The Growing Threat of Friendly Fraud and How Businesses Can Protect Against Consumer Chargebacks

Friendly fraud, also known as first-party fraud, poses a substantial challenge for businesses, involving customers filing fraud claims or chargebacks despite being satisfied with their purchases, according to an article by Fast Company. This phenomenon, which amounts to a $100 billion issue for businesses, affects various sectors such as clothing, digital subscriptions, groceries, electronics, and food deliveries. While all businesses accepting digital payments are vulnerable, recent research indicates that Gen Z individuals engage in friendly fraud more than other generations.

Several factors contribute to this trend. Younger consumers may not realize their actions constitute fraud or may view it as harmless “gaming the system.” Additionally, economic pressures, including inflation and layoffs, may drive individuals to seek ways to save money, potentially justifying charge-backs as a means of financial relief. There’s also a cultural shift where some perceive friendly fraud as victimless or acceptable, especially when targeting large corporations.

To address friendly fraud, businesses must prioritize clear communication with customers, establish transparent cancellation and return policies, and offer alternatives to dispute resolution. Collecting comprehensive transaction information, including IP addresses and delivery confirmation, can provide evidence to refute unfounded charge-back claims. Visa now mandates such evidence as part of its dispute-resolution process.

Friendly fraud presents a multifaceted challenge for businesses, particularly with younger generations’ increased participation. Understanding the underlying causes and implementing preventive measures can safeguard businesses’ financial interests, maintain customer trust, and mitigate the broader economic impact of this trend.