A Thing
The Green SheetGreen Sheet

The Green Sheet Online Edition

March 11, 2024 • Issue 24:03:01

Street SmartsSM

Friendly fraud, familiar fraud

By Nick Cucci
Fluid Pay LLC

Although no one wants to be a victim of fraud, the reality is that a majority of people will end up as victims of this crime at some point. New fraud techniques are surfacing every day, which is contributing to a recent spike in friendly fraud that is impacting businesses.

In this article, I'll discuss fraud, particularly friendly fraud and familiar fraud. I'll explain what these types of fraud are and how they work.

According to Investopedia, tinyurl.com/2bf7j8hk, fraud is a criminal act that involves stealing personal information, money and other valuable items for nefarious purposes. Those who commit fraud typically do so with the intent of skirting laws, stealing money or receiving free items that they are not entitled to.

Fraud comes in many forms, ranging from stealing someone's credit card and using it to make purchases to creating an account for a fake individual with the express purpose of tricking people into donating funds to the account.

What is friendly fraud?

In the payments business "friendly fraud" commonly refers to the act of illegally requesting chargebacks (see tinyurl.com/22tcrkph). This type of fraud is anything but "friendly" because it is being perpetrated by the people companies value the most—their customers.

People who commit friendly fraud, are essentially stealing from the company they place purchases with. These individuals will place orders, receive the promised goods or services, and then dispute the charges with their credit card company.

To protect their customers when a chargeback occurs, banks that issue cards to customers (issuing banks) will dispute the charges themselves and claw the money back from the company in question. This can occur even when friendly fraud is involved. In many cases, this form of fraud is perpetrated by someone in the household making a purchase without the cardholder's knowledge. In this case, the unwitting cardholder disputing the charge believes the chargeback is justified.

What is familiar fraud?

Throughout the years, friendly fraud has also been used to describe familiar or family fraud (see tinyurl.com/mr2r5emw). Familiar fraud is a type of family fraud that occurs when a person's friend, relative or someone else they know steals their personal information for illegal use. Most commonly, the information is stolen to make unauthorized purchases (as described above). However, it can also be used to sign up for bank accounts, open new credit lines, receive loans, or even sign up for phone or insurance plans.

Who commits friendly fraud?

Those who perpetuate friendly fraud all have one thing in common: they are committing a crime. However, outside of that one connection, they can often vary widely. While it is true that friendly fraud is most commonly committed by customers, sometimes the perpetrators are legitimate customers who are simply confused and making a mistake. However, more often they are criminals who are intentionally working the system to get products and services for free. For individuals, friendly (familiar) fraud is always perpetrated by someone the victim knows. Whether it is a parent, child, sibling, coworker or next-door neighbor, this kind of fraud comes from a source in your social circle. When the perpetrator of this type of fraud is exposed, the victim will know the criminal by name.

How common is friendly fraud?

Businesses of all sizes are currently being impacted by friendly fraud, and it is a growing concern across all industries. While a larger company may be able to easily absorb acts of friendly fraud and the associated losses, smaller businesses may struggle to do so. Unfortunately, it is already negatively impacting many small to midsize businesses.

Experts believe that as much as 60 percent of chargebacks are cases of friendly fraud (see tinyurl.com/3aj5bdyd). And as shocking as it may seem, familiar fraud happens at a much higher rate than you would think. The Identity Theft Resource Center found that familiar fraud is impacting 500,000 children and 2 million seniors in the United States alone (see tinyurl.com/4hc838sr).

How does friendly fraud affect businesses?

The following examples of friendly fraud can show exactly how damaging these acts are for businesses.

  • A customer abusing chargebacks to receive a refund when products or services were rendered: This is the most common trend happening to businesses right now. Criminals will place an order for a product or service, wait until they receive it, then dispute the charge with their credit card company. When this happens, the business loses out on the money, even though the company very clearly provided the product or service in question.

    In these types of cases, the individuals committing fraud will often lie to their banks. They will claim the product never showed up, or they may say that the product was not what they wanted at all and that they were deceived when they made a purchase.

  • A customer claiming a company is refusing a refund without requesting one: This scheme includes making up fake interactions with the company being targeted. Fraudsters will go to their bank and claim that they requested a refund and that the company is refusing the request. Often, this claim is made without the criminal ever having contacted the company in question. Nevertheless, it is the excuse they use with their bank when requesting the chargeback.
  • A customer requesting a chargeback due to their own confusion: Although fraud is fraud, some people do unknowingly commit friendly fraud. When customers are confused about their purchase, they might request a chargeback, even if they received the product or services as described. This can be a point of particular frustration for companies. Customers will blame the company and dispute the charge, even when the company has done nothing wrong.
  • A customer disputing a charge when a friend or relative used their payment details: In this case, familiar fraud will cause the victim to set a chargeback in motion, not knowing the company delivered goods and services in good faith. But the recipient was a friend or loved one who illegally used the victim's payment information without them knowing. So the cardholder ends up being both an unwitting perpetrator of familiar fraud and the victim of familiar fraud.

    If someone is certain they didn't make a charge that shows up on their account, it's natural for them to suspect fraud and dispute the charge. It might not occur to them that their information was stolen by someone they know. Regardless, the company will still lose money, even though it did nothing wrong.

Businesses are able to sell products and services directly to their customers through online payment gateways. Yet in the same way a shoplifter may snag something off a store's shelf, criminals steal from businesses through clear acts of fraud online.

This growing trend is harmful, but companies increasingly are working to navigate these challenges. As long as businesses adapt and take preventive measures when documenting their sales, they can push back on this form of fraud. end of article

Nicholas Cucci is the co-founder and COO of Fluid Pay LLC. Cucci is also a graduate of Benedictine University and a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners, as a CFE himself. Fluid Pay is the ONLY 100 percent cloud-based Level 1 PCI Payment Gateway processing transactions anywhere in the world. Contact Nick at Nick@FluidPay.com..

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

Prev Next

Current Issue

View Archives
View Flipbook

Table of Contents

Company Profile
New Products
A Thing