Friendly Fraud: What Is It, How Does It Affect Merchants, and What Can You Do To Combat It?

As a merchant, you may have heard the term “friendly fraud,” and the term may have confused you. Is it still fraud? Yes. Is it actually friendly? Well, not exactly.

Friendly fraud is when a customer purchases a product or service online using their credit card but then disputes the charge with their credit card issuer, who then issues a refund to the customer, resulting in a chargeback to the merchant. It has the term “friendly” as the customer will pretend to their card issuer that they are honest, even though they are being deceitful.

In other words, it’s theft with a smile from the comfort of the customer’s home.


So how does friendly fraud affect merchants?

Firstly, it’s essential to know that, in many industries, friendly fraud costs merchants more than traditional fraud (when an individual illegally uses someone else's credit card).

One of the other reasons friendly fraud has risen so dramatically is that customer chargebacks, first used to protect customers from unsavory merchant practices and identity theft rightfully, are simple to exploit. Over the years, friendly fraud has become more prevalent because:

  1. Online shopping has increased and continues to increase in popularity.
  2. Customers use chargebacks with banks rather than disputing with the merchant directly because it is quicker, and loopholes allow chargebacks to be requested easily.
  3. Banks have such a high chargeback demand that they often take customers at their word, ask no further questions, and issue chargebacks easily.
  4. Customers think there are zero repercussions when they request a chargeback, even though it harms merchants.
  5. Disputing a chargeback for a merchant is timely and costly, and the merchant is deemed guilty until proven innocent, meaning many merchants will not spend time disputing chargebacks.

Being a victim of friendly fraud is the same as being shoplifted. As a merchant, you will lose a product and money as you will have to pay for shipping and packaging costs along the way.

If you need any help implementing methods to combat friendly fraud, reach out to one of our payment processing experts

L3 Payments Merchant Services

So, the best thing to do is to learn to identify friendly fraud to limit its occurrence. But how?

Identifying friendly fraud starts by understanding your customers, their buying habits, and implementing systems that will help cover your back in instances of human error. Be sure never to take your customer’s word at face value because friendly fraud can be accidental. Examples of accidental friendly fraud include when a child makes a purchase using their parent’s credit card, or a statement appears on a cardholder’s bank bill that they do not recognize, and they request a chargeback. The customer may dispute the charge in good faith, but their actions can unwittingly hurt a merchant.

Therefore, if you issue unwarranted refunds, a friendly fraudster will likely repeat their offenses. Good information is your closest ally in the battle against friendly fraud.

Keep your eyes and ears open to what friendly fraudsters typically say. However, be aware that there will be people out there with genuine grievances, so do not start calling your customers liars without even examining the evidence!


You should at least be suspicious if your customer claims:
  • They did not receive the item or service they paid for.
  • The item or service they received was different than described on the website (e.g., it was poor quality, the wrong color, or fake).
  • They requested a recurring payment cancellation, and you, the merchant, didn’t cancel it.
  • They did not authorize the transaction.
  • They told their credit card issuer they returned an item but no refund was issued.
  • They cancelled their order but still paid for it and received it.
  • They do not remember the transaction and it must have been a result of someone using their card fraudulently.

It can be challenging to determine if a customer’s dispute is legitimate or not. There are a few ways to lower your chances of falling victim to friendly fraud.


How to combat friendly fraud

As a merchant, you must have the right systems in place to lower your chances of falling victim to friendly fraud. These include:

  • Using tracked shipping. This will allow you to know if a customer received their order or not. As an extra precaution, ensure that the customer must sign for their package for delivery verification.
  • Making sure your refund policy is air-tight. For example, make sure your policy clearly states on your website that a refund will not be issued until the item has been returned
  • Making sure that you provide tracked shipping information for the delivery and return of the returned package.
  • Using paper trails. Whether you can prove a customer did or did not return an item is essential to a dispute.
  • Notifying customers before you charge for a recurring payment.
  • Making sure your billing descriptor is easy to recognize so that instances of accidental friendly fraud are lowered.
  • Providing easy options for your customers to contact you to ensure transparency
  • Being vigilant to any behaviour that is unusual for your typical customer profile.
  • Making it easy to return items and use pre-paid shipping labels and tracking codes on the labels.

So, that clears up what you can do for the customer side. But there are other ways that you, as a merchant, can combat friendly fraud.


Firstly, you can open a conversation with your merchant bank and work together to see if customer claims are valid. If you keep a paper trail, you will be able to present detailed order information before the issuer accepts the fraud claim.

Secondly, you can put into place authorization and authentication software. For example, if a customer makes a large purchase, they must verify it through their phone or email. This way, the customer would not be able to claim someone else used their card. Also, collect your customer’s data and ensure it’s easy to access so you can see your customer’s order history, date of purchase, and any contact with customer service. The better you know your customers, the more likely you can work out if a chargeback claim is fraudulent or not.

In short: the more information you have about a customer, their purchase, and the delivery itself, the more difficult it is for them to engage in friendly fraud.


Final word

If you need any help implementing methods to combat friendly fraud, reach out to one of our payment processing experts at or 800-277-7785 or click below to get a free consultation. 

L3 Payments Merchant Services

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