Foiling friendly fraud

FRIENDLY FRAUD NOW ACCOUNTS FOR one-third of total fraud losses for merchants that accept online payments, said Bob Botelle, executive vice president, merchant services, for payments management company Litle & Co., during an MRC conference panel.

Botelle defined friendly fraud as when a customer purchases an item and then files a chargeback for the transaction. One in five merchants is seeing an increase in this type of fraud, he noted. And it’s hard to combat friendly fraud because “there’s no way to verify the authenticity of the transaction — it’s a legitimate transaction,” he said.

It’s tough to prevent friendly fraud, but the more you can segment your chargebacks, the better, said Botelle. “Your fraud chargebacks are what you use to tweak your fraud tools, so break it out as much as possible.”

Using shared data from other merchants is helpful for some, said panelist Alan Johnson, director of payments for Overstock.com. The discount products site would like to create models that mirror specific behavior associated with friendly fraud, which typically occurs with high-end purchases on the site.

You also need a recovery program in place to discourage customers from committing friendly fraud again, Johnson said. Overstock.com will call customers who have tried to defraud it with chargebacks and tell them they can’t order from the site again.

Of course, you’d better be sure that a customer has committed friendly fraud before you confront them Johnson said. But once Overstock.com contacts these customers, they sometimes even return the merchandise — particularly if the e-tailer says it has contacted law enforcement, Johnson said.

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