Chargeback Management: Hostile Versus Friendly Fraud

Jeffrey Wixted

Dec 13, 2021

This article summarizes information and findings from the Accertify-sponsored Javelin merchant survey and report, “Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies.” Here we will provide insight into how merchants differentiate between hostile vs friendly fraud, and the chargeback measures that currently work to protect businesses.

The Javelin survey1 provides important insight into the realities of hostile versus friendly fraud, and how they factor into overall chargeback management. According to respondents, as many as 18% of merchants still do not track friendly fraud. This is increasingly problematic for two key reasons:

  1. Online-only platforms continue to grow and may be uniquely vulnerable to friendly fraud.
  2. Varying delivery and pickup methods (such as buy online, pick up in store) were popularized during the pandemic and continue to be a way people shop, but are also extremely susceptible to friendly fraud.

If left untracked, these two types of fraud could significantly impact a company’s revenue.

Read on to learn more about the difference between hostile versus friendly fraud and how chargeback management processes can be used to prevent loss.

The Difference Between Friendly and Hostile Fraud: Intent.

Friendly fraud, sometimes referred to as first-party fraud, can occur in multiple ways. One instance, can be when a cardholder doesn’t recognize a charge and contacts their bank claiming it was fraud. Without malice, they deny the purchase and attempt to receive a refund. At the same time, friendly fraud can also be anything but friendly. Consumers can have buyer’s remorse and claim they never received the goods or services (when they actually did) hoping to get a refund. While they may reconcile this as they are taking from a major company that can afford the loss – the impacts can be substantial and incredibly difficult to detect.

Hostile fraud, often times referred to as 3rd party fraud, is perpetrated by bad actors who enter into a transaction with the sole intent to defraud. Be it using a stolen credit card, synthetic identity, or making a legitimate purchase knowing they are going to attempt to claim non-receipt, these fraudsters often defraud merchants repeatedly and can cause substantial losses as well.

The Top Dispute Conditions Merchants Do Not Fight

It can be difficult for merchants to differentiate between these two types of fraud, especially as the volume of claims grows. The survey findings are clear – many of these type of claims merchants do not even attempt to fight2:

  • 39% do not fight merchandise or services not rendered claims
  • 23% do not fight duplicate transactions claims
  • 21% do not fight canceled transactions claims

The Javelin Survey Report1 points to a “wholesale lack of data points” that may be to blame for merchants being unable or unwilling to fight these claims. This represents missed opportunities and can cost a great deal of revenue, when richer data and deeper investigation could yield better results.

Two Trends in Retail worth exploring more

The two trends in retail that have accelerated in the past year and a half are online shopping and varied delivery methods, such as curbside or in-store pickup. The fast adoption and inherently challenging circumstances, have made these both incredibly vulnerable to fraud.

1. Online Shopping

Department stores and non-essential retailers were forced to close and their transaction volumes declined by 25% in the first quarter of 2020 alone. Big-box brands rapidly shifted everything to online shopping — a change that is unlikely to be reversed. The rapid pace and wide-scale adoption of online shopping left room for fraud, especially for companies that developed these services quickly, without implementing the necessary fraud management systems.

2. Delivery Methods, like Buy Online, Pick Up in Store

A common occurrence during the COVID-19 pandemic has been for brick-and-mortar retailers to alter the ways they could get their goods into their consumers hands. By offering curbside pickup, buy online, pick up in store (BOPIS), or even same day delivery from store, merchants were able to stay afloat during a very challenging time. A Retail Systems study conducted in the U.K.[3], estimated a 74% growth in digital purchases picked up in-person. The convenience of this arrangement is complicated by fraud, with BOPIS fraud having increased by 55% between 2019 and 2020.

It is essential that as online shopping with in-person pickup continues, merchants are prepared to face increased disputes and need a streamlined system for managing the increased claims of merchandise not received and other such refund requests.

Fight Friendly Fraud & More: Accertify Improves Chargeback and Dispute Resolution

Accertify has sophisticated tools that can position merchants well to win more disputes.

Cardholder and Transaction Data

Integrated chargeback management is essential so that merchants can respond to cardholder disputes in a timely manner with the necessary evidence. For many merchants, resources are so strapped that this data is typically collected in an unstructured way. Accertify’s solution streamlines data collection, providing automated tools that make it easy to source and extract information about transactions.

Customer Communication

Both client expectations and regulatory requirements stipulate a certain level of customer communication. This is achievable through automated messaging, signals and triggers, and using customer data to tailor the conversation. By ensuring clear communication lines, you reduce the likelihood of your customers calling their bank first when they have a problem.

Case Management

Ongoing tracking is key to developing strong metrics, improving compliance and for managing cases. Chargebacks can be a symptom of a much larger problem. By partnering with the experts at Accertify, we can help merchants manage their chargeback cases and increase win rates.

Customer Experiences

Accertify helps merchants deliver an ideal customer experience without added friction. It is possible to both pursue dispute resolution and please customers. Brand value is built over time by optimizing multiple areas of efficiency. Integrated solutions are the best way to overcome chargeback challenges and preserve brand reputation.

Request a consultation about chargeback management from Accertify.

1 Javelin Survey 2021 – Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies

2 Javelin Survey 2015 – Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies

3The “New Normal”: Preparing for Unprecedented Peaks in a New World of Retail as a source