Friendly Fraud Is on a Sharp Rise, Chargebacks911 Finds

So-called friendly fraud is a growing problem for many merchants. A report from chargeback-management firm Chargebacks911 reveals that nearly three quarters of the 300 merchants surveyed have seen a 19% increase in illegitimate chargebacks on average so far in 2023 compared to the same period last year.

At the same time, more than half of merchants say friendly fraud is a significant or moderate concern for their business. Chargebacks911 surveyed merchants ranging in size from small to enterprise retailers.

Friendly fraud is a much larger concern for merchants than criminal fraud. Merchants surveyed said 44% of their chargebacks were due to friendly fraud. Among those respondents, retailers making more than $100 million in annual revenue were more likely to identify a disputed transaction as friendly fraud, according to Chargebacks911.

“When we saw in 2021 that 76% of surveyed merchants reported an increase in friendly fraud, we were concerned, but not shocked, given that many storefronts were closed in 2020 and everyone was forced to do their shopping online where fraud is rampant,” Chargebacks911 chief executive Monica Eaton says in a statement. “But now that we are well past the confines of the pandemic and that number remains the same, more action is needed to quell the ongoing rise in chargeback abuse.”

In addition to increasing levels of friendly fraud, the Chargebacks911 survey found that consumers are finding it easier to dispute a purchase with their card-issuing bank rather than the merchant from which the purchase was made. Nearly half of consumers surveyed cited the speed with which card issuers resolve a disputed transaction as the primary reason they turn to the card issuer first.

Indeed, 72% of cardholders considered filing a chargeback with their bank a valid alternative to requesting a refund from the merchant, and 75% considered the two dispute methods to be equivalent, a trend that is fueling the chargeback crisis and costing retailers billions in lost revenue, according Chargebacks911 chief growth officer Pel Faquiryan.

With chargebacks now easier than ever to file with an issuing bank, Mastercard Inc. reports chargebacks will cost merchants an estimated $117.47 billion in 2023.

“Most customers are unaware of what goes on behind the scenes when a chargeback is filed and I’m sure they would be surprised to know that merchants pay on average around $3.60 for every dollar lost to a fraudulent or illegitimate chargeback,” Faquiryan says in a statement. “Sometimes, retailers will raise the prices of goods and services to make up for lost revenue, passing along the cost of chargeback fraud and misuse to the customer.”

One significant factor contributing to the increase in chargebacks overall is merchants’ use of billing descriptors that consumers consider to be confusing. Some 32% of consumers surveyed say they often find the billing description on their monthly card statement to be confusing, while more than 25% say they sometimes find the billing description to be confusing. When consumers find a billing description to be confusing, they will typically file a chargeback, even if the purchase was legitimate, the report says.

To reduce friendly fraud, Chargebacks911 encourages merchants of all sizes to challenge any chargeback they receive that shows signs of friendly fraud or first-party misuse.