

For example, one merchant traced disputes back to their original marketing source and discovered Twitter was attracting more friendly fraudsters than any other platform for their particular product. Retargeting to an older, more mature age demographic helped reduce chargebacks.

Another merchant analyzed chargebacks by billing cycle and discovered that perceived value dropped after the fifth billing cycle—and friendly fraud spiked. Sending a small gift and reminding customers of the cancellation policy helped prevent subscription billing chargebacks.

A merchant reviewed chargebacks by reason codes and found a significant portion were classified “merchandise not received”. The merchant improved communication to ensure accurate order information was conveyed to the fulfillment department and introduced a faster shipping option so deliveries coincided with customer expectations.

Another merchant checked chargebacks by product type. One product in particular had a chargeback rate that was nearly double all the other products. Upon review, the merchant discovered the product wasn’t the quality shoppers had come to expect from the business. Removing this product from the store helped prevent friendly fraud.

As you can see, data analysis is an effective way to prevent friendly fraud. However, the added step of first collecting and organizing the information before analyzing it can be so time-consuming and costly that it negates all potential benefits.

On the other hand, if the data is consolidated for you and laid out in user-friendly reports, it’s easy to detect patterns and trends.

Collecting and displaying the data you need to identify friendly fraud at its source is one of Midigator’s specialities. If you’d like to see the interactive analytics and reports for yourself, sign up for a demo.

3Use a Blacklist

Studies have found the majority of friendly fraudsters are repeat offenders. If they successfully file one illegitimate chargeback, they’ll likely request another.

Based on this information, we’ve found an effective way to prevent friendly fraud is to create and maintain a blacklist.

When customers commit friendly fraud, add them to the database. Then, if those high-risk customers shop with you again, you have the option to cancel transactions that will likely result in chargebacks.

Creating a database to blacklist your own customers is helpful, but accessing a communal blacklist is even better. You can block customers who have disputed transactions with other merchants too; you don’t have to wait until the friendly fraudster strikes your business to act.

Midigator will be unveiling its communal blacklist soon. Contact us to learn more and sign up for one of the early-access spots.

Want Help Preventing Friendly Fraud?

The revenue loss caused by friendly fraud has a direct impact on your bottom line. But with access to insightful data and intuitive technology, you can keep financial losses to a minimum.

If you’d like to learn more about how Midigator can help prevent friendly fraud, sign up for a demo today. You can see the technology in action and discuss strategies that will work best for your business.

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