What Is Friendly Fraud? Recognize, Prevent and Respond

Online shopping can be risky: Scammers set up fake ecommerce stores, fraudsters steal payment information, and some businesses knowingly sell defective products. The chargeback system was designed to keep shoppers safe from these dangers.

Chargebacks help protect consumers by letting them dispute fraudulent charges to their cards and get their money back. But what happens when someone files a chargeback for a non-fraudulent purchase? 

That person becomes the fraudster (often unwittingly), and the merchant is the victim. This phenomenon—known as friendly fraud—is pervasive and damaging, but your business can take steps to prevent it.

What Is Friendly Fraud?

Friendly fraud is a type of fraud where a customer disputes a legitimate transaction, falsely claiming that they didn’t receive a product, the product was damaged or defective, or the transaction was unauthorized. 

Also known as chargeback fraud, friendly fraud exploits the chargeback system designed to protect consumers, leaving businesses vulnerable to financial loss. While the customer gets a refund, the merchant is left dealing with lost revenue and higher chargeback fees. Needless to say, the word “friendly” is misleading.

Friendly fraud can be devastating for ecommerce businesses—and it’s on the rise. 

  • One study shows that friendly fraud is increasing at the rate of 21% per year
  • About three-quarters of businesses report that friendly fraud has increased between 2021 and 2023.
  • A consumer survey reveals that 23% of consumers who have disputed a purchase admit that it was friendly fraud—and that number only takes into account the people who chose to come clean.

Recognizing Friendly Fraud

Before learning how to prevent friendly fraud, you need to recognize the signs. So how can you identify friendly fraud? You’ll know you’re encountering it when you have evidence that a customer made a purchase and received their product, but they claim non-receipt, unfamiliarity with a purchase, or an unauthorized transaction. 

Friendly fraud is distinct from criminal fraud and legitimate chargebacks. 

Friendly Fraud vs. Criminal Fraud

While friendly fraud is a deceitful dispute by a customer, criminal fraud (or true fraud) involves an unknown third party who steals payment information and uses it to buy things online.

Friendly Fraud vs. Legitimate Chargebacks

As mentioned above, chargebacks are meant to protect consumers—when they use them the right way. People are entitled to file chargebacks when one of the following occurs: 

  • Criminal fraud. Someone steals their payment information and uses their card without permission.
  • Billing error. Your business makes a billing error, such as charging a customer twice for the same purchase.
  • Non-response. Your business doesn’t respond to a customer’s attempt to resolve an issue. If a customer contacts you with a legitimate concern, and you don’t respond, they have a right to dispute the purchase.

The Psychology Behind Friendly Fraud: Why Does It Happen?

Why do people engage in friendly fraud? While some do it with ill intent, others simply don’t know what to do when they’re dissatisfied with a product or see a charge they don’t recognize. These people often don’t even realize they’re participating in friendly fraud! But even when consumers aren’t purposefully trying to cheat the business, their actions have harmful consequences. 

Let’s break down some of the reasons someone might commit friendly fraud.

  • Forgetfulness or confusion. Sometimes, customers simply forget they’ve bought something. They see an unfamiliar charge, conclude that someone has gotten ahold of their card information, and report the purchase as fraudulent. 
  • Impulse buying. Buyer's remorse plays a significant role in friendly fraud. If a customer buys something on impulse and later regrets it, they might think that filing a chargeback is the quickest and easiest way to fix the situation.
  • Dissatisfaction. Dissatisfied buyers, believing that you didn’t give them what they paid for, will sometimes file a chargeback rather than addressing the issue with you. 
  • Misunderstandings. Some customers don’t understand the returns policy. Instead of contacting your business with concerns, they go straight to the bank, not realizing the consequences it will have for you. 
  • Family members. Sometimes, a person doesn’t recognize a charge because a family member made the purchase. It’s especially common for children or teens to use a parent’s card without permission.

  • Virtual “shoplifting.” Finally, some people intentionally participate in friendly fraud. They understand how chargebacks work, and they exploit the system to get products or services for free—essentially engaging in the digital version of shoplifting. 

The Impact of Friendly Fraud on Businesses

Friendly fraud’s impact on businesses extends beyond lost revenue; it also leads to wasted time, a damaged reputation, and trouble with financial institutions. 

  • Lost revenue. When someone files a chargeback for a legitimate transaction, you lose the payment, the value of the product, and any transaction costs associated with the sale. Plus, you have to pay a chargeback fee ranging from $20 to $100. 
  • Higher chargeback fees. If you get too many chargebacks, your chargeback ratio goes up. When this happens, credit card companies and payment processors increase chargeback fees. If the issue persists, they might even terminate your account.  
  • Lost time. If you dispute friendly fraud chargebacks, you have to communicate with customers, gather evidence, and work with the financial institution. This takes time away from other vital business activities. 

