By Nick Cucci
Fluid Pay LLC
Although no one wants to be a victim of fraud, the reality is that a majority of people will end up as victims of this crime at some point. New fraud techniques are surfacing every day, which is contributing to a recent spike in friendly fraud that is impacting businesses.
In this article, I'll discuss fraud, particularly friendly fraud and familiar fraud. I'll explain what these types of fraud are and how they work.
According to Investopedia, tinyurl.com/2bf7j8hk, fraud is a criminal act that involves stealing personal information, money and other valuable items for nefarious purposes. Those who commit fraud typically do so with the intent of skirting laws, stealing money or receiving free items that they are not entitled to.
Fraud comes in many forms, ranging from stealing someone's credit card and using it to make purchases to creating an account for a fake individual with the express purpose of tricking people into donating funds to the account.
In the payments business "friendly fraud" commonly refers to the act of illegally requesting chargebacks (see tinyurl.com/22tcrkph). This type of fraud is anything but "friendly" because it is being perpetrated by the people companies value the most—their customers.
People who commit friendly fraud, are essentially stealing from the company they place purchases with. These individuals will place orders, receive the promised goods or services, and then dispute the charges with their credit card company.
To protect their customers when a chargeback occurs, banks that issue cards to customers (issuing banks) will dispute the charges themselves and claw the money back from the company in question. This can occur even when friendly fraud is involved. In many cases, this form of fraud is perpetrated by someone in the household making a purchase without the cardholder's knowledge. In this case, the unwitting cardholder disputing the charge believes the chargeback is justified.
Throughout the years, friendly fraud has also been used to describe familiar or family fraud (see tinyurl.com/mr2r5emw). Familiar fraud is a type of family fraud that occurs when a person's friend, relative or someone else they know steals their personal information for illegal use. Most commonly, the information is stolen to make unauthorized purchases (as described above). However, it can also be used to sign up for bank accounts, open new credit lines, receive loans, or even sign up for phone or insurance plans.
Those who perpetuate friendly fraud all have one thing in common: they are committing a crime. However, outside of that one connection, they can often vary widely. While it is true that friendly fraud is most commonly committed by customers, sometimes the perpetrators are legitimate customers who are simply confused and making a mistake. However, more often they are criminals who are intentionally working the system to get products and services for free. For individuals, friendly (familiar) fraud is always perpetrated by someone the victim knows. Whether it is a parent, child, sibling, coworker or next-door neighbor, this kind of fraud comes from a source in your social circle. When the perpetrator of this type of fraud is exposed, the victim will know the criminal by name.
Businesses of all sizes are currently being impacted by friendly fraud, and it is a growing concern across all industries. While a larger company may be able to easily absorb acts of friendly fraud and the associated losses, smaller businesses may struggle to do so. Unfortunately, it is already negatively impacting many small to midsize businesses.
Experts believe that as much as 60 percent of chargebacks are cases of friendly fraud (see tinyurl.com/3aj5bdyd). And as shocking as it may seem, familiar fraud happens at a much higher rate than you would think. The Identity Theft Resource Center found that familiar fraud is impacting 500,000 children and 2 million seniors in the United States alone (see tinyurl.com/4hc838sr).
The following examples of friendly fraud can show exactly how damaging these acts are for businesses.
In these types of cases, the individuals committing fraud will often lie to their banks. They will claim the product never showed up, or they may say that the product was not what they wanted at all and that they were deceived when they made a purchase.
If someone is certain they didn't make a charge that shows up on their account, it's natural for them to suspect fraud and dispute the charge. It might not occur to them that their information was stolen by someone they know. Regardless, the company will still lose money, even though it did nothing wrong.
Businesses are able to sell products and services directly to their customers through online payment gateways. Yet in the same way a shoplifter may snag something off a store's shelf, criminals steal from businesses through clear acts of fraud online.
This growing trend is harmful, but companies increasingly are working to navigate these challenges. As long as businesses adapt and take preventive measures when documenting their sales, they can push back on this form of fraud. 
Nicholas Cucci is the co-founder and COO of Fluid Pay LLC. Cucci is also a graduate of Benedictine University and a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners, as a CFE himself. Fluid Pay is the ONLY 100 percent cloud-based Level 1 PCI Payment Gateway processing transactions anywhere in the world. Contact Nick at Nick@FluidPay.com..
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