Friendly Fraud Prevention in 2024: What Can You Do?

Some prevention methods include fraud detection and writing clear product descriptions. Another big one is having transparent return policies. Keep reading for more strategies.‍

Author

Theodore Sterling

Key Takeaways

Friendly fraud makes up 75% of all chargebacks.
It accounts for 70% of all credit card fraud.
Merchants win 43% of friendly fraud disputes.
Prevention includes chargeback alerts, digital receipts, and more.

An excellent way to prevent friendly fraud is to use chargeback alerts. These can be difficult to integrate with your business, though. We make this easy.

Learn how.

What is Friendly Fraud?

Friendly fraud happens when customers dispute valid charges after receiving their purchases. Customers claim they never got the item or don't recognize the charge. This fraud type costs businesses money and is hard to prevent.

The term "friendly" comes from customers unknowingly committing fraud. But it makes up 75% of all chargebacks and sometimes involves disputing a legitimate order [1].

When friendly fraud crosses into intentional disputes, it becomes chargeback fraud. Many use the terms interchangeably, but businesses must handle both.

Learn more about the differences here.

The good news?

Businesses win 43.82% of friendly fraud disputes — 13% higher than the industry average [2].

I could dive further into all these topics but that would be a waste of time. Considering I already wrote guides on them.

Now let’s focus on preventing friendly fraud.

Summary: Friendly fraud is when a customer disputes a legitimate transaction and doesn’t know they’re committing fraud.

What Are Ways to Prevent Friendly Fraud?

Here are some of the best ways to prevent friendly fraud:

Chargeback alerts: Intercepts disputes before becoming chargebacks.
Clear policies: Display refund and return policies prominently on site.
Fraud detection: Analyze purchase patterns to identify suspicious orders.
Order confirmation: Send detailed purchase notifications.
Customer service: Resolve complaints quickly.
Delivery tracking: Use shipment tracking and confirmation.
Subscription reminders: Send notifications before charging recurring fees.
Blocked lists: Create a database of repeat offenders.
Stock alerts: Notify customers when products become unavailable.
Product description: Provide detailed item specifications.
CE 3.0: Use Visa's evidence standard to defend against friendly fraud.
Digital receipts: Provide transaction details immediately after purchase.

Below, we’ll discuss different methods. I’ll provide examples where possible.

Friendly fraud is difficult to differentiate from other chargebacks. Thus, we need to throw a wide net to prevent all the chargebacks we can.

Read here for more information on preventing chargebacks in general.

Otherwise, let’s dive in.

1. Use Chargeback Alerts

Real-time chargeback alerts notify businesses before a dispute becomes a chargeback. These services work with banks, giving merchants 24 – 72 hours to resolve disputes with customers.

This allows businesses to refund the order or provide evidence of legitimacy before it becomes a chargeback.

For example, if a customer disputes a charge, the merchant gets a notification and can respond with order details or offer a refund.

This method works because it stops disputes at their source.

Major providers like Ethoca (Mastercard) and Verifi (Visa) offer these services. Some merchants report up to a 40% reduction in chargebacks after implementation.

When combining alert providers (CDRN, Ethoca, and RDR), you could reduce up to 91% of alerts. Depending on many factors.

We discuss these factors and how alerts work in a separate guide.

The main challenge is setting up these alerts, as you’ll need to contact Verifi and Ethoca. They also may not offer volume pricing.

We do, though. And Chargeback offers easy access to all the alert providers.

Learn how we can help.

2. Clear Policies & Communication

Create clear refund, return, and cancellation policies. Display them prominently on your website, using simple language and examples.

Include these policies in order confirmations and make them easy to find in customer accounts.

Develop an FAQ section that addresses common concerns related to friendly fraud.

Airtable, for example, has a community page where customers can search for answers to nearly all questions:

Screenshot from Airtable.

3. Fraud Detection Tools

Analyze purchase patterns and customer behavior to flag suspicious transactions. This helps prevent fraudulent purchases before they’re processed.

For example, tools can detect:

Multiple transactions from the same IP address
Frequent disputes across different accounts
Multiple failed payment attempts
Unusual purchasing patterns

These features help identify potential fraudsters. If a cardholder claims fraud, you can prove the transaction came from them.

Authentication methods like Address Verification Service (AVS) and 3D Secure also help.

3D Secure requires customers to verify their identity beyond card details. This might include biometric authentication, one-time passwords, or security questions.

It prevents friendly fraud and often shifts liability to the card issuer, protecting businesses.

