The Post-EMV Friendly Fraud Epidemic

by Matthew Katz 0

A recent report by CBS showed that 86 percent of consumer chargebacks are deliberate. This is a growing trend of friendly fraud—where consumers make a purchase online and then request a chargeback from the issuing bank after receiving the goods or services they ordered. Instances of friendly fraud tend to spike after data breaches—another high-frequency occurrence lately—as true fraud rises and consumers jump on the bandwagon to receive a refund from the merchant.

Friendly fraud has always been a problem for merchants, but with the liability shift in October of 2015, and the EMV migration slated to continue over the next few years, this type of fraud will escalate. In countries that have already migrated to the EMV standard, the uptick in fraud was palpable. The U.K. experienced a 62-percent increase in card-not-present (CNP) shoplifting after it implemented EMV in 2005. Experts predict the U.S. will see similar outcomes, and online merchants should be prepared.

CNP merchants now must navigate the threat of fraud from multiple angles. Online fraud is expected to more than double by 2018, increasing from $2.8 billion to more than $6.3 billion. Recent studies show that more consumers are turning to their mobile devices to make purchases, a prime channel for friendly fraud. Since 2011, friendly fraud has gone up 41 percent. These factors put CNP merchants in treacherous territory.

Matters are complicated by the lack of collaboration between merchants and issuers. Without real-time order detail information sharing between the two, issuers are not as equipped as they could be to resolve inquiries and disputes on the first call. This leads to spikes in operational costs for banks … and avoidable chargebacks for merchants. When merchants share order details with issuers, the inquiry or dispute can be quickly resolved—either validated as true fraud, which can then be relayed directly to the merchant to resolve and refund the cardholder, or challenged as friendly fraud, arming the issuer with information to stop bad actors in their tracks and eliminate “double dipping” and over-refunding.

The trend will only continue, and merchants need to have a friendly fraud prevention strategy in place to protect payments against unscrupulous consumers looking to game the system.

How Does Friendly Fraud Happen?

Friendly fraud is traditionally defined as a situation where a consumer uses his or her credit card to make a purchase and then disputes the transaction with the issuer once the item has been received, causing a chargeback. There are two main categories for friendly fraud: