How Fraud Affects Consumers

Friendly Fraud: Consumers are Both Victims and Villains

Maybe you don’t understand the consequences of your actions. Or maybe you think your little white lie doesn’t really bother anyone.

Either way, you’re committing fraud.

The Legitimate Reasons for Filing a Chargeback

If you call the bank, asking for a chargeback, the funds are forcibly removed from the business’s account and credited to your credit card account.

The chargeback was originally designed to protect consumers in the event of fraud; if you didn’t authorise the transaction, you shouldn’t be expected to pay for it.

Due to the popularity of online shopping, a few more instances have arisen where a chargeback might be valid. For example, cases of merchant fraud. However, responsible consumers will ensure, without a doubt, that fraud has transpired.

Chargebacks should always be a last resort—not the path of least resistance. Contacting the merchant and asking for a refund is the first step. A chargeback should only be considered if the merchant is genuinely being unreasonable or making communication difficult.

The Effects of Chargebacks on a Business

On the surface, it might not sound like a chargeback is that different from a traditional refund. You get your money back; why should it matter if the bank or the merchant gave it to you?

To understand the full repercussions of your actions, you must consider the experience from the merchant’s point of view.

  • Without warning, the business’s bank account is suddenly depleted. How would you feel if you woke up one morning and funds had gone missing?!
  • If you return the item, the merchant has the chance to sell it again. If you simply keep it and file a chargeback, all profits are lost forever.
  • Each chargeback comes with an administrative fee. The merchant will have to pay between €5 and €35 for each chargeback received. Of course, you aren’t the only person attacking the innocent merchant, so fees will come rolling in one after the other.
  • If a merchant receives too many chargebacks in a given time period (usually a month), the bank that processes the credit card transactions might just pull the plug. If the ability to process credit card transactions is lost, the merchant will go out of business. Do you really want to be responsible for the destruction of a business?! Well, half of all online businesses close because of chargebacks; your actions play a direct role in that.

Let’s break it down. If you file a €100 chargeback, the merchant will actually lose much more. Once fees are added in, the merchant will lose between €269 and €334. The average merchant receives 133 chargebacks per month, so that’s a lot of money lost!

As you can see, businesses suffer dearly for each chargeback they receive. It isn’t fair that the business is punished because you had a case of buyer’s remorse or weren’t patient enough to wait for a package’s arrival.

When Chargebacks Become Friendly Fraud

Since their invention, chargebacks have evolved beyond consumer protection. Now, they are the result of numerous cardholder-merchant interactions.

Many chargebacks (more than 85%) are filed fraudulently—the customer doesn’t bother contacting the merchant before filing a chargeback. Moreover, the claims being made are inaccurate. Here are some of the most popular ways consumers are committing friendly fraud:

  • Telling the bank the item wasn’t delivered when it really was. This could be an attempt to get something for free or combat buyer’s remorse. Other times, consumers knee-jerk and call the bank too soon. Maybe you wrote the delivery date down wrong and the package shouldn’t arrive until tomorrow.
  • Telling the bank the product or service was poor quality when it really wasn’t. Again, this is usually a “solution” to buyer’s remorse or an attempt to get something for free. It might also be a no-hassle option for getting a refund. Rather than consult the business’s policies and follow through with the return process, it seems easier to let the bank handle it. It might also be a situation where you didn’t adhere to the return policy; maybe it’s too late to get a refund, but not too late for a chargeback.
  • Telling the bank you cancelled a recurring transaction but you didn’t. We all know how challenging it can be to try terminating a gym membership or other subscription-based payment plan. Those sales people are good at their job! But using the bank to avoid an awkward conversation with the merchant is cowardly.

You’re a Victim of Friendly Fraud Too

If consumers continue to badger merchants with illegitimate chargebacks, they are going to start fighting back. The only weapon at their disposal is to raise prices on the products and services they offer.

Businesses know friendly fraud is inevitable. They hedge their bet by increasing prices now. Even if you aren’t the friendly fraudster, you’ll suffer because of fellow consumers who are perpetrating these scams.

Stop the Madness!

If you’ve been filing chargebacks, unaware of the repercussions, it is time to make a change. Deal directly with the business. Stop the credit card chargeback fraud.