True Fraud vs. Friendly Fraud

As mentioned within Chargebacks 101, chargebacks are card based transactions which are being disputed for any number of reasons. Most companies view chargebacks as a cost of doing business, while this may be true technically there is opportunity to learn and benefit from implementing a chargeback prevention and management process. It’s hard enough to spend the time and resources only to have an unruly customer turn around and take advantage of you. As listed below by following a couple basic principals you’ll be able to recoup more of your lost funds and increase overall business intelligence.


Take the First Steps to Chargeback Management


One of the first steps to a chargeback management program is to make sure at least the basic fraud prevention methodologies are in place. After reading this page, take a couple minutes to review our Fraud Prevention 101 section to understand some of the basic fraud prevention methodologies.


Tip: By combining your fraud prevention and chargeback management practices you’ll be able to glean additional levels of information about your customers which can be used for future marketing effort.


Understand why your chargebacks occur; often times the transactions are not the result of stolen card information or identity theft but the more insidious “friendly fraud”. Friendly fraud is where dishonest card holders actually intend to buy the item and then dispute the charge (file a chargeback) in order to keep the product and have the money returned.


Of Note: Filing chargebacks has only been made easier with the card associations (Visa/MasterCard) focusing on customer service and making the chargeback process easier for the card holder.


By understanding why you are receiving chargebacks you’ll be able to implement a process of both dispute the chargeback and prevent future chargeback. For the sake of this session we’ll break it down into two sections: True Fraud and Friendly Fraud, (please reference Types of Chargebacks for a more thorough outline of the different kind of chargebacks).


True Fraud and Friendly Fraud Chargebacks, divide and conquer.


When starting off with the implementation of your chargeback management program it’s best to separate your chargebacks into categories, see below for a very basic entry level guide to chargebacks segregation.


Chargebacks to Consider Disputing:

  • Friendly Fraud Chargebacks
    • Transactions which are associated with previously good customer
  • Chargebacks which are disputable by reason code with a high dollar figure
  • Products which have been shipped with track able shipping methods


Chargebacks to Consider Not Disputing

  • True Fraud Chargebacks
    • Where based off transaction information it’s likely the card holder did not make the transaction
  • Chargebacks which are not disputable by reason code with any dollar figure
  • Low dollar figure items
    • Until a more automated and less manual process is in place it may be a good idea to leave the smaller items as it may not be worth the time


Tip: While it’s important to have a chargeback disputation process in place it’s just as important to know which chargebacks you can and can’t fight as well as should and should not.


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