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‘Friendly fraud’ on the rise by online customers: The consequences

Samantha Partington
Written By:
Samantha Partington

Fraud committed by criminal customers is on the rise and it’s costing online retailers millions of pounds in profits.

A report by fraud prevention platform Ravelin found that fraud carried out by a retailer’s own customer has become the number one risk factor for one in three online businesses.

Shoppers caught in the act could wind up with a black mark on their credit file, their bank account closed or face criminal charges.

Rise in ‘friendly fraud’

Some 1,900 leaders from online retailers across 10 countries were surveyed and more than a third said that chargeback fraud was on the rise. Also coined ‘friendly fraud’, this is the practice of buying an item with a credit or debit card and then disputing the charge without a good reason. Other customer fraud on the rise includes promotions abuse and policy abuse.

Promotions abuse involves setting up multiple accounts to receive welcome discounts, referral rewards and free offers more than once. Policy abuse comes in many guises. Customers may claim their goods did not arrive or were faulty on arrival. They claim a refund and then resell the items.

Free-renting or ‘wardrobing’, also a form of policy abuse, happens when a shopper wears an item of clothing for an occasion and then sends it back for a refund.

Cardholders caught trying to commit fraud could face having their bank account closed and their credit record affected. Repeat offenders might not be believed in future genuine cases, where consumer protection is required, and they could face criminal charges.

The trend appears to be particularly pronounced among younger age groups, Ravelin said. A separate study by fraud agency CIFAS found one in 13 people admitted to involvement in some form of first-party fraud – rising to one in seven among digitally-savvy 16- to 34-year-olds.

Martin Sweeney, Ravelin chief executive,  said: “Friendly fraud, such as claiming an item you’ve received has failed to arrive in order to claim a refund from your bank, is often seen by perpetrators as a soft crime that’s essentially victimless.

“But in fact it’s a real crime and prolific offenders can end up facing criminal charges. Friendly fraud of this type is on the rise and costs brands millions of pounds every year.”

Retailers take action

The consequences of customer fraud can be severe and retailers wise to the practices are implementing fraud prevention software to detect repeat offenders.

Sweeney added: “CFOs at online businesses, who have overall responsibility for fraud, tell us fraud from organised criminals remains a perpetual thorn in their side. But fraud by their own customers runs close behind. They recognise the vast majority of internet shoppers are scrupulously honest, but recognise they need to be increasingly vigilant for those who are not.”