The Covid-19 pandemic has proven to be a huge boon for e-commerce, but it has come at a cost for merchants in the form of higher chargebacks. The higher level of chargebacks is not just consumers returning items for legitimate reasons, it’s also being fueled by consumers perpetrating friendly fraud.
More often than not, consumers who have successfully disputed an online purchase know their card issuer will take their side in a transaction dispute. That knowledge can embolden the customer to bilk the merchant by claiming a purchase was never received or delivered broken, and demand restitution. In these situations, consumers committing friendly fraud do so because they know the merchant will consider issuing a refund, or replacing the item, a cost of doing business.
Nearly one in five consumers who have filed a chargeback dispute have committed friendly fraud on legitimate purchases, according to the Q4 2021 Digital Trust & Safety Index from Sift, a San Francisco-based provider of fraud-prevention technology. In addition, one in 10 consumers who have filed chargebacks admit to having committed friendly fraud to get money back on holiday purchases, according to the Sift Index.
Sift gathered data from more than 34,000 sites and apps within its network and surveyed more than 1,000 consumers in the United States to create the Index.
Friendly fraud has become so problematic that it can account for up to 75% of all chargebacks, according to Sift. Consumers who have disputed an online purchase in the past are likely to be comfortable with the process, which can make them more inclined to commit friendly fraud in the future, says Brittany Allen, Test and Safety Architect for Sift.
For Allen, that statistic makes her wonder how many consumers surveyed for the Index did not acknowledge they have committed friendly fraud.
While friendly fraud is a growing problem for merchants, so too is legitimate fraud. With consumers spending more online, criminals are more emboldened when it comes to fraud and have pushed the average value of attempted fraudulent purchases across the Sift network up by 69% between 2019 and 2020. During that span, the average value of fraudulent transactions went from $1,212 in 2019 to $2,049 in 2020.
“One thing fraudsters will pick up on are merchants that can be defrauded repeatedly, so why not go big on the value of a fraudulent purchase,” Allen says. “[Criminals] share fraud tactics on the dark Web and will package and sell those tactics to other fraudsters.” Allen says.