Merchants receive a chargeback when a cardholder disputes a charge. These chargebacks can be fraud or non-fraud based. When a cardholder disputes a charge, he or she is claiming that they did not make the purchase, that they did not receive the purchase or that they are not satisfied with the purchase. In some cases, chargebacks are a result of “friendly fraud,” which can either be deliberate or accidental. Accidental friendly fraud occurs when a cardholder doesn’t recognize a charge on their monthly statement and calls the Issuer to dispute the charge. This happens when merchants have confusing billing descriptors that do not clearly indicate what the charge is for.
In cases of deliberate friendly fraud, a cardholder is attempting to gain merchandise or services for free by gaming the system. In these instances, unscrupulous cardholders call their issuing bank to claim they didn’t receive a good or service, even though they did. This results in additional losses for merchants, who will be debited the cost of the transaction by the issuer and face fines and fees. Additionally, the merchant has lost the goods and paid for the cost of shipping. Friendly fraud can be a real problem for merchants as the burden of proof rests with the merchant to show that the debit or credit card was used in good faith and authorized by the cardholder. Due to inaccurate, aged data and communication delays that are prevalent across the payments ecosystem, this burden can be very difficult for merchants to surmount without cooperation from Issuers.