Friendly Fraud
A customer who made a legitimate purchase and files a chargeback — forgot they bought it, didn't recognize the charge, a child bought without permission, or a deliberate attempt to get a free product. 30-40% of chargebacks are friendly fraud.
In practice
Friendly fraud is the 'hidden thief.' The customer looks legitimate, the order was correct, the product was delivered — and then a chargeback. The bank usually sides with the customer because they 'don't recognize' the charge. Defense: good documentation, a clear billing descriptor, and immediate cancellation if requested.
Common misconception
'3D Secure protects against friendly fraud.' No. 3DS protects against unauthorized fraud (a stolen card). Friendly fraud is the real customer filing the chargeback. 3DS doesn't stop that. The defense: documentation, a clear descriptor, and a chargeback dispute.
How to fix it
High friendly fraud? (1) A clear billing descriptor — your business name visible on the bank statement (not 'PAYMENT*1234'), (2) Send order confirmation + delivery confirmation with tracking, (3) Enable chargeback alert services (Ethoca, Verifi), (4) Dispute with full documentation.
Example
Electronics store: 45% of chargebacks were friendly fraud ('don't recognize the charge'). Changed the billing descriptor from 'TECH STORE' to '[store name] ONLINE.' Friendly fraud dropped 62% — customers recognized the charge.
Priority
A clear billing descriptor is the easiest, highest-ROI action against friendly fraud. Check now: log into your own bank account — do you recognize your business's name? If not, neither do your customers.
Related terms
Keep learning. Metrics that touch the same area:
- ChargebackPaymentsA customer disputing a charge through their bank. Costs the merchant: a $7-15 fee plus the lost amount. Above 1% puts the account at risk.
- 3D SecurePaymentsAn additional security layer for card transactions — the customer verifies identity via an SMS code or biometrics. Reduces fraud by 80%+ and shifts liability from the merchant to the issuing bank.
- Payment GatewayPaymentsA service for accepting payments. Stripe, PayPal, Tranzila, Cardcom. Fee: 1.4-3.5% plus a fixed amount.
- PCI DSSPaymentsSecurity requirements for any business handling credit card data. Non-compliance means fines and account termination.
- BNPL – Buy Now Pay LaterPaymentsKlarna, PayPlus, Afterpay — interest-free installment payments. Raises AOV by 20-30% but carries a 2-6% fee.
- Refund PolicyPaymentsThe terms and process for refunding a customer. A generous policy raises conversions by 18% on average.
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