How to Deal With Friendly Fraud

This common type of fraud can be costly; here’s how to avoid it

Friendly fraud costs global businesses over £97 billion annually, making it one of the most significant threats to modern commerce. This fraud occurs when actual customers dispute legitimate charges, claiming they never authorised the transaction or received the goods. The term “friendly” is misleading: this type of fraud damages your business just as much as traditional fraud.

This fraud affects businesses of all sizes, from small startups to enterprise retailers. Whether you sell physical products, digital services or subscription-based offerings, you’re vulnerable to customers who misuse the chargeback system. This guide provides a practical approach to identifying warning signs, preventing incidents, challenging illegitimate chargebacks, and protecting your revenue while maintaining customer relationships.

Understanding Friendly Fraud and the Chargeback Spectrum

Friendly fraud occurs when a customer makes a legitimate purchase and then disputes the charge with their bank, claiming it was unauthorised or that they never received what they paid for. Unlike traditional fraud involving stolen payment information, these disputes come from actual customers who received what they paid for but want their money back through the chargeback system.

This type of fraud exists on a spectrum from genuine customer confusion to deliberate attempts to obtain products without payment. The problem continues to grow as more consumers discover how easy it is to file chargebacks.

What makes these disputes particularly challenging is that 40 to 80% of all chargebacks might be fraudulent, but distinguishing legitimate disputes from scams requires careful analysis. One pound of friendly fraud can cost merchants an average of £3.40 when accounting for chargeback fees, lost merchandise, shipping costs and administrative time.

Accidental Friendly Fraud

Accidental cases happen when customers dispute legitimate transactions without intending to scam you. These customers genuinely believe they have valid reasons for filing chargebacks.

The most common cause is unrecognised transactions due to unclear merchant descriptors. When your business name on credit card statements doesn’t match your website, customers may assume fraud. If you operate “Sarah’s Boutique” but statements show “SB Holdings LLC,” expect disputes.

Family member purchases trigger many accidental disputes, particularly when children use parents’ payment information without permission for games or in-app purchases. Parents see the charges later and file chargebacks, unaware their child made the purchase.

Subscription confusion drives many innocent disputes as well. Customers often forget about free trials that convert to paid plans, fail to understand recurring billing, are unaware of renewal charges, or fail to recognise a business on a statement due to unclear or inconsistent naming. Many customers don’t realise chargebacks harm merchants; they simply see a convenient way to reverse unwanted charges.

Deliberate Friendly Fraud

Deliberate friendly fraud happens when customers knowingly abuse the chargeback process to get their money back on legitimate purchases.

Some claim items were never delivered or misrepresented, often with high-value goods like electronics or designer items. Others exploit the system repeatedly across different merchants.

Digital products are especially vulnerable. Buyers download content, then dispute the charge, claiming they never received it or that the files were faulty.

Many also use chargebacks to avoid return policies, restocking fees or deadlines, knowing banks often side with cardholders. This is sometimes called “cyber shoplifting,” a form of fraud often dismissed by customers because it targets companies, not individuals.

Step 1: Identify the Warning Signs

The best way to handle friendly fraud is to catch it early, before it becomes a chargeback. Start by monitoring chargeback reason codes to find patterns that separate confusion from abuse. Review dispute histories and customer messages to identify recurring behaviours and repeat cases.

Red Flags in Transaction Data

Look out for mismatches between IP locations and billing addresses, especially when combined with other risk indicators. Several disputes from the same card or customer in a short time may point to an issue.

Other red flags include vague communication about orders, different billing and shipping addresses, large orders from new customers, and rush delivery requests. Digital goods carry higher risk since customers can use them immediately and still dispute the charge. Transactions that don’t match a customer’s usual behaviour may need further checks.

Build a Dispute Evidence Repository

Keep all relevant documentation in one place so you can act quickly during a chargeback window, which is usually 7 to 30 days, depending on the card network. Your evidence should include receipts, invoices, delivery tracking, IP addresses, device data, customer messages and signed agreements.

Use automation where possible to collect and organise this information. Incorporating a fraud management system can save time and help you present stronger evidence.

Step 2: Prevent Friendly Fraud Before It Happens

Preventing disputes is more cost-effective than responding to them. Your prevention strategy should cover both unintentional and deliberate cases, while keeping the buying experience frictionless for legitimate customers.

Review your chargeback data regularly and adapt your approach as behaviours shift.

Improve Customer Communication

Most accidental disputes happen because of confusion. Use a billing descriptor that matches your brand name so customers can recognise the charge. Send clear order confirmations with item names, prices and delivery details. For subscriptions, send reminders before the next payment, ideally 3 to 7 days in advance.

Keep customers informed through delivery notifications and tracking updates. If possible, include photos of delivered packages to avoid disputes over missing items.

Make your support easy to reach. Include contact details on receipts, emails and your website. Offer help by email, chat, phone or social platforms so customers are more likely to contact you first.

Strengthen Payment Verification

For higher-risk transactions, use stronger authentication steps:

• Apply 3D Secure for additional confirmation through the cardholder’s bank
• Require CVV and AVS checks for card-not-present payments
• Use device fingerprinting to detect unfamiliar devices
• Add two-factor authentication for high-value transactions or account changes

Apply these checks based on the risk profile of the transaction. Too many steps at checkout can discourage valid purchases, so balance security with ease of use.

Offer Simple Refund Options

An easy refund process can prevent many disputes. Offer clear return windows, prepaid labels, simple online forms and fast refunds. In some cases, offer partial refunds or store credit.

If you notice signs that a charge may lead to a dispute, refund the transaction before it escalates. This helps you avoid fees and maintain customer trust.

Step 3: Fight Chargebacks Caused by Friendly Fraud

Even with prevention, some chargebacks will occur. When they do, you must enter the representment process and submit evidence proving the transaction was legitimate. Most card networks allow 7 to 30 days to respond.

Merchants win roughly 45% of chargebacks when they provide strong evidence. Success relies on clear, complete documentation showing customer authorisation and fulfilment.

Prepare Strong Evidence:

Your evidence should present a cohesive record:

• Transaction data: Receipts, invoices and order confirmations
• Proof of delivery: Tracking numbers, carrier confirmations, signatures. For digital goods, include access logs or download history
• Customer communications: Emails and support logs indicating receipt or usage
• Policy confirmations: Signed terms or agreement logs
• Behavioural and identity data: IP logs, login records, device information, 3D Secure, AVS and CVV checks

Collaborate With Your PSP and Issuer

Coordinate with your payment service provider (PSP) to ensure evidence meets network standards. PSPs often offer tools to gather transaction data, communications and delivery confirmations into dispute-ready packages.

Monitor issuer feedback and dispute trends to identify which evidence types are most effective. Use those insights to adjust your defence strategy over time.

Balance which chargebacks to dispute based on evidence strength, transaction value and your overall chargeback ratio. Track win rates to guide decisions.

Payment platforms like Rapyd support centralised dispute management across payment methods and regions, helping businesses stay organised and responsive in high-volume environments.

How to Deal with Friendly Fraud and Next Steps

The three-step approach outlined above gives merchants a clear framework for addressing friendly fraud. Step 1 helps identify early warning signs. Step 2 introduces practical defences through better communication, authentication and refund policies. Step 3 focuses on building strong evidence to contest chargebacks effectively.

While global merchants face additional complications, success is possible, especially when supported by the right infrastructure. Rapyd helps reduce risk and manage disputes across diverse markets and payment methods.

FRAUD FOILED. PAYMENTS PROTECTED.

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