With Americans growing more cautious about their spending habits in the wake of layoffs and pay cuts due to the coronavirus pandemic, experts caution that small businesses should brace for a rise in “friendly fraud.”
It works like this: A customer receives a product or service paid for with their credit card and then contacts their issuer to dispute the charge for a refund, or a “chargeback,” without making a return.
Chargebacks aren’t good for merchants because they typically come with hefty fees that could range anywhere between $20 and $100. If a business has too many, their account could be shut down or their transaction costs may rise. If a business accepts fraudulent payments, the card network may hold merchants accountable to cover the costs.
What is ‘friendly fraud’?
It’s when authorized cardholders dispute seemingly legitimate charges to their credit cards. Customers may contact their credit card issuer with a fraud claim and either report an item wasn’t delivered or claim the purchase didn’t match the description. To be sure, there’s a chance a customer is being honest and flagged the issue accurately.
Is there a way to dispute?
Experts advise that businesses have tracking and shipping tools in place that can verify a customer received their order. Another option is to require customers to sign upon delivery, creating a paper trail that shows the product was ordered and delivered.
Can it be prevented?
Fraud is challenging to avert. The more information businesses have about a customer’s purchase, the harder it will be for fraud to occur. Experts say to use stringent authentication software for purchases.