You may have heard of the term friendly fraud but what is it really and why is it one of the most talked about fraud topics in the airline industry?
Friendly fraud is primarily an abuse of the credit card chargeback system which entitles customers to a refund from their credit card provider in the event that they are unable to get a refund from the retailer. Whilst this is a great buyer protection scheme, it can potentially be manipulated in order to completely bypass retailers’ policies and obtain a refund when no refund is due.
Whilst friendly fraud is certainly not unique to the airline and travel industries it is definitely a fraud tactic that is prone to exploitation in this vertical. There is a multitude of research that makes many claims about the cost and rise of friendly fraud in the travel industry, with some reports saying it can account for as much as 86% of total fraud transactions and associated losses .Whatever data or source you quote, a great deal of people in the travel industry will confirm that friendly fraud is by far the most significant source of their chargebacks.
Causes of friendly fraud
Friendly fraud is also not uniform. It can range from someone denying they actually participated in a transaction or utilized the service at all to someone who has experienced a minor service failure and is looking to recoup some of the costs incurred.
Customers’ expectations are extremely high these days. It is becoming more common for customers to complain if their experience doesn’t match with what they had hoped or expected. In these cases, customers may be aggrieved with the actual cost of the holiday, hotel or airline experience and therefore look for ways to get some sort of refund as “compensation”.
Another cause of friendly fraud can be genuine customer misunderstanding. Perhaps they misinterpreted the refund rules or fare restrictions? And while it’s good practice for a customer to approach the merchant directly when they have a question or concern, many would rather go straight to their credit card company for resolution. Let’s not forget credit card companies also operate as a business. Therefore, they are keen to ensure the satisfaction of their own customers even if it is at the expense of merchants.
Credit card chargebacks can also be extremely valuable sources of information for self-improvement. By examining chargebacks that are suspected of being friendly fraud, merchants can use this information to improve the customer experience and prevent similar disputes in the future.
4 tips for minimizing friendly fraud
Here are my top four favorite tips to tackle friendly fraud:
- Use recognizable billing descriptors: Descriptors which appear on a customer’s credit card statement should contain clear product or order details to help to ensure that the customer recognizes exactly the reason for the charges. A long series of alphanumeric characters referring to your own product or service can be puzzling or disconcerting.
- Publish clear refund policies: Make sure that your customers are well informed of your refund policies and that they are easy to follow. If customers think their problems are unresolved or find the refund process laborious, they may opt for the chargeback process as it’s often quicker and easier to get their money back this way.
- Easy to contact: Publish easy to find contact numbers for relevant departments on customer communications. It’s also really important to engage with the customer who has filed a chargeback to find out why they didn’t contact you first. This can lead to an improvement in your internal processes or to some simple website changes that will assist customers in taking a more direct route in the future.
- Data collection: The more data that you have about a transaction, the easier it will be to defend a chargeback in the case of friendly fraud. If you routinely collect device fingerprint data, perhaps the customer has used the same device when transacting with your company before and did not dispute those transactions as “unrecognized”. This can be used as a very easy defense when representing in court.
Crafting a company friendly fraud policy
The way you deal with friendly fraud shouldn’t be the responsibility of one department alone. There are many factors that need to be taken into consideration depending on the strategy you want to implement. A best practice approach would be to determine who the key policy makers are within your business and involve as many of them as possible including Customer Service, Risk and Compliance, Revenue Protection and Finance. Each of these departments will have a different view on the goals required when determining a policy to handle friendly fraud.
When formulating a policy, it’s also important to keep in mind the possible repercussions of tolerating or allowing friendly fraud to go unchallenged. For example, many merchants will cancel a hotel room or air ticket, but when the customer arrives for check-in they will still allow them to make the purchase using cash or another form of payment. While this is a non-confrontational approach and enables staff who aren’t trained in fraud or security to deal with these situations, it also exposes the merchant to other potential losses. If a customer has already attempted to fraudulently obtain a product or service from you, what is to stop them from trying to do this at another touch point of their journey by putting in a false baggage pilferage claim or disputing an onboard duty free purchase?
Ultimately it’s about striking the right balance, facilitating sales by making it easy for customers to transact with you, whilst still ensuring that you have sufficient evidence to dispute a chargeback should one arise. And if one does choose to facilitate sales, be cautious about supporting your customers’ bad habits because this may just train them to repeat the behavior. They may then use the chargeback system for an easy solution a few months down the line, whether with your company or another industry partner.