According to the press release, the report analysed a random sampling of 100,000 chargebacks from orders that were processed over 3 years by large digital merchants. ‘Friendly’, or first-party fraud is when apparent customers make a digital ecommerce purchase and then renege, either because they obtained a better deal somewhere else, didn’t end up needing the service, or just didn’t want to pay for the goods or services they received.
As claimed in the Fraud.net survey, currently, friendly fraud occurs with 50% greater frequency than third-party fraud – fraudulent use of a stolen credit card, for example – contributing to a problem that is costing online businesses billions of dollars per year.
These challenges around identifying and reporting friendly fraud create moral hazard and expose weak controls, resulting in some organised friendly fraudsters hitting the same businesses again and again.
Key findings of the study include:
friendly fraud can result in a 1% reduction in legitimate sales, amounting to a 25% reduction in profits for online businesses;
friendly fraudsters will hit a company nine times before they’re shut down, consequence-free, allowing them to move on to other businesses;
chargebacks often understate the true impact of friendly fraud, which can be four times as large.