Friendly Fraud in High Risk Credit Card Processing: The 4 Behaviors Every Merchant Should Know

Friendly Fraud in High Risk Credit Card Processing: The 4 Behaviors Every Merchant Should Know

As a high risk credit card processing solutions provider since 2001, we’ve long said that we give merchants the tools to grow and expand, and we absolutely mean it. Among those tools include:

  • The best acquirer proven for their industry
  • A secure payment gateway which recognizes most shopping cart solutions
  • Live and direct merchant support (try us: 1-800-530-2444)
  • Educational content on payments and merchant issues

Among the most popular (and unfortunate) issues in payments are chargebacks and fraud. Though we are not a solutions provider for either (we are partnered with a terrific company, however), we do provide strategy through our blogs and regular content – and have a website devoted to such.

Friendly fraud happens with every e-commerce industry, but we’d wager our last dollar that it occurs most often among high risk industries – those industries for which we provide merchant accounts such as tech support, online dating, gaming and gambling among many others. Recently we viewed a webinar which detailed the impetus of friendly fraud, how it stems from four occurrences from passive to aggressive.

Knowing these four pivotal points is a giant step for merchants to prevent and mitigate fraud and chargebacks.

Unrecognized charges

Consumers not recognizing the charges on their credit card statement or a receipt is the most common reason not only for chargebacks, but friendly fraud. The knee-jerk reaction is telephoning one’s credit card issuer to dispute the charge (any provider of high risk credit card processing will attest in such cases, the consumer usually wins).

  • A billing descriptor snafu: Roughly five years ago, I enrolled in a free six month subscription to a popular music magazine with the option for a discounted two-year subscription at the end of the six-month trial (I needed to provide my credit card details). The magazine turned out to be less than what I thought it was and, in the interest of transparency, I had forgotten when the six-month trial expired. Eventually, I noticed a strange charge from a publishing company on my credit card statement, and immediately telephoned my issuer to dispute the charge. As it happened, not only did the magazine use the name of its parent company on its descriptor (big mistake), but it automatically charged my credit card without contacting me to see if I would opt for a full subscription. I won the dispute, and decided against a full subscription.

Though character space is limited, a clear billing descriptor with contact or a website is essential to avoid such situations. Had there been contact information, I’d have contacted the magazine instead of filing a chargeback with my issuing bank.

Friendly fraud, unknowingly

Friendly fraud committed unknowingly runs rife in the digital goods industry, such as online gaming. For example, video games remain massively popular among children aged anywhere between 8-18 at the moment, and each household may have anywhere between 2-4 accounts. Certain video games issue charges every three months for updates/upgrades while others charge during the actual game in order to continue playing.

The latter practice we mentioned, we strongly advise against if gaming merchants wish to keep their chargeback and friendly fraud rates to a minimum.

  • An in-game charges nightmare: We know of a colleague who purchased a series of kid-friendly video games for her 8-year-old son. It required our colleague to provide her credit card details as updates came monthly for one of the games, which was Formula One-type racing. Roughly a month following her purchase of one of the games, she noticed charges of more than $500 on her credit card statement from the gaming company (which clearly identified itself on the descriptor). Apparently, whenever her son’s ‘race’ ended, he was faced with a window prompting him to ‘Click to continue.’ Her son (again, 8 years old) clicked repeatedly over a month, while the charges to her credit card built steadily. Our colleague took the matter to her credit card issuer – and won.

Though this episode occurred seven years ago, it was a case of a gaming merchant falling short of being transparent and wrongfully placing the onus on an 8-year-old. What else is an 8-year-old to do when faced with the option of continuing a video game?

It wasn’t me: Buyer’s remorse and the fear of exposure

Buyer’s remorse is a common feeling when a consumer purchases an expensive item (a handbag, clothing or a piece of jewelry) that s/he later regrets for whatever reason. Unfortunately, cases of buyer’s remorse often end up as friendly fraud: the consumer who made the purchase feels the guilt, yet keeps the purchase but claims the item was stolen or never received.

  • Taking remorse and fear a step further: Instabill is a well-known provider of high risk credit card processing for the online dating industry, where chargebacks and friendly fraud run rampant. One of the biggest problems the online dating industry faces is an abundance of married men and women who create and pay for profiles without their spouses knowing. When the charge appears on the misbehaving spouse’s credit card statement, blowing the guilty spouse’s cover, s/he most often claims the account and charge are bogus, the result of identity theft, and thus files a chargeback.

It’s not only the online dating industry that experiences such episodes, but also online gambling, fantasy sports (to hide financial losses) and adult content merchants (to hide embarrassment).

Blatant online shoplifting

By its very definition, friendly fraud is a form of shoplifting. Among the four types of friendly fraud, this practice is the most aggressive and the only behavior when the criminal displays the three dubious traits of such:

  • The criminal has knowledge of the act
  • Is compliant with the act
  • Benefits from the act

It is also the fastest growing of the four behaviors, according to chargeback/fraud prevention company Ethoca. Merchants report that 52 percent of the chargebacks they process are instances of friendly fraud while the credit card issuers attest 37 percent of the chargebacks they process are the result of friendly fraud.

Though friendly fraud is common year round, it predictably reaches its peak in the holiday shopping season, anywhere from mid-November to well into January, when criminals attempt to file bogus chargebacks with their issuers.

High risk credit card processing solutions found here

For each of the industries we previously mentioned – and many more – Instabill has the custom high risk credit card processing solutions merchants are seeking. We strongly urge merchants of high risk businesses to take the necessary precautions and know the signs to prevent occurrences of friendly fraud.

Need credit card processing for your high risk business? Experience Instabill’s outstanding live customer support at 1-800-530-2444.

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