The Expert Podcast

• Friendly fraud occurs when a customer makes a legitimate purchase, but later claims a chargeback or dispute, falsely alleging issues like non-delivery or receiving the wrong product.
• The latest trend in this fraud is First Party Delivery Fraud, where the cardholder falsely claims they never received an item, even though they did.
• Friendly fraud is becoming more prevalent, with one-third of Americans admitting to it, and 52% of Gen Z willing to commit it if there were no consequences.

• Friendly fraud can cost merchants more than just the sale or product. Chargeback fees, potential freezing of merchant accounts, and possible account closure are significant risks.
• Fraudulent chargebacks can also accumulate and harm your business reputation.

• How to prevent and respond to friendly fraud:
  • Step 1: Send a Notice: Don't rely solely on the bank's actions. Send an official notice to the customer that an investigation is underway. The notice should include information about the dispute and its potential consequences.
  • Step 2: Investigate: Gather all relevant facts, such as UPS tracking and IP address details, to prove the item was delivered or the product was used.
  • Step 3: Respond to the Chargeback: Always reply to chargebacks, even if you lose. Not replying can make your case look like an admission of guilt. Include an investigative report in your dispute response.
• Important Tools:
  • Photos of the Product: Including a picture of the product the customer claimed to not receive can be a powerful tool in your response.
  • Social Media & Craigslist Checks: Investigating whether the item is being sold online can help catch scammers.
  • Investigative Support: Hiring a licensed private investigator to handle the case can add a layer of credibility and pressure on the fraudulent customer.

• Financial Impact: A chargeback can cost more than just the product. Merchants may incur fees and lose the funds from the sale. In addition, a high chargeback rate can lead to higher fees, frozen funds, or even account closure.
• Psychological Impact on Merchants: It can be frustrating to deal with these fraudulent claims, especially since many criminals believe there will be no consequences.

• Preventing and responding to friendly fraud is crucial for maintaining your business’s profitability and reputation. Implementing solid policies and being proactive in your investigations can help protect your business from significant losses.