friendly fraud

4 Best Ways To Protect Your E-Commerce From Friendly Fraud

Getting scammed by a third party is always a possibility. Someone steals a credit card or figures out the password of one of your customers and uses their account/card to make a purchase.

Now, there are a ton of things you can do to prevent friendly fraud. You can request password changes every 90 days, insist on two-step authentication, and even observe customer behavior on your site.

However, what happens if there’s no third party? What if your customers are out to scam you?

How does friendly fraud happen?

The situation is simple; you might expose yourself to abuse if you have a lax return policy. A malicious customer may place an order, receive an item and claim that it never reached it. 

Some businesses don’t require a return of “malfunctioning” products due to a flaw in the wording of their return policy. So, the customer may claim this product to be faulty, ask for a refund, and keep the product either way.

The problem is that the retailer faces the chargeback costs, fees, and potentially ruined reputation (they may even leave a bad review to legitimize their claim and put you further off track). To make matters worse, it’s incredibly difficult to prove that it was a friendly fraud. 

There was no credit card theft, two-step authentication cannot stop it, and even if you observe site behavior, you won’t spot anything unusual. In other words, it’s your word against theirs, and even you won’t be sure you’re right 100% of the time. 

Does this mean you can’t do anything about it? Of course not! 

You could try many methods, measures, and techniques to minimize the risks and protect your e-commerce from friendly fraud. Here are some of them.

fraud detection

Learn more about friendly fraud

The first step in avoiding a trap lies in knowing it’s there. So far, we’ve already done our best to raise awareness. The next step is understanding its mechanism. Since avoiding it is entirely impossible, by figuring out how it works, you could make it incredibly difficult.

Your first step on this journey should be to find all the necessary resources. 

Start by inspecting the statistics

First, you want to start reading some friendly-fraud-related stats. Previously, we’ve mentioned that there’s no way of telling if it’s friendly fraud, fraud, or an honest mistake. According to one survey, about 23% of consumers openly admit they’ve committed friendly fraud. That’s roughly one-in-five customers. In other words, it’s not even a question of whether you were ever subjected to this type of fraud. It’s just about answering how often.

Understand how it works

Next, you want to learn more about the nature of friendly frauds. In this article from SEON, you can learn about five different types of friendly fraud and get some insights on prevention. This and similar resources are the first necessary steps for you to realize just how big of a problem this is. 

Examine your old suspicious cases

Now that you know what you’re dealing with, it’s time to examine some of the previous cases of customer fraud. Again, you won’t know for sure, but you must have had some suspicious disputes. Examine them and classify them based on the friendly fraud types in the article. Then, do a thought experiment. Which steps could you have taken to protect yourself from this particular claim?

Implement friendly fraud prevention methods

The next thing you need to do is implement friendly fraud prevention methods. Sure, no tool can read minds; however, with the help of AI-based technology, these plug-ins are becoming pretty accurate in risk assessment. Also, a better-written return policy wouldn’t hurt. There are many things you should do to protect your e-commerce business on this front, and here are some of them. 

Improve your return policy

First, your return policy is more likely to be abused if it is ambiguous. So, make sure that you’re as clear and straightforward as possible. Make sure that you focus on the following:

  • The time frame for returns
  • Conditions for return
  • Fees associated with returns

Also, you need to tell customers exactly what to expect before purchasing. Provide as much detail as possible.

Most importantly, you want the product returned to the seller if they request a return. Previously, we’ve mentioned how omitting this important part may expose you to abuse of every kind.

The most important thing you must insist on is the proof of purchase. Before accepting a return, insist they provide a confirmation number or a receipt. This will prevent instances where malicious customers claim returns for purchases of other customers.

Use fraud detection tools

If a customer makes $10 to $50 purchases from your e-store and then suddenly places a $5,000 order, this is a bit odd. It’s not proof of anything sinister, but it raises some eyebrows.

There’s a list of “suspicious” behavior that you should keep an eye out for. These are things like:

  • Out-of-character buying patterns (like we mentioned earlier)
  • A dispute of a purchase that you know is valid
  • Immediate dispute without even contacting the seller
  • Different payment methods than previous times

With the help of the right tool, this will be noticed automatically, and you’ll receive a notification

Once again, these tools are merely warning you of potential risks. Nothing terrible may happen. Not every order is identical, and people change their payment methods for various reasons. Just keep that in mind, as well.


Educate your customers

You shouldn’t always assume the worst. If you’ve followed the article mentioned above, you probably noticed the category of accidental friendly fraud. This happens when a person makes a purchase and forgets about it (sometimes even under the influence). 

Moreover, this could also happen if several family members have access to the same card. One person makes a purchase, and the next one doesn’t recognize it and assumes it was a mistake. 

The best way to avoid these accidental friendly fraud purchases is to educate your audience on the subject matter. For instance, you could post about it on your blog or include this in your terms and conditions. 

Appeal suspicious disputes

Don’t take every customer purchase dispute lying down. Previously, we’ve mentioned some clear indicators of friendly fraud. So, if you suspect that is the case, appeal their dispute. 

For this to work, you’ll have to present your case. This is why it’s so important that you have a well-worded policy, a confirmation requirement, and all the purchase-related records. You can make a much stronger case with all the documentation on your side. 

Outsource chargeback mitigation services

Some e-commerce businesses just decide to delegate this problem to someone else. These are the companies that focus on minimizing the revenue lost to chargebacks. 

Previously, we’ve listed many resources, tools, and methods to recognize and combat friendly fraud; however, this just outlines a strategy. Some agencies specialize in this, meaning they know all the practices, have all the tools, and have the experience to see it all through.

Consider global-threat detection

If you’re shipping goods globally, you must understand that not all regions are alike. Some areas are notorious for the frequency of these frauds.

For instance, according to one report, the most fraudulent countries for ecommerce fraud are:

  • Indonesia
  • Venezuela
  • South Africa
  • Brazil
  • Romania

This means that the order from these countries carries a somewhat greater risk. At the same time, countries like Denmark, New Zealand, and Finland are counted among the safest.

The problem is that, in the age of VPN, it’s easy for one to conceal their true location. Nonetheless, you can always count on the fact that some people won’t bother to do so. Preventing just these frauds is better than failing to prevent any.

Focus on communication

Proper communication is arguably one of the best ways to protect your brand from friendly fraud. 

First, having a clear line of communication with your clients will make it easier to determine if they’re genuine. For this, however, your customers need excellent training and onboarding.

Second, you need to communicate with the bank about a dispute. Early on, there’s much you can do. However, if you wait too long, things won’t be easy.

Keep in mind that this communication may be submitted as evidence. Ensure you check the legality and compliances in both regions (yours and your customers if they differ). 

Either way, open and direct communication can solve so many problems.

You must be proactive to protect your e-commerce from friendly fraud

While you can react to every claim, the truth is that you can easily deter many of these claims with the right policy. The more you learn on this subject matter, the better, so always look for great resources and learning materials.

Furthermore, you might get a head start by monitoring customer activity and watching for warning signs. Lastly, outsourcing to professionals is never a bad idea. Sure, it costs a bit, but it always pays off compared to what you’ll lose if you just ignore the cashback costs.

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