Ask Ariel: Navigating Friendly Fraud in eCommerce – Expert Insights

If you’re an eCommerce merchant, you’re no stranger to friendly fraud. In fact, according to our recent State of Chargebacks Report, we found that friendly fraud accounts for about 80% of chargebacks. This leaves merchants struggling with unexpected disputes as well as revenue losses. With this looming threat the challenge is real for online businesses, so we’re here with an exclusive Q&A with our very own Ariel Chen, CEO of Chargeflow and renowned expert in fraud prevention. He’ll uncover the impact friendly fraud has on eCommerce businesses, and the essential steps merchants can take to safeguard their operations. 

Join us as we unravel the complexities of this deceptive dilemma and explore how Chargeflow’s solution can help empower merchants to navigate through this real and hidden threat confidently.

Q&A: Tackling Friendly Fraud with Ariel Chen

Question: How does Friendly Fraud affect eCommerce businesses, and what are the short and long-term implications for merchants who experience it?‍

Answer: Friendly fraud occurs when a customer purchases and disputes the charge with their bank instead of directly contacting the merchant, many times the dispute is without cause. The reasoning can happen for a variety of reasons, sometimes it has to do with misunderstandings, forgetfulness, or other more serious accusations like deliberate deceit. Managing friendly fraud can be particularly challenging as it involves a genuine transaction that a customer later denies, making it difficult to differentiate from legitimate disputes. 

Here are some of the key effects and challenges associated with friendly fraud:

• Revenue Losses: Every chargeback implies a direct loss of revenue. When a dispute is submitted, the charged amount is refunded to the customer, resulting in the merchant losing sales revenue, which was previously considered as revenue.
• Increased Operational Costs: Managing chargebacks requires significant resources. Requiring staff to spend time reviewing transactions, communicating with banks, and gathering the required documentation which only increases operational costs.
• Merchant Processing Account Threats: Excessive chargebacks might threaten a merchant’s processing account. Acquirers” math consider a high incidence of chargebacks to be a sign of a high-risk merchant. In this case, they charge more, place funds on hold, and shut down the account altogether in the most atrocious cases. 
• Cash Flow Damage: A chargeback hurts the merchant’s cash flow.  While the disputed funds are withdrawn from the merchant’s account and held pending the chargeback’s resolution, it’s not unusual for a merchant’s cash flow to be insufficient to meet its operational requirements.  
• Short-Term Impact: In the aftermath, businesses suffer financial losses and operational delays. Their employees often have to put their regular tasks aside to fight the charges. Hence, productivity suffers.  
• Long-Term Consequences: In the long term, frequent friendly fraud might result in elevated processing expenses. Banks and payment processors will adjust their pricing plans to reflect these expenses, there is the loss of reputation over time and the expense of handling the process. Consequently, taxes will continue to grow as the company expands.  

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Question: Can you walk us through the chargeback process when dealing with Friendly Fraud, and how does Chargeflow assist merchants in disputing such chargebacks?‍

Answer: Dealing with friendly fraud involves several critical steps in the chargeback process. I’ll break down this process and explain how Chargeflow assists in streamlining each of these stages:

1. Transaction Occurrence: A consumer makes a purchase but later disputes for reasons that are unjust or that could often be resolved through customer service instead of a chargeback.
2. Consumer Dispute Initiation: The customer disputes the charge directly from their bank, claiming for various reasons such as they don’t recognize the transaction or they are simply not satisfied with the product. This dispute is often due to misunderstandings or deceptive intentions rather than legitimate issues.
3. Bank Issues a Chargeback: Once the dispute takes place, the bank reverses the transaction temporarily, withdrawing funds from the merchant’s account and crediting the customer, putting immediate pressure on the merchant.
4. Merchant’s Response: The merchant is required to defend the transaction by gathering and submitting evidence across the entire transaction journey which is very labor-intensive, taking on average 30-60 minutes per transaction. This process involves collecting data from various sources including transaction logs, customer communication records, and delivery confirmations. 
5. Submission and Waiting Period: After submitting the evidence, there’s a significant waiting period—typically up to 120 days—during which the bank reviews the case before a final decision is made. During this time, the funds remain with the customer, affecting the merchant’s cash flow.

How Chargeflow Assists

• Immediate Notification: Chargeflow notifies merchants as soon as a chargeback is initiated, allowing them to start the response process quickly.
• Automated Evidence Collection: Using advanced AI and API integrations, Chargeflow automates the collection of necessary evidence. This process, which can take merchants hours, is completed within seconds by our system, ensuring comprehensive and timely submission.
• Streamlined Submission: Chargeflow not only collects the evidence but also helps in organizing and submitting it to the bank in the required format, further reducing the administrative burden on the merchant.
• Ongoing Support and Analysis: Beyond individual disputes, Chargeflow analyzes patterns in chargebacks to help merchants implement preventative measures, reducing the likelihood of future friendly fraud incidents.

In essence, Chargeflow transforms a traditionally cumbersome and time-consuming process into a streamlined, efficient defense against chargebacks, giving merchants a stronger position to contest friendly fraud and protect their revenues.

Stay Tuned for the Future of Friendly Fraud

We've uncovered how friendly fraud is a complex issue, riddled with complications and consequences for eCommerce businesses. The good news? The journey doesn’t end here. The landscape of friendly fraud is in constant flux, and staying ahead demands continuous adaptation and innovation. So, stay tuned for our upcoming post, where we'll explore the future of friendly fraud and how Chargeflow is shaping the next wave of fraud prevention solutions. Also, be sure to follow Chargeflow's blog to keep up to date with the latest on eCommerce, fraud and chargebacks -we've got you covered.