Running an online business comes with many challenges. You send the product, the payment goes through, and it all looks good. But sometimes, a customer later says they didn’t make the purchase or didn’t get the item. Even if the order was real, they ask the bank to take the money back. This is called “friendly fraud,” and it’s becoming more common now.
In fact, in 2023, friendly fraud went up by 33%. These small problems can slowly take away your profits if you don’t notice them early. That’s why it’s important to know how friendly fraud happens, how to spot it, and what you can do to stop it in time.
Decoding Friendly Fraud
Friendly fraud happens when a real customer buys something but later tells the bank that something went wrong. They might say they didn’t place the order, didn’t get the item, or got the wrong one, even if that’s not true. This creates trouble for you as a seller and can lead to lost money and wasted time.
The customer commits friendly fraud. That means the cardholder buys something and then later files a dispute. It’s also called first-party fraud because the buyer and the person raising the complaint are the same. Sometimes it’s a mistake. Other times, it’s done on purpose. Either way, it hurts your business.
Why This Matters to Your Business:
- You lose money on the product and shipping
- You pay chargeback fees
- Too many chargebacks can damage your reputation
- It becomes harder to fight future disputes
What’s Fueling the Growth of Friendly Frauds?
Friendly fraud is rising fast, and here’s what’s causing it:
- More online shopping: People buy more online now, which means more chances for mix-ups with payments or deliveries.
- Chargebacks are easy: Buyers can easily file a chargeback, even for real purchases, by clicking a few buttons. A survey revealed that 23% of people openly admitted to filing false disputes.
- People don’t know it harms sellers: Some believe it’s harmless or won’t significantly impact the business.
- Names on bank statements are confusing: If your store name isn’t clear on a card statement, buyers might think it’s a fake charge.
- More smart devices: Devices like smart TVs or speakers save card information, so family members might buy things without the cardholder’s knowledge.
Business Losses Due to Friendly Frauds
Friendly fraud is costing businesses more than ever. In 2023, global chargebacks were projected to be around 238 million; friendly fraud made up about 75% of that, roughly USD 132 billion. Unlike regular fraud, this happens when a customer disputes a real purchase and asks for a refund, even though they got the product or service. In 2024, a report revealed that 79% of merchants faced first-party fraud (customer misused a chargeback), up from just 34% in 2023.
When this happens, your business faces a double loss. You lose both the item and the money. On top of that, you pay chargeback fees, which can vary per case. These losses pile up fast, especially for small businesses that rely on regular cash flow.
The damage doesn’t stop there. Customers who misuse chargebacks might also leave bad reviews, hurting your reputation. Over time, this can drive away new buyers. As a result, many sellers are forced to spend more on fraud prevention tools, strict return policies, and support teams, adding more costs just to stay safe.
Types of Friendly Fraud
Friendly fraud can happen in different ways, and as a seller, it’s essential to understand them clearly.
1. Forgotten Purchases
Customers may forget about orders they placed, especially for online items or auto-renewed subscriptions. Later, they might think the charge is incorrect and file a dispute.
2. Unrecognised Business Name
If the name on a customer’s bank statement differs from your brand name, they may not recognise it. This confusion can lead them to report a legitimate transaction as fraud.
3. Family or Household Use
Sometimes, a family member or someone else in the household uses the card without telling the cardholder. The cardholder sees the charge and disputes it, not realising it was authorised within their home.
4. Return Policy Confusion
A customer may return an item without understanding your return terms. If they are charged a restocking fee or don’t receive a full refund, they may file a chargeback, thinking they were treated unfairly.
5. Buyer’s Remorse
In some cases, a customer regrets making a purchase. Instead of contacting you, they go directly to their bank and try to reverse the payment.
6. Refund Abuse
Some customers may request a refund but continue to use the product or service. Others may return the item, such as digital content or partial use, but still benefit from it.
7. False Claims
Some customers make dishonest complaints. They may say the item never arrived or claim it was damaged, even when it wasn’t. The goal is to get a refund without returning the product.
Best Practices to Avoid Friendly Fraud
Friendly fraud occurs when a customer disputes a legitimate charge, either accidentally or on purpose. While it can’t be completely prevented, following best practices can help reduce its frequency and protect your business from losses.
1. Communicate Clearly and Consistently: Make sure your customers clearly understand what they’re buying. Simple mistakes or confusion can lead them to raise a chargeback.
- Use clear product descriptions and images.
- Share accurate delivery timelines.
- Ensure your billing descriptor matches your business name.
- Send order confirmations with full details: item list, amount paid, estimated delivery, and contact info.
2. Make Return and Refund Policies Transparent: If your return policy is easy to find and understand, customers are more likely to follow it instead of filing a chargeback.
- Display refund and return policies on product pages, checkout, and confirmation emails.
- Keep the language simple and avoid legal or confusing terms.
- Clearly mention deadlines, conditions, and the refund process.
3. Strengthen Your Authentication Process: Verifying transactions properly can prevent unauthorised use and false disputes.
- Use OTP verification and CVV checks during checkout.
- Enable two-factor authentication where possible.
- Implement fraud scoring and identity verification tools to flag risky transactions.
4. Offer Quick and Responsive Customer Service: Customers won’t rush to their bank if they know they can contact you quickly.
- Provide multiple contact options like email, phone, and live chat.
- Train staff to recognise signs of fraud and handle issues with care.
- Respond quickly to complaints and resolve concerns before they escalate.
5. Monitor Transactions with Fraud Detection Tools: Real-time monitoring can stop fraud before it happens.
- Watch for unusual activity like sudden large orders or repeated failed payment attempts.
- Use device intelligence to spot users with a history of chargebacks.
- Set alerts for risky behaviour and verify high-value orders manually if needed.
6. Maintain Detailed Records for Dispute Defence: Having proof is essential if you need to contest a chargeback.
- Save order confirmations, delivery tracking, and customer communication logs.
- Keep IP addresses and timestamps for digital orders.
- Submit all evidence promptly during the chargeback representation process.
7. Reach Out Before Escalation: A quick conversation can resolve many cases of friendly fraud.
- Contact the customer directly if a dispute occurs.
- Clarify the charge and remind them of the transaction.
- Offer a refund or replacement if there was a mistake to avoid further conflict.
8. Review Patterns and Adjust Your Strategy: Every chargeback is a chance to improve your fraud prevention.
- Analyse frequent dispute reasons and identify problem products or services.
- Update product descriptions or checkout policies as needed.
- Adjust verification tools and fraud filters to address repeat issues.
Leveraging Shiprocket Checkout to Detect and Prevent Fraud
Fake orders and chargebacks can quietly hurt your business. Shiprocket Checkout helps protect your business. It’s built to speed up orders and spot suspicious activity before it becomes a problem.
With features like autofill addresses, secure logins, and estimated delivery dates, buyers move faster through checkout with fewer errors. You can offer payment-specific discounts to turn more COD orders into prepaid ones. This increases your earnings and reduces returns by up to 30%. Real-time behaviour tracking and AI-based insights help catch fraud patterns early. You stay in control without needing extra tools or tech skills.
The setup is simple and works with platforms like Shopify and WooCommerce. It’s a smart way to reduce fraud while improving the customer experience.
Conclusion
Every business faces risks, but friendly fraud often slips through unnoticed until it causes real damage. By staying alert, setting up simple but strong systems, and making sure your team knows what to look for, you can catch problems early. It’s also about being ready, keeping proof, responding quickly, and learning from each case. These steps don’t just protect your money; they help you build a business that’s safer and more trusted in the long run.
