By Jacob Bennett, ETA CPP

It’s important to understand the significance of friendly fraud, the damage it can cause, and how merchants can avoid it.

Friendly fraud. The name is misleading as there’s really nothing “friendly” about it. Friendly fraud is a type of chargeback in which a customer orders goods or services using a credit or debit card, and then deliberately initiates a chargeback – falsely claiming that their card or account details were stolen. In other words, a customer bought something and then claimed they never made the purchase or never received the goods. The customer is then reimbursed, but they keep the product. Unfortunately, the merchant is left holding the bag – they lose the revenue, and, adding insult to injury, they are also stuck with a chargeback that hurts their reputation with their processor. I don’t know of a single merchant that hasn’t experienced losses from friendly fraud.

Credit card payments and protection are in the minds of cardholders now more than ever, especially in the wake of the EMV liability shift; and US cardholders are now savvier about their rights as both cardholders and consumers. While these consumer protections are important, they also have unintended consequences: higher numbers of “customers” than ever are misusing these protections to take advantage of merchants.

Friendly fraud is costly to businesses of all sizes and makes up a huge portion of chargebacks. According to, it accounts for up to 86% of chargeback requests, costing retailers more than $11 billion per year.

While this type of fraud will probably always exist, there are precautions that business owners can take.

One of the most effective safeguards is to use a fraud shield tool which has a “blacklist” – a database of cardholders that may be engaging in friendly fraud across multiple merchants. Having clearly-defined prices and terms (delivery, refund, etc.); complete and accurate product and service descriptions; and proper card acceptance authorization and verification procedures (like CVV) also help merchants successfully respond to disputes.

Partnering with a wide variety of merchants in all risk categories gives National Merchants Association a front-row seat in defending against fraud of all types. As merchant advocates we educate merchants about these risks; and our dedicated risk staff can provide guidance on proper dispute handling, customer vetting tools, and strong card acceptance methods that can help stop friendly fraud before it starts.

“Friendly” fraud is still fraud – and the criminals behind it are looking for ways to “game the system” and dupe unsuspecting merchants. Getting educated on this trend – and how merchants and processors are addressing it – is a critical component of success for any business with significant card-not-present transaction volume.

Jacob Bennett is the Chief Risk Officer at National Merchants Association.