Friendly Fraud… High Risk Merchant Accounts Beware!

Just because something sounds warm and welcoming, doesn’t mean it’s actually good for you. Friendly fraud is one of those things. It sounds innocent enough, but unfortunately friendly fraud is just like friendly fire. Watch out, because it just may kill you! Last year, 71% of all consumer disputes were classified as fraud. Of the 71%, more than 77% were categorized as friendly fraud.

What Is Friendly Fraud?

“Friendly fraud” is truly a misleading term. It sounds innocuous but unfortunately can cause serious problems for all merchants. Friendly fraud takes place when an authorized credit or debit card holder contacts the bank directly for reimbursement rather than following the normal route of requesting a refund from the merchant they did business with. Often the consumer will claim that the merchant has made an error of some sort or has not lived up to their product or service claims. Sometimes these consumer claims are true and sometimes they’re not.

Either way, they’re considered “friendly fraud.” Last year, 71% of all consumer disputes were classified as “fraud”. Of the 71%, more than 77% were categorized as “friendly fraud.” You can also learn more about merchant cash advances to ensure you stay safe!

Innocent Vs. Malicious Fraud

Very often consumers will innocently skip communication with the merchant and go straight to the bank, seeing this as an efficient and practical way to obtain their legitimate refund. They don’t mean to cause any harm and in fact, don’t realize they’re creating a problem for the business they originally dealt with by putting the bank in the position of having to create a chargeback.

This type of situation is considered to be “non-malicious, friendly fraud.” On the other hand, there are consumers that, for whatever the reason, are not entitled to a refund and they know they’re not. They may have already tried to get their money back from the merchant and been turned down or they may be trying to get something for nothing.

Either way, they understand that they’re not entitled to a refund, but will go directly to the bank anyway, knowing full well that banks are much more willing to return payment to the card holder, rather than risk having an unhappy and dissatisfied customer. Very often, the consumer has already received and benefitted from services and products rendered but will still receive their money back from the bank. These types of consumer transactions fall under the heading of “malicious friendly fraud.”

Nothing Friendly About It!

Malicious fraud or not, any time a business receives a chargeback, it is anything but friendly. Chargebacks put banks in the unhappy position of having to pull back payments from the merchant. This can create a situation that is not only a financial strain for the business involved, but is also troublesome and extremely inconvenient for the banks themselves.

Over time, too many chargebacks can, and often do, result in placing a business in a “high risk” category, thus making it very difficult for it to obtain or keep its much-needed merchant account. Merchant accounts are what enable all businesses to accept credit and debit card payments. Not having a merchant account can cripple a business to the point of it not being able to operate.

Unfortunately, banks and credit card processors are not likely to grant a merchant account to a high-risk business that has a history of large amounts of chargebacks.

What To Do?

Although friendly fraud is a business fact of life, you want to try and avoid it as much as possible. In essence, what you’re really looking to avoid is chargebacks. You can’t escape them completely, but there are definite practices and principles you can employ in your business, in order to keep chargeback numbers down to an acceptable amount.

For instance, it’s important that you’re running an honest business and keeping all promises and claims made to your customers. Make sure they know from the start, that if they encounter any problems or issues, your company is available and more than happy to help with any and all of their concerns. By doing this, you’re giving them a reason to turn to you rather than to the bank.

Follow up by providing excellent customer service, making sure customers are treated well and are happy and satisfied with the answers and solutions you’ve provided, before they hang up. If orders and shipping are involved, be sure to send out confirmation emails with very clear and explicit information regarding what was ordered, how much was charged, when delivery can be expected, what your return policy is, along with your customer service contact phone # and email address. Include instructions to call with any questions, problems, issues, etc. and your promise to do your best to resolve all matters.

If anything changes regarding delivery, etc., send a follow-up email. Again, you want to do all you can to point your customers toward you and away from the banks and credit card processors.

A Happier Ending…

By following these practices and principles, you’re sure to make a difference in the amount of chargebacks your business receives. That’s the bottom line. Friendly fraud is indeed an unavoidable fact of business life, especially when it’s of a malicious nature. It’s just not possible for a business to eliminate it completely. However, with honesty, diligence, strong follow-up and world class customer service, a business can and will avoid many unnecessary chargebacks and that’s key to the prevention of a high-risk merchant account classification.

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Important Notice to all High Risk Merchant Account Holders

If you’re in need of assistance obtaining a merchant account, we’re First Card Payments and we can and will end your struggles today. We’ve been in the “high risk” merchant account business for twenty years and have the experience, know-how and contacts necessary to get the job done for you quickly and easily at a very fair rate. Learn more about ACH payment processing as well!

Find us at:    FirstCardPayments.com