Friendly Fraud vs. True Fraud: Chargebacks911 Says $100B Problem Leaves Everyone At A Loss

Fraud formerly ran rampant among the retail industry – but Chargebacks911 says that the growth of ecommerce has led to an increase in friendly fraud, committed by dishonest consumers rather than criminals.

While fraud and identity theft have long been believed to be a main source of ire for online retailers, the new culprit is often consumers themselves – friendly fraud chargebacks, initiated by online shoppers, are quickly becoming an overwhelming adversary. For retailers, the costs of fraud are ever increasing – merchants are incurring a $279 loss for every $100 of fraud losses, the most since 2010 ⁽¹⁾. Despite the fact that many merchants consider chargebacks an unavoidable cost of business, dispute mitigation company (http://chargebacks911.com/), Chargebacks911, says they can often be reduced by learning to distinguishing them from actual fraud and also educating clients of the inherent consequences.

Friendly fraud occurs when a consumer makes an online purchase with his/her own credit card, and then instigates a chargeback through the card provider after receiving the goods or services, effectively canceling the transaction and receiving a refund of the money. The process largely differs from cases of fraud and/or identity theft, which encompasses the fraudulent use of a credit card account through the theft of the account holder's card number, card details and personal information.

According to Chargebacks911 (http://chargebacks911.com/), actual fraud was the initial culprit in credit card disputes – overall credit card fraud incidents jumped 17 percent between January 2011 and September 2012 ⁽²⁾. But now, friendly fraud is at the crux of a very complex problem today that affects every component in the ecommerce industry. According to the 2nd annual LexisNexis True Cost of Fraud Study, fraud amounted to a $100B loss for retail merchants – and friendly fraud accounted for one-fifth of that total, amounting to $200,000,000 ⁽³⁾.

Chargebacks911 co-founder, Monica Eaton-Cardone, estimates that about 10 percent of all chargebacks are related to actual fraud or identity theft situations, leaving the large majority resulting from instances of low customer satisfaction, consumer ignorance, or malicious intent.

“The main issue is ignorance on behalf of consumers,” said Eaton-Cardone. “The driving force behind friendly fraud is the thought that there are no repercussions – but that just isn’t the case.”

Chargebacks were initially devised as a protective means against fraudulent activity for consumers. But as ecommerce grew, dishonest consumers have realized that chargebacks allow them to buy an item and then dispute the charge by filing a chargeback – result being that they keep the product and receive a refund.

Eaton-Cardone says that the myth that there is no risk of increased loss for the consumer or their banks is based on the assumption that the merchant will not exercise the right to dispute the claim – which, based on a Chargebacks911 analysis, is nine times out of 10 for merchants whose average ticket is less than $200.

Eaton-Cardone maintains that the consequences for rising numbers of friendly fraud incidents are far reaching:

• Issuers are forced to invest in more automated methods to handle increasing demands for chargeback requests and processing, which leads to more incidents not less – the task of filing a chargeback is now available by simply clicking a button). 
• Acquirers are forced to increase their fees and rates to cope with higher risks and increased handling costs. 
• Merchants are challenged to get more creative in terms of mitigating frozen chargeback thresholds – and also are often required to increase their cost of goods to offset the losses caused by increasing chargebacks.
• Consumers are paying increased rates and higher prices, lured into recurring models that help justify the rising costs of their acquisition.
• Eaton-Cardone says consumers are actually getting the worst end of the stick because they are the ones who are ultimately responsible to finance this developmental growth.

A former online retailer herself, Eaton-Cardone formed Chargebacks911 to relieve merchants of the burden of handling chargebacks.  After her own trial and error in experiences with chargeback issues, she wanted to provide fast and reliable services that not only help recoup the loss of funds as a result of increasing chargebacks (http://chargebacks911.com/why-us/), but to also curb future chargebacks so that merchants retain all processing abilities.

Chargebacks911 specializes in servicing merchants and the majority of banking institutions.

About Chargebacks911:
Co-founder Monica Eaton-Cardone established Chargebacks911 in September, 2012, out of necessity after many years as a merchant struggling to find a solution to chargeback issues.  Chargebacks911 was developed specifically for merchants to offer immediate aid through proprietary technology and provide the necessary function that gives merchants the freedom to focus on their core competency and optimize their in-house skill set.  Chargebacks911 specializes in servicing Internet merchants, and offers both response and resolution services for chargebacks and cardholder disputes. The company works with merchant clients to help them keep their dispute rates down and retain their ability to accept credit cards. Chargebacks911 provides a unique exception to standard dispute processing for dissatisfied consumers who wish to remedy transactional disputes, without the requirement of additional intermediaries or lengthy correspondence requirements. For more information, visit www.chargebacks911.com.

⁽¹⁾"LexisNexis True Cost of Fraud Study." Lexisnexis.com. Lexis Nexis, 16 Sept. 2013. Web. 1 Nov. 2013. lexisnexis.com/risk/newsevents/press-release.aspx?Id=1379105834100604.
⁽²⁾Kristof, Kathy. "5 Ways to Deter Credit Card Fraud." Cbsnews.com. CBS, 15 Oct. 2013. Web. 30 Oct. 2013. cbsnews.com/8301-505144_162-57607449/5-ways-to-deter-credit-card-fraud/.
⁽³⁾"Retailers Lost $139B to Fraud in the Last Year." Lexisnexis.com. Lexis Nexis, 28 Sept. 2010. Web. 1 Nov. 2013. lexisnexis.com/risk/newsevents/press-release.aspx?Id=1285683732999877.