Chargebacks911: COVID-19 has caused an ‘eruption’ in friendly fraud

Dispute technology platform provider Chargebacks911 has warned of an ‘eruption in friendly fraud’ as a consequence of the COVID-19 pandemic, detailed in its second annual Chargeback Field Report.

The report, conducted in cooperation with Chargebacks911’s financial institutions-focused sister brand, Fi911, was driven by shifting consumer behavior towards ecommerce and digital transactions during the virus-induced lockdowns.

A notable finding from the study was the revelation that nearly 80% of merchants admitted to experiencing an increase in friendly fraud attacks over the past three years, with 68% stating that the pandemic has caused a growth in their chargeback rates.

The statistics further outlined that for every friendly fraud case that goes unnoticed, 50% of cardholders would commit the same crime in less than 60 days. This equates to every uncontested friendly fraud chargeback being valued at approximately 1.5 chargebacks.

Monica Eaton-Cardone, COO and Co-Founder of Chargebacks911, commented: “Merchants in every sector have faced unprecedented pressure over the past year, with shifting regulations, an uncertain economy, and the need to diversify sales strategies and channels. This has had a major impact on chargeback and friendly fraud rates.

“Take a look at the food and beverage sector, for example. This industry had one of the lowest chargeback rates, but now trends among the highest. A rapid shift to ecommerce, combined with changing consumer behaviors, demographics and the overhaul to home delivery options, has fueled fraudsters with increased opportunities to exploit food delivery scams on the dark web, which continue to surge.”

Of the merchants surveyed, a total of 94% viewed friendly fraud as an issue for their business, but less than 30% are successful in fighting back against these disputes.

An additional outtake from the report was the significance of a knowledge gap preventing merchants from confidently combating fraudulently filed chargebacks.

“A third of merchants surveyed are unable to distinguish friendly fraud attempts from genuine claims, others simply don’t look to contest them,” added Eaton-Cardone. “If they do contest, at least 31% experienced difficulties when contesting illegitimate claims.

“These statistics are eye-opening for any merchant in this evolving climate. A lack of merchant understanding and support is not only a recurring problem, but a growing theme contributing to the dispute flywheel effect we have today.”

Chargebacks911 identified ‘looking outward as ‘one of the best options’ for merchants looking to fight illegitimate chargebacks and friendly fraud, with the report finding that the 20% of merchant respondents who outsourced their chargeback management to third-party specialises experienced a 23% average decrease in friendly fraud costs.

Chargeback solution providers were also touted as a successful measure for fighting friendly fraud, due to advantages in accessing valuable data insight, whilst the report also highlighted that third parties bring benefits with regards to reduced chargeback rates and overall cost savings.

Eaton-Cardone concluded: “Unfortunately, the events of 2020 brought with them a complete shift in consumer purchasing behavior that created a perfect storm of factors for friendly fraudsters to take advantage of.

“Without question, more needs to be done to raise awareness of the long-term damage of not fighting friendly fraud. The 2021 Chargeback Field Report reveals just how prevalent it has become after being bolstered by the COVID-19 pandemic. Merchants must do more to fight against this new wave of fraudsters.”

To read Monica Eaton-Cardone’s interview with Payment Expert about what merchants can do to protect their revenue when it comes to gift card fraud, click here.