July 10, 2013, 4:22 PM

How e-retailers can cut their losses from ‘friendly fraud’ chargebacks

An expert shares tips for online merchants.

Lead Photo

Over the last two years, the rates of “friendly fraud” incidents—when customers make a purchase, receive the item or service, then dispute the charge and get an unwarranted refund—have grown 40%, says Monica Eaton-Cardone, CEO and co-founder of Chargebacks911, which helps e-retailers fight back against and this type of fraud.

There are a number of simple steps retailers can take to prevent fraud by normally law-abiding consumers, as opposed to professional criminals. However, in order to curb its growth, merchants must fight back when it happens, she says. Dismissing it as not worth the time to address only makes the problem worse, she says.

“The merchant has to take responsibility to help reverse these statistics by righting the wrongs out there,” Eaton-Cardone says. “Merchants have to realize they’re not in a bubble by themselves, they’re operating in a whole industry and what they do affects other merchants as well.”

In the meantime, here are three steps retailers can take to cut down on friendly fraud:

  • Give customers an easy way to return items online so they don’t turn first to the bank that issues the credit card, which in most cases will side with the customer and issue a chargeback. Consider a clearly written, 30-day return policy, as consumer fraud is likelier when customers have only a few days to decide whether to return an item.
  • Be sure to send a delivery confirmation e-mail after an item arrives at a customer’s home. That provides proof that the item reached the consumer’s door, and comes in handy when she later disputes the charge on the grounds that she never received the item.
  • For recurring sales or subscriptions, make sure the online opt-out process is easy. Consumers often call the bank to ask what a charge was when they forget to turn off a subscription and the bank often automatically issues a chargeback when they do, Eaton-Cardone says. “But if they contact the merchant, nine times out of 10 it will give them a refund if they’re not happy.”
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