4. Order Confirmations and Notifications

Order confirmations and notifications reduce chargebacks caused by forgotten purchases. Confirmation emails should include details like purchase date, product name, and total cost.

For subscriptions, send reminders about upcoming charges. This gives customers time to cancel or modify their subscription before being charged. These reminders help customers avoid confusion and reduce the chance of disputes.

5. Clear Billing Descriptors

Use clear, detailed billing descriptors on customer statements. Instead of vague company names, include specific details like location or product type.

For example, use "TechCo Electronics - Chicago Store" instead of "TechCo."

This reduces disputes caused by confusion. Send purchase confirmations with the descriptor that will appear on statements. Also give them the order details and contact information.

6. Proactive Customer Service

Set up a responsive, multi-channel support system. Offer help through email, phone, chat, and social media.

Follow up with customers after purchases to identify issues early. For example, send a feedback request 24 hours after delivery. This gives customers a chance to voice concerns directly.

Skype does a great job with this:

Source: My Teams Lab

A non-required text box allows more detailed feedback without overwhelming customers. Keep the form easy to read with just enough options to be useful.

I’d make these easy to read and not have too many options. Meanwhile, you don’t want to have only a star rating system.

Otherwise, how will you know where to improve?

Anyway:

Also train customer service reps to prioritize fast resolutions and document all interactions. This helps in case of future disputes.

7. Tracking & Delivery Confirmation

Track all shipments and require delivery confirmation, especially for large or valuable orders.

This provides proof that the product reached the customer, preventing disputes over non-delivery.

Request a customer signature upon delivery or use tracking systems that show real-time updates. This evidence makes it easier to fight chargebacks if a customer claims they didn’t receive the item.

8. Subscription Reminders & Cancellation Options

For subscription services, send reminders before charging recurring fees. Friendly fraud often happens when customers forget they subscribed to a service.

By reminding customers of upcoming charges, businesses give them the chance to cancel. An easy cancellation process also prevents frustration that could lead to chargebacks.

9. Blocked Lists

Create a blocked list of repeat offenders to prevent future chargebacks.

Friendly fraud often comes from repeat offenders. Blocking customers who previously initiated chargebacks reduces future disputes.

As 50% of customers who commit chargeback fraud typically strike again within 60 days [3].

This system flags customers who show a pattern of disputes, allowing businesses to prevent future orders.

For example, blacklist a customer if they filed many chargebacks within a short time.

Share blacklists of known friendly fraud offenders with other businesses in the same industry. This collaboration helps prevent further chargebacks.

10. Product Availability Alerts

Notify customers as soon as a product goes out of stock. Offer alternatives or refunds right away. This transparency keeps customers informed and prevents disputes due to delays.

11. Detailed Product Descriptions

Clear product descriptions help prevent chargebacks by setting customer expectations. Friendly fraud often occurs when products don’t meet those expectations.

Providing clear, thorough descriptions, including dimensions, features, and specifications, prevents misunderstandings.

Roam, a luggage seller, does a fantastic job with being descriptive.

Under their specs, they list:

Measurements
Weight
Capacity
Journey (number of days worth of items it’ll fit)
Whether you can check it in

Including high-quality images from multiple angles also helps illustrate the item they’ll get.

Again, Roam does this well:

Source: Roam

They even use GIFs to show how customers use the product, reducing misunderstandings.

12. Compelling Evidence 3.0 (CE 3.0)

Visa’s Compelling Evidence 3.0 allows merchants to provide evidence of 2 prior transactions to prove a customer’s purchase history. These must be at least 120 days old.

This can shift liability for the chargeback to the card issuer. For example, if a customer disputes a subscription renewal, showing proof of prior renewals can strengthen the case.

13. Digital Receipts & Documentation

Providing detailed digital receipts after orders to give customers evidence of their transaction.

Include specifics such as:

Purchase date
Itemized list
Total cost
Payment method
Business information

These receipts serve as a reference, reducing confusion over transactions. If a customer disputes a charge, the receipt can clarify misunderstandings.

Verifi offers this (for Visa) with Order Insights. Mastercard provides this through Ethoca Consumer Clarity.

Both services are free, but require you to contact each company provider.

Those are the most effective ways to prevent friendly fraud that I found.

You might wonder what banks actually do about this type of fraud.

What Do Banks do About Friendly Fraud?

Banks rarely penalize customers for friendly fraud. However. They may investigate frequent or large-scale fraud. Fraudulent charges may be reversed, and accounts temporarily restricted for review.