What is friendly fraud vs. chargeback fraud?

Chargeback fraud and friendly fraud are similar – so similar, in fact, that they’re often used interchangeably.

But chargeback fraud and friendly fraud aren’t the same. (And neither is all that ‘friendly’.)

Below, we explain exactly how these two types of fraud operate, who they target – and how they’re distinct from a third, completely different, type of fraud. We’ll equip you everything you need to know about these damaging forms of fraud before they can have an impact on your business – and how to handle them, with Checkout.com, when they do.

Credit card fraud explained

‍Credit card fraud is when a thief uses deceptive techniques to swindle a business – or an individual – out of their hard-earned money.

This could be through stealing an individual’s card or identity and making illegitimate purchases under their name (and with their funds). It’s this kind of ‘malicious’ activity that most of our minds turn to when we think of fraud. Where the fraudster is a faceless, nefarious entity; cruel, highly intelligent, and hellbent on robbing us of our livelihoods.

Sure – this fraud, and these fraudsters, do exist. However, credit card fraud can also be much more banal, and far less ‘glamorous’. In these cases – which include both chargeback fraud and friendly fraud – it’s typically an ordinary person perpetrating the fraud. And doing so against businesses, rather than other cardholders.

So what is friendly fraud, and how does it differ from chargeback fraud? Let’s take a look.

Friendly fraud vs. chargeback fraud

The key to understanding the friendly fraud vs chargeback fraud distinction isn’t a case of outcome – because both, in the end, wind up costing your business money.

It’s intention.

Let us explain.

Friendly fraud

Friendly fraud is when a customer raises a chargeback against your business – without realizing that their reason for doing so is incorrect.

It’s fraud, sure. But because the customer isn’t acting with malicious intent (that is, to purposefully deceive your business, and force you into refunding them for a purchase you delivered on legitimately) it’s considered ‘friendly’.

Friendly fraud can happen when:

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• A customer doesn’t recognize a charge on their statement (for instance, the name you collect payments under doesn’t match your established brand name; or you haven’t added an accurate billing descriptor).
• A customer requests a refund and, in the waiting period while your business actions it, they become anxious or impatient. Misunderstanding or distrusting the process, they then initiate a chargeback with their issuing bank.

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Basically, friendly fraud is, more often than not, an accident.

It’s still damaging to your business’s brand, bottom line and reputation. Frustrating, too – because chargebacks raised in friendly fraud cases could almost always have been resolved by other means or methods, such as through your business’s customer service channels.

Still, friendly fraud is markedly different from the alternative…

Chargeback fraud

There’s nothing ‘friendly’ about chargeback fraud. Nor is it accidental.

Chargeback fraud is when a customer deliberately takes advantage of their rights as a cardholder to defraud your business. It happens when a customer raises a chargeback against a purchase made legitimately (and delivered to the advertised standard, and within the promised timeframes) by your business.

The customer will, most likely, have read about chargebacks online – and how raising one often leads to a refund of the purchase. Generally, it’ll be the customer’s intention to raise a chargeback even before they’ve made the purchase. (Rather than as a response to anything your business has done.)

Once the goods or services have been delivered, the customer simply calls their bank and reports (falsely) that they don’t recognize the purchase. Or that it:

• Failed to arrive
• Turned up in a faulty condition or not as advertised
• Was made by an unauthorized party (the card was stolen, for example)

The customer’s intent? Basically, to get free stuff – at your business’s expense.

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Learn more: 10 fraud rules you need at minimum

Malicious fraud

In cases of friendly fraud and chargeback fraud, the fraudster (we’ll call them that, regardless of their intention) is always the actual cardholder.

But there’s a third type of fraud that doesn’t involve the legitimate cardholder – and your business needs to be alert to it.

This is malicious fraud, and typically involves the theft of the physical card – or the access of the cardholder’s card details via digital means – by the fraudster.

This could be through:

• Hacking: when a thief breaks into the cardholder’s computer system and steals sensitive information.
• Phishing: when a thief lures a customer – often by pretending to be a legitimate company – into clicking on a fake link, and giving up their card details.
• Social engineering: when a thief tricks a customer into handing over their personal information – either over the phone or in person – after winning their trust.
• Card skimming: when a thief places a device on a card reader or ATM to steal the information of credit cards used on them.
• Rummaging through trash: when a thief unearths documents containing sensitive information – such as utility bills, credit card statements, or other personal or business correspondence – to access private information.

To understand the full gamut of online payment fraud types, explore our extensive guide.

How to avoid chargebacks and fraud with Checkout.com

Avoiding chargebacks is crucial – for a couple of key reasons.

One? They cost you money. Not only will you lose the cost of the item or service you sold to the fraudster, but – when they raise a chargeback, and it goes in their favor – you’ll be hit with a chargeback fee on top. (Not to mention all the time and effort you may have put into attempting to win the credit card dispute.)

Two? Chargebacks hit your business not only in the pocket, but in public perceptions of your profile. Frequent chargebacks can damage your reputation. Your relationship with your customers. And can even cost you your payment service provider – while getting you in hot water with card schemes such as Visa and Mastercard.

Here at Checkout.com, we understand the impact chargebacks have on your business. Which is why we offer a range of tools and features – including our Fraud Detection Pro and Rapid Dispute Resolution solutions – to help you minimize the risk of fraud.

To prevent chargebacks from cropping up. And, when they inevitably do, resolve these disputes in real time – sidestepping the need for a lengthy, laborious disputes process.

For more expert insights into how to safeguard your online business from credit card fraud, delve deep into our top 10 ways to prevent chargebacks.

And, to find out more about Checkout.com’s Fraud Detection Pro tool – and arm your business against the rising threat of credit card fraud – get in touch with our sales team for a chat.