If you’re selling products online, there is a chance that a customer might dispute a purchase for any number of reasons, and it’s easier for them to do so because of the faceless nature of online transactions (incidentally, this increased risk of fraudulent transactions online is why card-not-present transactions typically carry a higher processing fee). So, if you’re running a business that offers online sales, it’s important to familiarize yourself with the ins and outs of friendly fraud so you can put the necessary precautions in place to help protect your business.

Say, for example, a customer unknowingly entered into a recurring billing cycle, or they thought they had canceled an ongoing service but really didn’t, or they received a faulty product or didn’t receive it at all – this is all considered friendly fraud, and usually constitutes a genuinely confused or misguided customer.

Friendly fraud is commonly confused with chargeback fraud, and it can be difficult to tell the difference. If the customer is being honest about their dispute, then that constitutes friendly fraud, whereas if the customer is deceitfully exploiting a customer protection to their benefit, that is chargeback fraud. Friendly fraud usually involves a confused customer making an honest mistake, whereas as chargeback fraud is a customer deliberately making a dishonest claim to benefit from a system designed to protect them. Discerning the customer’s intent is often difficult and sometimes, not possible.

If, for example, a customer claims they didn’t realize they were still paying for a service months after they signed up for it and disputed the subsequent payments, then they may be making an honest claim and it’s probably in your best interest to reimburse the customer and re-evaluate your service agreement and messaging on your website. However, if you look at your records and discover that this same customer was actively logging in and using your service throughout the months in question, then it is clear they are not being honest about their claim, and you would likely win a chargeback dispute.

Whether it’s chargeback fraud or friendly fraud, it’s important to know the risks and protect your business by putting safeguards in place.

Here are some steps you can take to help protect your business:  

  1. Use shipping and tracking tools whenever possible. This helps you monitor when your product is delivered to the customer and helps transfer some liability away from your business over to the shipping company if it was, in fact, a mistake on their end.
  2. Clearly communicate your refund policy. Having a clear and easy to find refund policy makes it easy for customers to find the information they need if they require a refund. You can also include a clause that products need to be returned before a refund can be issued.
  3. Collect as much customer data as possible. The more information you gather about your customers, the easier it is to evaluate if a claim is legitimate or not.
  4. Respond quickly to customer issues. Ensure your contact information is clear and visible so that customers can contact you if there is an issue, and you can resolve it with them directly.

Most customers are honest and genuinely want to support your business, so by creating a comprehensive paper trail, establishing clear and well-communicated policies, and collecting customer information whenever possible, you can help protect your business if a case of friendly fraud does occur. Though you may not always know when a customer is honest in their claim, you can be proactive to ensure you’re prepared if a dispute ever arises.