By Evi Triantafyllides
PAAY LLC
Here's a universally recognized and established fact (at least, in a processor's universe): fraud is one of the most infuriating and costly nightmares for merchants and their processors. And the online world is especially hard hit – at a rate that is accelerating and expected to rise.
With Statista predicting online fraud will reach the $3.8 billion range by the end of 2016, with a further spike that will cost merchants a staggering $6.4 billion by 2018, a corresponding increase in demand for fraud filters and fraud protection and prevention tools comes as no surprise. And while stakeholders are resorting more and more to these tools, one of the most important aspects of fraud that keeps merchants tight handed, and with limited options for precautions, is none other than friendly fraud. Those who have experienced it know that friendly fraudsters are the worst kind of friends (or, in search of a better word, customers), as they can flip flop from contributors toward merchants' profits to enemies of already drained budgets. Who are these people? Let me introduce your classic cases.
This type shows no mercy. A delay in shipping; frustration with the customer care team or a strict return policy; or a product that was ill-described, did not live up to expectations, or was advertised as able to help you fly to the moon when, in fact, it could not: these are some common reasons that will cause a revengeful customer to retaliate and initiate a chargeback.
This type of user is often found among merchants with no or strict return policies – with the travel and furniture industries being popular candidates – or, in a broader context, any overpromising and overambitious merchant.
We've all been a forgetful user, at least once in our lives: that one subscription we forgot to cancel after the first month, or that free trial that ended before we cancelled our plan. And even though for some of us a cringe will suffice to show our frustration, others will take the extra step of disputing the service's charge.
This type of user is often found among subscription-based stores or services that offer a free trial period.
We might be given the option to return an item, but then again, how many times were we too bored or busy to do so? Wrong sized shoes, a shirt for which we later found a better alternative and that painting we have no idea why we bought. Any of these, invariably, end up in the "to give" pile, as consumers are either too lazy to return them, or the return terms are too complex for them to bother. And so it goes: if they won't use the items, then they feel less guilty about picking up the phone and disputing these charges.
This type of user is often found among high-ticket items and lifestyle goods such as fashion items.
And sometimes, you just have users who are all too familiar with the chargeback process. So, naturally, they decide to capitalize on it (that is, lie that they never received the item – for no good reason other than to save money that is not rightfully theirs).
This type of user is often found anywhere, so beware.
Since fraud filters and prevention tools are designed to identify suspicious cardholder behavior, and since there's nothing suspicious about a fraudster who's using his or her own card and identity, mitigating friendly fraud is the trickiest of them all. Having said that, it is not an entirely lost cause.
Even though traditional fraud prevention devices can't do much, implementing tools that shift liability of fraud away from e-tailers, instead of trying to detect the undetectable, is a processor's and merchant's best remedy. This type of fraud protection can be found in 3-D Secure, a card-brand backed program that, similar to EMV (Europay, Mastercard and Visa) in the offline space, "rewards" merchants who authenticate consumers' identities by qualifying transactions at better rates and shifting liability in the case of fraud to card issuers.
The proposition is simple. Follow the rules the major card brands (Visa, Mastercard and American Express) created, run transaction details through their authentication systems, and if a transaction is verified, even if it is not legit (or, in the case of friendly fraud, the consumer claims that it is not legit), it's not your problem to pay anymore.
And the proposition has become even more appealing. In the past, 3-D Secure's adoption was a hard case to make, as authentication required input by the consumer, increasing cart abandonment. However, the card networks decided to be kind and do the heavy thinking themselves. They now authenticate transactions by running consumers' previous card data and purchasing patterns through their systems, making the fight against friendly fraud an easily accomplished task. 
Evi Triantafyllides is the Marketing Director at PAAY, a software solution that qualifies e-commerce transactions at lower interchange rates and shifts liability for e-commerce fraud away from merchants, to the card issuers. Evi was the first full-time employee at PAAY. She is responsible for the company's marketing, and at the same time focuses on ISO relations and partnerships. Find out about PAAY at www.paay.co or reach out to her directly at evi@paay.co.
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