Friendly Fraud — also known as chargeback fraud — is a type of fraud that occurs when a customer disputes a transaction with their credit card company instead of seeking a refund directly from the merchant.
This form of fraud can occur for various reasons, and not always with malicious intent. For instance, the customer may have genuinely forgotten about the purchase, failed to recognize the merchant’s name on their statement, or mistakenly believe they didn’t receive an item they ordered.
In other instances, a customer may deliberately dispute a valid transaction, attempting to obtain a product or service for free by claiming they never received it. Regardless of the reason, friendly fraud can prove extremely costly for merchants.
Not only do they stand to lose the transaction amount, but they may also lose the goods or services they provided. Additionally, they may face chargeback fees, and if the incidence of such fraud is high, it could potentially impact their relationship with their payment processor or bank.