Friendly fraud has become a pressing issue for businesses, particularly in the fast-evolving world of e-commerce. This, according to a new report released by Juniper Research.
Unlike traditional fraud involving stolen payment details, friendly fraud occurs when legitimate customers dispute valid transactions, often claiming non-delivery or non-recognition of a purchase they actually made.
The report from Juniper Research also mentioned that this deceptive practice reportedly costs businesses billions annually and strains operational resources.
Juniper Research’s 2023 report, Fighting Friendly Fraud with Chargeback Management Systems, examines the escalating trends behind friendly fraud and offers actionable solutions through chargeback management systems.
As explained in the report from Juniper Research, friendly fraud involves customers abusing the chargeback process, where a bank reverses a transaction and refunds the customer.
While chargebacks are intended to protect consumers from genuine fraud or errors, friendly fraud exploits this system for personal gain.
Customers might dispute a particular charge after forgetting a purchase, misunderstanding subscription terms, or even deliberately keeping goods while seeking a refund.
The report builds on Juniper Research’s earlier findings, which estimated e-commerce losses to online payment fraud would exceed $20 billion annually by 2021, with friendly fraud playing a significant role in this increase.
The Juniper Research report identifies several critical trends fueling the rise of friendly fraud:
The shift to online shopping, accelerated by the COVID-19 pandemic, has expanded opportunities for friendly fraud.
Remote transactions reduce direct oversight, making it easier for customers to dispute charges without immediate challenge.
Subscription services—includng streaming platforms or software providers—are prime targets.
Customers often claim ignorance of recurring charges or dispute payments after canceling, exploiting the intangible nature of digital goods.
The chargeback process often sides with customers, even when evidence supports the merchant.
Banks and payment processors may prioritize consumer protection, leaving businesses to absorb losses from unjustified disputes.
Some customers engage in “cyber-shoplifting,” claiming non-delivery of digital products or services they’ve already used.
The report from Juniper Research further noted that these sophisticated strategies complicate detection and resolution for merchants.
The report explains that chargeback management systems are a vital tool to counter friendly fraud.
These systems empower businesses to handle disputes efficiently and reduce losses through:
By tracking transaction patterns, businesses can spot friendly fraud early and compile evidence—like delivery confirmations or usage logs—to challenge invalid chargebacks.
Automated processes streamline dispute responses, cutting down on manual effort and enabling faster, more consistent rebuttals to fraudulent claims.
Pairing chargeback systems with AI-driven fraud detection reportedly enhances prevention, flagging suspicious activity before disputes arise.
Friendly fraud inflicts more than just revenue loss.
Chargeback fees, administrative costs, and reputational damage add up, impacting small businesses particularly hard.
The research report stresses that without proactive measures, these losses will only grow as e-commerce expands.
By leveraging chargeback management systems, businesses can fight back with data, automation, and integrated defenses.
The report from Juniper Research concluded that staying ahead of fraudsters requires constant vigilance as well as continuous investment in these tools, ensuring profitability and trust in the digital age.