How to Proactively Reduce Friendly Fraud
By Tal Yeshanov /
17 Jan 2017
No online business wants chargebacks, but so-called “friendly fraud” chargebacks can be particularly frustrating. Fraud as a result of stolen financials is definitely harmful, but at least you can employ models and rules to detect and prevent that behavior. With friendly fraud, on the other hand, you’re dealing with legitimate customers who – for one reason or another – are disputing the service or item.
Because friendly fraud chargebacks can take place for a myriad of reasons, it’s harder to employ systematic solutions to detect them. Instead, it’s best to proactively prevent friendly fraud chargebacks from occurring in the first place by communicating frequently and effectively with your customers, and by providing an exceptional customer experience.
Below are some suggestions which may help your business reduce friendly fraud chargebacks. However, keep in mind that since all businesses are different, it’s important to consider these recommendations against factors such as your average transaction value, business model, industry, company’s maturity, and the company’s acceptable financial loss thresholds. Not all advice will work for all companies.
Communicate clearly with customers
A little clarity can go a long way to help prevent customer confusion and enhance trust in your business. Think about why customers may file chargebacks. Common reasons include: they’ve forgotten about the purchase, accidentally bought the wrong item, want to alter their order or subscription but aren’t able to, are dissatisfied with the service, or may have been confused or misled on by your product. Having good communication with your customers can help reduce these issues from occurring. You can improve communication by providing regular updates, empowering customers with options to see what’s going on in their accounts, and optimizing the payment flow.
Provide regular updates
Put yourself in the customer’s shoes, and look for areas where you might potentially be confused by an order. Have you been doing all you can to keep them updated about their purchase at every step of the journey?
- Show a summary page that displays purchase details.
- Include your return/exchange policy.
- If you have a free trial, communicate clearly about how it works and when the customer will start seeing recurring charges.
- Send an email receipt that includes a summary and breakdown of what the customer bought.
- Send regular email updates about delivery dates and any fulfillment issues (if they arise).
- If you bill on a recurring basis, send reminder emails to let customers know they’ll be charged – prior to charging them.
Empower customers with options
This is particularly relevant for businesses using a recurring subscription model. In addition to forgetting that they signed up for a product or service, customers may get frustrated if they have a hard time figuring out how to cancel.
- Provide a clear path to cancel in the UI. Some companies worry about making it “too easy” for customers to stop their subscription as they want to continue generating sales. However, keep in mind that if canceling is overly complicated, customers will bypass you and go straight to their bank to file a chargeback.
- Give the option of putting a subscription on hold. It doesn’t have to be a choice between subscribing and not subscribing. There is also a middle path where a customer can temporarily pause their subscription without completely cancelling. This will empower you to continue receiving revenue in the future.
Optimize your payment process
- Charge in local currency: If you’re an international business, charge in the local currency (and display local currency sign!) This way, people will know exactly how much they’re spending.
- Use a relevant billing descriptor. This is the way a company’s name appears on the customer’s credit card statement; customers use this to identify transactions. Having a clear descriptor helps avoid confusion, and empowers the customer to reach out to you in order to resolve any issues directly to avoid chargebacks.
Here are a couple of billing descriptors that show up on a statement:
Let’s look at the first one as an example. Apple is doing everything right. They’re explicitly stating their company’s name, specifying the service (iTunes), and providing a URL, as well as a phone number for their customers to inquire about issues.
Once the customer visits the URL, the customer sees helpful explanations. Apple even provides a link with an option to view an account’s purchase history in iTunes:
Delight your customers with excellent service
It’s also important to proactively communicate with internal teams, so you can all work together to lessen the chance of friendly fraud chargebacks. Make sure your customer support and policies are aligned.
Choose to provide support
- Choose your support channel. Support can come in many flavors: help center articles, phone, email, and chat support. This is a great opportunity to connect with your customers to learn about any issues that may cause them to be upset or frustrated with your product or service. Providing solutions, answers, and guidance will help reduce the number of chargebacks customers file against you.
- Communicate cross-functionally. Make sure the Product and Marketing teams are keeping Customer Service representatives in the loop about any changes, so they can be empowered to communicate well with customers. This helps avoid confusion and deters problems down the line.
Apologize if necessary
- Proactively offer refunds or credits. This may sound counter-intuitive, but this approach may actually save you money. If you have wronged the customer and you have the opportunity to apologize, have your Support team offer a refund, credit, or incentive. This strategy may also be a way to keep the customer on your platform so the relationship can continue, and hopefully a delighted customer will return to do business another time.
So far, we’ve covered steps you can take to prevent friendly fraud chargebacks. But chances are, you may already have some you can use for educational purposes, working backwards to investigate what may have caused the chargeback in the first place.
Manually review a sample of the chargebacks that come in by visiting your payment processor’s portal and finding the transaction in your admin system. Find the customer’s account and look for clues as to why the customer filed the chargeback. Once you have a solid understanding as to the cause of your friendly fraud chargebacks, you’ll be able to implement some of the recommendations above. Good luck!
Tal Yeshanov is a risk and payments expert who has worked at several leading e-commerce companies. Her expertise around the Card Not Present (CNP) landscape, payment processing industry, model building requirements, and rule creation methodologies has empowered her to successfully advise on and implement chargeback prevention solutions.