26.04.2023 Universepay

Friendly fraud abuse: detect and prevent chargebacks promptly

In the world of e-commerce, online payments have become a common practice for making purchases. Nonetheless, the rise in online transactions has led to an increase in fraudulent activities, with chargebacks being the most common issue that can result in financial losses for your enterprise. In this article, we will look at how to detect and prevent friendly fraud while maintaining customer satisfaction.

What is a chargeback?

A chargeback refers to the situation in which a customer requests a refund for a purchase that has been previously made. There can be multiple reasons for chargebacks, including dissatisfaction with the quality of a product or service, delivery problems, or an inaccurate product description. Nevertheless, some buyers may misuse this option and seek a refund without a valid reason.

What is a friendly fraud?

Friendly fraud is a type of fraud associated with chargebacks, whereby a purchaser makes a transaction, obtains a product or service, and subsequently cancels the payment or asks for a refund without a reasonable motive. This type of fraud is typically carried out with the intention of receiving a free product or service. Commonly, friendly fraud is accomplished by falsely asserting that the product was not delivered, that the product is damaged or faulty, or to claim a refund for a service that has already been consumed. According to industry reports, friendly fraud is considered to be the most prevalent form of scam that adversely affects merchants, with one study indicating that approximately 86% of chargeback claims are potentially attributable to friendly fraud.

Consequences of friendly fraud for the merchant

The act of committing friendly fraud can have detrimental effects on any enterprise, resulting in significant losses both financially and reputationally. Here are some potential consequences:

1. Financial losses

One of the most apparent impacts of friendly fraud is the loss of revenue for the business. When a buyer receives a refund for a product or service that was already delivered, the seller incurs expenses such as the cost of the product itself or the service provided, shipping costs, transaction processing commissions, chargeback fees, and costs for dealing with chargebacks.

2. Damage to the company's reputation

Friendly fraud can also harm a firm’s image in the market and cause negative reviews of the product or service. If consumers get a refund, they are unlikely to leave positive feedback about the seller and the product, despite the fact that it was actually of good quality. This can tarnish the seller’s reputation and reduce the number of sales.

3. Increased risks for the business

Frequent instances of friendly fraud can raise the risk for the merchant, leading banks and payment systems to consider them a suspicious client. This may result in additional checks on the accounts, which can seriously hinder the operation of the enterprise. Additionally, there is a risk that the payment system will block the company’s account due to a high level of chargebacks.

How to prevent friendly fraud?

1. Improve the payment processing system

Having a reliable payment processing system is essential for preventing friendly fraud and minimizing risks. Implementing a fraud protection measures can identify unusual payment transactions and automatically cancel dubious ones.

2. Develop a return policy and inform customers

Establishing a clear return policy is a key element for any business and should be developed considering potential risks and the industry in which the company operates. It is also important to prominently display this policy on the website and social networks. By ensuring that buyers are aware of all the return terms and payment dispute procedures, the possibility of friendly fraud can be reduced.

3. Establish fraud detection and prevention measures

Merchants should have certain screening procedures in place to help recognize potential friendly scams. This can include reviewing payment history and using multifactor authentication to detect doubtful transactions.

4. Employee training

Providing comprehensive training to employees is essential to enable them to recognize potential friendly fraud cases, identify suspicious orders or transactions, and manage payment disputes.

5. Maintain regular communication with payment providers

Frequent communication with payment providers can help merchants obtain fraud prevention advice, keep up-to-date with the latest trends in the field, and gain access to technical support and anti-fraud system updates.

6. Conduct systematic data analysis

Merchants should constantly analyze data to identify trends and potential risks, review information on frequently disputed products or clients who regularly make returns. This will help identify potential issues and develop measures to prevent them.

7. Respond promptly to payment disputes

If a merchant receives notification of a payment dispute, it is crucial to respond promptly. Verify transaction data and provide evidence if possible. Additionally, it may be helpful to contact the buyer and attempt to resolve the issue without involving payment systems.

8. Monitor your reputation

Friendly fraud can have significant consequences for a firm’s reputation. Therefore, it is important to monitor customer reviews, respond to complaints, and provide quality service. This will not only reduce the risk of friendly fraud but also build clients trust.


In conclusion, friendly fraud poses significant challenges for businesses. However, following a few rules can help reduce the likelihood of its occurrence. Developing an effective refund policy, improving the payment processing system, and conducting data analysis will help merchants minimize risks and safeguard their company from friendly fraud.

Make a smart choice and select UniversePAY as your payment provider. Be assured that our secure payment processing system, effective refund policy, and data analysis tools will protect your business from the risks of friendly fraud. Don’t wait any longer, contact us now by filling out the form below or sending an email to info@universepay.eu.

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