Friendly fraud

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Friendly fraud also known as friendly fraud chargeback is a credit card industry term used to describe a consumer who makes an Internet purchase with his/her own credit card and then issues a chargeback through his/her card provider after receiving the goods or services. When a chargeback occurs, the merchant will always be responsible, regardless of what the they did to verify the transaction. The challenge with friendly fraud is that there is no way to verify the authenticity of the transaction, which is in fact legitimate, because the consumer is the one that is not legitimate. ^[1]

Contents 1 History 2 Overview 2.1 Physical products 2.2 Digital transactions 3 References

[edit] History

Friendly fraud has been widespread on the internet, affecting both the sale of physical products and digital transactions. To combat digital transaction fraud, prepaid cards have been offered as an effective alternative to ensure customer payment. South Korean software developers such as Nexon implemented a prepaid system in 2007 to combat friendly fraud, selling prepaid cards in stores such as Target. ^[2]

MasterCard was sued in 2003 by an internet vendor for having credit card policies and fees that have made internet vendors especially vulnerable targets of friendly fraud. Internet vendors typically have to pay much of the losses when a fraudulent transaction like friendly fraud occurs. ^[3] It's estimated that friendly fraud affects thousands of online companies, costing them millions of dollars.^{[citation needed]}

[edit] Overview

[edit] Physical products

The online merchant that sells physical products can protect itself by requiring a signature upon delivery of goods. That signature, in addition to information gathered online, helps in the resolution of chargeback disputes. Also, the merchant can request the Card Security Code on the credit card to fight "Card absent environment" chargebacks. These are the three digit codes on the backs of Visa, Mastercard, and Discover cards, and the four digit code on the front of American Express cards.

[edit] Digital transactions

Friendly fraud thrives in the digital products market where it is much easier for fraudsters to succeed. Common targets include pornography and gambling websites. ^[4] Attempts by the merchant to prove that the consumer received the purchased goods or services are difficult. Again, the use of card security codes can show that the cardholder was present, but does not prove that delivery was made. Proof of delivery is often difficult, and the cardholder gets the product without paying for it.

One method of combating friendly fraud is to create a feature in the product that checks in with the merchant's database. If a chargeback is issued, the merchant can tell the product to suspend service. This tactic will also work for digital subscription services, or any other online product that requires updates or logins. Unfortunately, however, the merchant will usually still be charged a fee for incurring a chargeback, so this is not a complete solution.

[edit] References