Friendly Fraud typically happens when your customer is not satisfied with your product/service; some examples could be the shipment didn’t reach in time or there was a discrepancy between what was agreed upon to that of what was delivered.
When the customer is honest about the reasons for the chargeback claim, it is deemed a ‘friendly fraud’. But in recent years, after the surge of e-commerce and cloud products, the occurrence of such friendly frauds have risen. Fraudsters and cyber attackers use this dispute process to claim a chargeback despite having received the goods/services. Such dispute claims with malicious intent are labeled as Chargeback Frauds.
The effects of such fraud are beyond just the cost of goods. There are other additional implications such as:
Additional chargeback fees.
Loss of transaction fees.
Overhead expenses to dispute charges.
The threat of being listed as a high-risk merchant.
Chargebacks are often thought of as an inevitable evil that businesses have to live with, but it can be minimized to a fair degree by getting a few basics right:
Notification to customers before every recurring payment.
Having a mechanism to capture goods/services delivery.
Enabling customers to claim refunds or cancellations easily to avoid chargebacks.
Regular and timely communication with your customers.
Use of a billing system to detect any malicious behavior and automatically block such customers.