Friendly fraud also goes hand-in-hand with a damaged reputation. When customers feel like they have to resort to chargebacks, they generally walk away with a bad perception of your business. Disgruntled and annoyed, they might spread negative comments and leave bad online reviews. To keep your reputation positive, work to create a customer experience that takes friendly fraud out of the picture. Read on to see how it’s done.

How to Prevent Friendly Fraud

Putting on your seatbelt in the car takes a few extra seconds, and wearing seatbelts isn’t always very comfortable. So why do we bother? Because in a car accident, seatbelts prevent serious injuries. You should have a similar mindset when tackling friendly fraud. By spending a little extra time and/or money to put preventative measures in place, you’ll protect your business in the long run.

This section will give you some ideas to get started.

Use the Right Billing Descriptor

A billing descriptor, also known as a merchant descriptor, is the information that appears on a customer's credit card statement when they make a purchase. These descriptors, which are usually 20-30 characters, might include the business’s name, phone number, or other information that helps the customer recognize the transaction. 

Without clear billing descriptors, it’s easy for customers to get confused and not recognize a purchase. Make your billing descriptor the same as the customer-facing store name, or something similar, so they can identify the transaction.

Describe Products Accurately

One common reason for friendly fraud? People buy something that doesn’t live up to their expectations. To avoid this, set expectations early on. Include high-quality product photos and accurate descriptions so people know exactly what they’re getting. 

Have Clear Returns Policies

By making it easy to return items, you reduce gray areas when it comes to chargebacks. If you can point to a returns policy on your website, customers no longer have a good excuse for jumping straight to a chargeback. 

In addition to having a clear return policy, it’s important to provide great customer service. If a customer contacts you with complaints, work with them to find a solution. Whether you give them a refund, replacement, or in-store credit, make sure they walk away feeling content.

Communicate With Customers 

For consumers, chargebacks should be a last resort, used rarely or not at all. But when one study asked people how many chargebacks they had filed in a 12-month period, the average number was six. One reason for such a high frequency of chargebacks is poor communication.

By fostering open dialogue with customers, you empower them to come straight to your business when they have concerns. These tips will help you stay on the same page with buyers, leading to faster issue resolution:

  • Respond promptly. When a customer emails, messages, or calls, don’t leave them hanging. Respond quickly, express your concern, and offer to help. 
  • Send an order confirmation email. After someone buys something, send a confirmation email that includes the date, time, and amount of the purchase. This will help them remember what they bought and when.
  • Be upfront about subscriptions. Do you sell your products on a subscription basis? If so, make sure customers know exactly when their subscription will renew and how to cancel.

Good communication makes good customer service. When you’re transparent and responsive, customers will have a better experience, and chargebacks will decrease.

Verify Transactions and Keep a Record

To make sure transactions are legitimate, use address verification and CVV checks. You can also strengthen security by using software that tracks buying habits and alerts you to suspicious patterns.

In addition to verifying transactions, keep an accurate order history for every customer. This paper trail can serve as evidence if you dispute a chargeback.

Keep Track of Shipping Information

Customers who file chargebacks often claim they didn’t receive the product they ordered. By tracking shipments, you can prove things were delivered. And for an extra layer of security, consider requiring a signature upon delivery.

 What To Do When You Encounter Friendly Fraud

Your chargeback ratio has gone up, and you suspect that it’s largely due to friendly fraud. What next? Fortunately, you can dispute chargebacks and get them wiped from the slate.


When you encounter what you believe is friendly fraud, the first step is to investigate. This is when your detailed records of transactions and delivery details come in handy. Gather all the information you have, including the following:

  • Customer communication
  • Order history
  • Shipping records 
  • Product details

Get in Touch With the Customer

Next, reach out to the customer. If the friendly fraud was the result of misunderstandings or miscommunication, you might be able to resolve the issue. Listen to the customer’s concerns,  and consider offering a refund or exchange. Taking the time to practice excellent customer service can help smooth things over and prevent future chargebacks.

Keep a record of this communication, as it can be used as evidence when you dispute the chargeback. 

Dispute Fraudulent Chargebacks 

Once you’ve determined that the chargeback is friendly fraud, you can dispute it with the bank or credit card company in a process known as chargeback representment. 

After you present your documented evidence, the financial institution reviews the evidence presented by you and the customer. They assess the validity of the dispute and make a decision based on the information available. If the evidence makes it clear that the transaction was legitimate, the chargeback will be reversed.

Taking Measures To Tackle Friendly Fraud

Even with every precaution, you might encounter friendly fraud. But by following the best practices in this article, you’ll be able to shore up your defenses, handle disputes quickly, and minimize fraudulent chargebacks in the future. 

With comprehensive fraud prevention strategies and thorough customer education, your ecommerce business will be more secure than ever. 

Learn how to prevent other types of ecommerce fraud.

Stay in the know

Subscribe to the Norton Shopping Guarantee blog and receive the latest in ecommerce best practices.