Chargeback fraud, commonly referred to as friendly fraud or first-party fraud occurs when the customer requests a refund from the merchant after a purchase is made. The consumer files a fraud claim with their bank indicating they didn’t participate in the transaction. There are occurrences where the goods or services are consumed, but later the consumer claims they never received or used them. The truth is, there is nothing friendly about this type of fraud… There may of course be times when an honest error has occurred such as billing misinformation or when a package left at a customer’s address without a signature is stolen or the item is delivered to the wrong location. But in most cases, the customer consumes the item, files the chargeback and the item is not returned to the merchant.
In instances of chargeback fraud, a customer may claim:
- They did not receive the item.
- The item did not match the description on the website and was misrepresented.
- The item arrived but is damaged.
- The customer did not order the item in question.
- The item, (for example a magazine subscription renewal) was not authorized or requested by the customer.
As you can see from this list, these are all legitimate claims and because of this, it is very challenging for you to dispute these statements. As is the case with all chargeback claims, it is up to you to prove that the customer did receive products or services as requested.
The challenging aspect for you is in getting the customer to return the item and/or in proving that the item was delivered as requested. It is estimated that friendly fraud or chargeback fraud costs merchants $11.8 billion annually.
To learn more about chargeback fraud and how you can protect your business from such costly claims, read our collection of articles about chargeback fraud and your business.
How can chargeback fraud be prevented?
Just like all chargebacks, the onus is on you to prove that a chargeback claim is indeed fraud. Prevent chargebacks by following these steps:
- Have an excellent customer service team: when you have a strong customer service team, your customers are more confident that you will act and resolve their complaints or issues. A proactive customer service team also helps you get to know your customer and establish a strong relationship with them. When your customers trust you, they’re more likely to contact you with a problem, allowing you to resolve it directly, rather than dealing with the lengthy and costly chargeback process. Make sure your customer service team is easily accessible via email, phone, live chat, and social media
- Always triple-check the customer information: whether your customers are buying online, over the phone or in-person, make sure that all customer information is verified and confirmed with the customer. Particularly important for online sales are the Ship To and Bill To addresses, if these addresses are different, don’t hesitate to contact the customer to confirm that these addresses should be different. There are instances of course when customers are buying gifts online and are having them mailed directly to the recipient. One way to verify the gift scenario is to prompt for gift-wrapping when the addresses are different, if the customer declines the gift-wrapping, this should trigger an alert on your end. Be wary of shipping to overseas addresses or to freight companies. Take the extra time to verify the addresses being used before the item is sent out, this can save you a lot of hassle and headache in the long-term.
- Mandatory signature process: it is well within your rights to ask for your customers to sign for packages received. Having a signature verifying that the item was received at the address entered on the order makes it much harder for the customer to commit chargeback fraud. There are many ways to do this but one of the best methods is with an electronic signature page that the user must sign to receive the items, this data is then stored in a secure database and readily available, if needed for representment.
- Be very detailed: the more detail and information you have about your customer transactions and returns, the better protected you are. In order to prove that a chargeback is indeed fraud, during the representment process you must be able to provide supporting documentation that clearly shows the customer authorized and received the order. Ensure you have vital customer information such as: phone number(s), email address(es), billing address, shipping address, date of transaction, electronic signature records, and package tracking information. Also, ensure that your customer service team is keeping detailed records of all customer interactions.
While there is no guaranteed sure-fire way to prevent chargeback fraud, doing the above and using a proven revenue recovery system such as Verifi’s Premier Chargeback Revenue Recovery Service is highly recommended. Spend your time and energy on running your business and let Verifi solutions increase your chargeback win rate, save you time, and recover lost profits that are rightfully yours – all without consuming your scarce IT resources.
To learn more about chargeback fraud, download and read This white paper will provide you with insights and information on how to adequately screen for fraudulent orders and prevent them from happening.