Industry Insight: Friendly Fraud

Industry Insight UK

Friendly Fraud: think outside the box…

In this latest Industry Insight from JetPay Solutions – we look at another hot topic which follows on from our last newsletter discussing Chargebacks. This time – it’s Friendly Fraud. What is it? How does it work? Who suffers? And can you prevent it?

We touched on consumer protection with chargebacks – and the processes in place for consumers (your customers) to have a vehicle to redress their grievance if their purchase from you has somehow gone wrong. And it’s this vehicle – when abused by dishonest purchasers that forms the basis of the friendly fraud. And it’s far from friendly in fact.

We’ve all familiar with the customer is king mantra and indeed, nothing has changed. No eCommerce customers – no eCommerce business.

But as chargebacks – once almost a secret weapon in the consumers toolkit has gained wider usage & acceptance and more people now know of its existence – so friendly fraud has emerged as eCommerce grows rapidly. Sometimes it is accidental. Other times it is entirely deliberate, forced upon the merchant because the consumer knows the havoc it will cause you.

So what does Friendly Fraud look like?
A customer uses their credit card to make a payment to a merchant, receives the goods or services then issues a chargeback solely to attempt to get the goods for free. Not especially complicated – but in the world of CNP and eCommerce, Friendly Fraud causes immense damage to a merchant’s reputation and their standing with the banks and acquirers.

The big challenge here is that with Friendly Fraud there is no way to verify the authenticity of the actual transaction which of course can be entirely legitimate. High risk merchants are statistically more likely to encounter Friendly Fraud as well.

So what can you do? Here are some useful tips…

Get a signature and legible name to prove delivery whenever possible. Seems obvious but many merchants don’t bother with this.

Publish your refund policy on your site – make it VERY obvious. Spell out the terms as simply as possible and use other messages on your site to draw your customers attention to them.

Keep ALL your customer information historically – what they bought, when, how much. If they’re a regular repeat customer you’ll be able to prove how many legitimate transactions there have been – and on the disputed occasion, it’s likely they did, in fact, buy from you knowingly.

Keep all lines of communications open with the customer – preferably by phone, then email so you have a timed/dated paper trail when you come to need it. Don’t stonewall them – that action will always work in their favour, not yours.

• If the product they ordered is on back order – tell the customer. Suggest alternatives – reassure the customer that you will not charge the card until the order has been shipped.

Make cancellations easy. Adopt a no-strings-attached policy. If your customer does want to cancel make it happen quickly. They’re more likely to come back another time.

Use 3DSecure, AVS, CVV2, CVC2 etc. Almost goes without saying but the take up is still far lower than it should be in the UK.

Use clear descriptors that identify you on their card statements – add a phone number to it – make it easy for them to call you to resolve the dispute. JetPays Dynamic Descriptors may be a service you should consider – it’s very clear, very precise and makes it obvious where the transaction came from – for the customer.

Stay on top of your social media accounts. Increasingly as merchants use social media to broadcast all the good things, some customers now use it to broadcast their grievances. As the merchant, you must acknowledge the grievance and do more than offering a sympathetic ear. Make change happen- if the grievance is genuine – solve it. Thank them for drawing it to your attention. Address their concerns. If you don’t they may act out of spite – and the damage to you will be far worse.

Fact: Friendly Fraud is growing at a rate of 40%+ annually and is costing the industry billions. Identity theft losses are much lower. Not so friendly is it..?

Fraudsters – friendly or otherwise – are constantly after new merchant victims. All merchants like new customers – but, be wary of them. Big ticket purchases from new customers should always be scrutinised. Stolen cards passed on the black market inevitably have short lifespans. Consequently, the fraudsters will want to maximise as many free items as possible until the fraud is noticed. Watch out for those new, large orders.

Look out for rush shipping – especially on large orders. Remember the fraudster isn’t actually paying so he doesnt care how expensive shipping is.

Watch out for overseas orders. Address Verification Service(s) cant identify a match for international delivery addresses. They could still be entirely legitimate but be wary. Better still, be vigilant. It’s not unknown for the fraudster to request to ship the goods direct to an international shipping company. They will send it wherever they’re told to.

One address, many orders, different cards. Another well-known tactic by card fraudsters. If you’re tuned into this you’ll pick it up – and avoid the inevitable problems. But let’s also spin that a little… one card, many orders, different addresses. Watch out for that too. Spin again… many cards, many orders, one IP address. Another sure sign fraud is playing out.

If in doubt – always validate the transaction – call the customer, check the details, the billing address and the shipping address. Check the customer out online – they may be well-known fraudsters. Check social media avenues too. It’s actually alarming how much you can find out about someone when you start looking.

Work with YOUR processor – even better if it’s us here at JetPay – and create a blacklist which we can add to our BIN blocking software for example.

Just click here to found out more about our range of tools to combat CNP fraud. Or simply call us on +44 (0) 1932 883 147. We’ll be happy to explain.

Look out for our next Industry Insight UK on PCI-DSS Compliance… coming soon in January 2016.

By | 2017-01-25T11:17:55+00:00 December 16th, 2015|Industry Insights|0 Comments

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