Online merchants are facing a new problem — fraud by customers. Firms are increasingly facing malicious activity in the form of chargeback or friendly friend, writes Suparna Goswami Bhattacharya in International Finance Magazine this week.

Speaking Co-Founder of Global Risk Technologies™ and our US subsidiary Chargebacks911, Monica Eaton-Cardone, the article explains the reasons why friendly fraudhas become an invisible problem of today’s technology-driven online payment ecosystem:

“The chargeback mechanism is weighted heavily in favour of the consumer and over the past five years consumers have become more and more aware of how simple and financially rewarding this outdated process can be for them. Most customers do not intentionally attempt to get something for free the first time there is a dispute. However, once they profit from a chargeback, as much as 50% people are tempted to fraudulently repeat the process within 90 days. In this sense, chargeback fraud is a learned behaviour.”

Many customers see friendly fraud as a victimless crime, but this couldn’t be further from the truth explains Monica:

“Chargebacks leave a trail of destruction behind them and it affects everyone. Firstly, the bank suffers the processing costs associated with the filed chargeback, and reimbursing and recovering the funds. The merchant loses the transaction value, the goods or services that were sent out and is fined by the bank, as well as being hit by damage to credit ratings and reputation. The more fraud is perpetrated by consumers, the more merchants need to raise prices to cover their losses.”

The majority of chargeback volumes (70%) are attributable to friendly fraud, with a 20% share due to merchant error, while 10% is typically attributable to criminal fraud. Make sure you understand the true reasons behind your chargebacks and put in place the necessary steps to successfully dispute fraudulent claims and avoid the risk of a repeat problem.

Read the full article in International Finance Magazine.