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Friendly Fraud
From Wikipedia, the free encyclopedia
Friendly Fraud is a credit card industry term used to describe a consumer who makes an Internet purchase with his own credit card and then issues a chargeback through his card provider after receiving the goods or services.
The online merchant that sells physical products can protect itself by requiring a signature upon delivery of goods. That signature, in addition to information gathered online, helps in the resolution of chargeback disputes. Also, the merchant can request the Card Security Code on the credit card to fight "Card absent environment" chargebacks. These are the three digit codes on the backs of Visa, Mastercard, and Discover cards, and the four digit code on the front of American Express cards.
Friendly fraud thrives in the digital products market where it is much easier for fraudsters to succeed. Attempts by the merchant to prove that the consumer received the purchased goods or services are difficult. Again, the use of card security codes can show that the cardholder was present, but do not prove that delivery was made. Proof of delivery is often difficult, and the cardholder gets the product without paying for it.
One method of combating friendly fraud is to create a feature in the product that checks in with the merchant's database. If a chargeback is issued, the merchant can tell the product to suspend service. This tactic will also work for digital subscription services, or any other online product that requires updates or logins.