What is “Friendly” Fraud and How Does It Differ from Hostile Fraud?


More than $5.5 billion in credit card fraud takes place each year worldwide1. Credit card fraud can take place for many reasons, including stolen or counterfeit cards, account takeovers, and data breaches. Stolen cards are usually reported promptly by cardholders, but a thief can run up thousands of dollars in charges by making unauthorized purchases before the card is cancelled. However, unlike a stolen credit card, compromised account information can be stored for weeks or months before it’s used, making it hard to determine when and where the compromise occurred.

This is what most people think of as credit card fraud, the type of fraud where they imagine a thief stealing a card or account information and then using it to make purchases until the fraud is discovered and the account is closed. But there is another type of credit card fraud that is far more difficult to prevent.

As acceptance of credit cards has grown among merchants, an increasing number of card purchases are made over the telephone, through the mail and online via computers, smartphones and tablets. These “card not present” (CNP) transactions enable merchants to capture more sales, but they can also pose a risk to businesses in the form of “friendly” fraud.

“Friendly” fraud is proving to be costly for merchants, difficult to detect at time of purchase, and is initiated by otherwise law-abiding citizens.

“Friendly” Fraud is Far from Friendly

The chargeback process provides a way for consumers to have charges removed from their credit card if there is a problem with the purchase, such as the quality of goods, incorrect charges, or delivery issues. A customer initiates a chargeback by contacting their card-issuing bank and filing a complaint about an item on their statement. The bank then reverses the outbound transfer of funds, issues a provisional credit to the customer, and the merchant is debited the transaction and receives a chargeback.

When a chargeback is filed, banks will reverse the charge to the merchant, and they may also charge the merchant a fee. Because of the costs of managing chargebacks, most² merchants don’t spend much time trying to actively manage them, especially for lower-cost items, because the process for investigating them can be costly if they do not win and labor-intensive. So a “friendly” fraud chargeback can easily be ignored.

A “friendly” fraud chargeback results when a transaction is completed successfully but a customer claims otherwise. For example, a customer may authorize a purchase with his own credit card and receive the merchandise, but then files for a chargeback, claiming that he did not receive the merchandise. Industry analysts believe that many “friendly” fraud chargebacks are deliberate, and the FBI has identified “friendly” fraud as one of the top threats to e-commerce.³

With the explosive growth of online sales, and so many consumers purchasing goods online, the purchasing process involves many parties and significant manual effort. “Friendly” fraud may start out as unintentional, or customers may feel that they shouldn’t have to pay for products or services if they don’t use them or provide the value they expect.

Fortifying Against “Friendly” Fraud

“Friendly” fraud is nearly impossible to prevent. But merchants can strengthen their transaction procedures to make it harder for dishonest shoppers to take advantage of them and to enable themselves to be able to provide compelling evidence justifying the transaction.

  • Use a shipping service that includes a tracking system, preferably one that requires a signature as proof of delivery. If a customer claims they did not receive an item, their signature can help prove that they did receive it.
  • Clearly define refund and cancellation policies in your selling terms and conditions. Give a time frame for returns, and for high-value items, require proof of them being shipped.
  • Investigate every chargeback claim that exceeds a predetermined amount. Estimate the value of the sale plus the cost to fight the chargeback. Dispute chargebacks over that amount that are suspected to be illegitimate, either in-house or using a chargeback management service.
  • Employ best practices in selling to make it more difficult for shoppers to claim there was a problem with a transaction. Deliver fast response times, offer extended support hours, keep delivery receipts for products, and use up-to-date software. Keep records of all communications with the customer.
  • Be sure to keep track of “compelling evidence,” the documentation needed to successfully dispute a chargeback. The rules for compelling evidence differ for each card brand and industry.

There are many challenges merchants have to overcome to stay afloat. Acquiring banks may terminate a merchant account that experiences frequent chargebacks, so excessive “friendly” fraud chargebacks can result in the loss of a merchant’s account for credit card acceptance. Companies should seek out chargeback and fraud management solutions that can protect their operations by helping them prevent and detect “friendly” fraud as well as guide them on what needs to be provided to refute a “friendly” fraud dispute.

The most effective chargeback management solutions are tailored specifically to individual merchants, rather than being one-size-fits-all solutions. The best defense against “friendly” fraud requires both human elements and automated solutions, such as deep analytics that can identify chargeback triggers and help prevent them. Should a chargeback be filed, highly trained chargeback specialists can customize responses before transmitting them to banks. By working proactively to prevent chargebacks, merchants can help ensure the success of their business by avoiding the challenge of “friendly” fraud.


1 “Credit Card Card Fraud Statistics – Statistic Brain.” 2014 Statistic Brain Research Institute, publishing as Statistic Brain. http://www.statisticbrain.com/credit-card-fraud-statistics/

2 Managing the Challenge of Merchant Chargebacks @ 2015 GA Javelin LLC

3 Novacic, Ines. “This fraud may be ‘friendly,’ but costs are high.” CBS News, December 10, 2014. http://www.cbsnews.com/news/friendly-fraud-an-enemy-to-everyone-in-the-e-commerce-chain