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Education
The friendly fraudster:
Your merchants' worst frenemy
Evi Triantafyllides
PAAY LLC
H ere's a universally recognized and established
fact (at least, in a processor's universe): fraud with the customer care team or a strict return policy;
is one of the most infuriating and costly night-
mares for merchants and their processors.
And the online world is especially hard hit – at a rate that
is accelerating and expected to rise.
With Statista predicting online fraud will reach the $3.8
billion range by the end of 2016, with a further spike that
will cost merchants a staggering $6.4 billion by 2018,
a corresponding increase in demand for fraud filters
and fraud protection and prevention tools comes as no
surprise. And while stakeholders are resorting more and
more to these tools, one of the most important aspects of
fraud that keeps merchants tight handed, and with limited
options for precautions, is none other than friendly fraud.
Those who have experienced it know that friendly
fraudsters are the worst kind of friends (or, in search
of a better word, customers), as they can flip flop from
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contributors toward merchants' profits to enemies of
already drained budgets. Who are these people? Let me
introduce your classic cases.
The revengeful one
This type shows no mercy. A delay in shipping; frustration
or a product that was ill-described, did not live up to
expectations, or was advertised as able to help you fly
to the moon when, in fact, it could not: these are some
common reasons that will cause a revengeful customer to
retaliate and initiate a chargeback.
This type of user is often found among merchants with
no or strict return policies – with the travel and furniture
industries being popular candidates – or, in a broader
context, any overpromising and overambitious merchant.
The forgetful one
We've all been a forgetful user, at least once in our lives:
that one subscription we forgot to cancel after the first
month, or that free trial that ended before we cancelled
our plan. And even though for some of us a cringe will
suffice to show our frustration, others will take the extra
step of disputing the service's charge.
This type of user is often found among subscription-based
stores or services that offer a free trial period.
The lazy one
We might be given the option to return an item, but then
again, how many times were we too bored or busy to do
so? Wrong sized shoes, a shirt for which we later found a
better alternative and that painting we have no idea why
we bought. Any of these, invariably, end up in the "to give"
pile, as consumers are either too lazy to return them, or
the return terms are too complex for them to bother. And
so it goes: if they won't use the items, then they feel less
guilty about picking up the phone and disputing these
charges.
This type of user is often found among high-ticket items
and lifestyle goods such as fashion items.
The cheeky one
And sometimes, you just have users who are all too familiar
with the chargeback process. So, naturally, they decide to
capitalize on it (that is, lie that they never received the item
– for no good reason other than to save money that is not
rightfully theirs).
This type of user is often found anywhere, so beware.
Turning fraudsters into issuers' frenemies
Since fraud filters and prevention tools are designed to
identify suspicious cardholder behavior, and since there's
nothing suspicious about a fraudster who's using his or