Chargeback Fraud Has Shocking Results for Everyone Involved
The increase in identity theft and credit card fraud has everyone on edge. Our hard-earned money is in danger of being swiped by money-hungry criminals. However, this pervasive fear of an assumed threat has allowed a new type of fraud to emerge: friendly fraud.
Honest Consumers Have Become Fraudsters
Chargebacks are a form of consumer protection. They exist to:
Protect consumers from dishonest merchants
Encourage merchants to sell quality products and services
Prevent innocent fraud losses for consumers
However, consumers have started using the chargeback process for fraudulent means. They file illegitimate transaction disputes that don’t align with the original intention of the consumer protection mechanism.
Accidental vs. Intentional Fraud
Some consumers are totally unaware of the repercussions of their actions or the chargeback scam they are committing. They don’t understand the difference between a chargeback and a traditional refund.
Usually, though, the consumers know exactly what they are doing. Friendly fraud often results from one of three situations:
- The customer regrets making the purchase and thinks filing a chargeback is less bothersome than obtaining a traditional refund.
- A family member made the purchase, but the primary cardholder doesn’t want to authorise the transaction.
- The original intention was to get something for free.
Devastating Side Effects for Everyone Involved
The chargeback process is costly and time consuming for everyone involved. Not only do merchants lose the profits associated with the original purchase, the business also has to pay steep fines. If the business receives too many chargebacks, it will lose its ability to process credit cards and be forced to close.
It may seem like fraudulent chargebacks are only an issue for merchants, but consumers are penalized too.
More and more banks are taking a stand against chargeback fraud. Cardholders who file too many chargebacks risk damaging their credit score and could even lose their credit card account.
Even if the friendly fraudster doesn’t get penalized by the bank, the merchants will certainly mete out their own punishments. Merchants are forced to raise prices in an attempt to recoup profits lost by inevitable credit card chargeback fraud.
It’s time to shed light on this situation and create a more enjoyable ecommerce environment for everyone involved.