KNOXVILLE (WATE) – The e-commerce industry is worried about too many chargebacks. They’re costing merchants billions of dollars every year and now some are beginning to fight back.
6 On Your Side is answering the questions: “What is friendly fraud?” and “How can it affect you?”
The phrase “friendly fraud” is a seemingly conflicting term. The words friendly and fraud don’t to seem to go together.
However, friendly fraud, also known as chargeback fraud, is a real problem for a lot of online merchants.
According to eConsumer Services, chargebacks cost the industry nearly $12 billion in 2012, and retailers are now pushing hard to reduce friendly fraud.
Friendly fraud happens when a customer fraudulently reports to their financial institution that a charge on their credit card is not legitimate.
The customer will then typically be refunded the money immediately, leaving the merchant on the hook for the cash because of fraud protection guarantees of most banks.
For online merchants who never physically swiped a card, it can be difficult to prove that a charge was legitimate.
So, chargebacks become a game of “he said, she said,” where the customer usually wins.
To the protect themselves from fraudulent chargebacks, now businesses are beginning to fight friendly fraud in different ways.
Many are now requiring customers to enter their debit or credit card security codes to prove ownership and physical access to the card.
Some merchants will only ship to the address associated with a charge card, which can be a nuisance when purchasing a gift.
Also, eConsumer Services is predicting that in the not too distant future, some consumers may be labeled as online shoplifters. As a result, consumers may be charged fines that have historically be levied on merchants when chargebacks are filed.
For folks who are honest and actually do have a legitimate chargeback, you may have to accept some inconveniences as both retailers and financial institutions work to make chargeback fraud more difficult.