Over 20% of UK Consumers Have Initiated a Chargeback for Something They Bought – Daily Business

New research has shown the widespread and underreported nature of “friendly fraud”. Also known as chargeback fraud or first-party misuse, friendly fraud is a costly, growing problem for merchants, retailers and subscription businesses. The figures may concern any business that accepts card payments.

A startling 22.3% of 1,000 UK consumers have knowingly asked their bank to refund a legitimate transaction in the past year. The research from PAYSTRAX, which is covered more extensively in the article “Friendly Fraud in the UK: When customers become criminals”, also found that 22% of Brits have initiated a chargeback after forgetting a purchase or failing to unsubscribe from a free trial.

Other findings were more concerning. Of those who accidentally triggered a chargeback, over a third (35.71%) kept the money even once they realised it was a legitimate transaction.  Of those who knowingly committed friendly fraud, 62.84% felt pleased, and only 13.51% admitted feeling guilty or ashamed.

Who’s responsible and who pays?

The company also asked who they thought was responsible for verifying the transactions and confirming whether they were fraudulent. There were significantly different responses.

28.6% of respondents said no one in particular was responsible; 26.1% said it’s up to the banks to prove fraud; and only 19.2% said that customers should own up to friendly fraud. PAYSTRAX’s co-founder said, “banks tend to push the liability down the line”. If a customer requests a chargeback, a bank will often give the customer a form to send to the merchant. 

What drives friendly fraud?

There are several factors at play.

In the current banking system, the consumer doesn’t have to provide evidence for fraud (such as a police report) to issue a claim. The merchant may get little opportunity to dispute their claim, even if they have proof that the transaction was legitimate.

Payment networks encourage cardholders and card issues to label disputes as fraudulent even if they were accidental. This is said to normalise dishonesty in refund processes.

Subscriptions are another significant factor. People often forget they signed up to a service, or they may find cancellation too complicated.

Visa rules are adding more pressure

The fraud-prevention rules of Visa penalise merchants with fines, restrictions on payment processing, or increased monitoring if they are found to exceed a dispute ratio. 

Both the Visa Fraud Monitoring Program (VFMP) and the Visa Dispute Monitoring Program (VDMP) impose strict measures if merchants do not tackle their disputes or fraud rates within Visa’s dictated time frame. 

According to Visa, friendly fraud accounts for up to 75% of all chargebacks. 

Can anything be done?

The alarming figures on friendly fraud raise questions about whether the current chargeback system distinguishes well enough between criminal fraud and genuine customer disputes.

PAYSTRAX argues that responsibility for addressing the problem sits with the major card schemes, and that the terminology and the way these cases are handled need to change. It proposes reforms, including treating friendly-fraud cases as cardholder disputes rather than automatically classifying them as fraud, giving merchants more opportunity to contact customers resolving issues before penalties are imposed, and requiring better evidence for fraud claims. 

The company also argues that merchants acting in good faith should not have their fraud ratios negatively affected when they refund a disputed transaction.

PAYSTAX believes that genuine customer disputes should be separated from criminal fraud, rather than placing merchants at risk of being treated as though they’ve been involved in fraudulent activity.