A report has found that retailers are losing approximately $100 billion annually from "friendly fraud," which can sometimes be unintentional.

• A customer may falsely claim that a charge made on their payment method is fraudulent, even if it is legitimate.
• Accidentally, many individuals are unsure about the display of the merchant's name on their bill, resulting in confusion.
• Recent advancements in mobile banking have made it easier to challenge charges, but experts advise discussing the issue with the merchant prior to doing so.

If an online product you received doesn't meet your expectations, you may reach out to the seller to resolve the issue.

If you dispute a credit card transaction, what will happen?

Security and credit card companies are becoming increasingly aware of "friendly" or "first-party" fraud, which involves consumers making false claims to get their money back from the card issuer, even if there is no issue with the purchase.

Each year, retailers lose $100 billion due to friendly fraud, which occurs when customers dispute legitimate charges made on their credit cards, debit cards, or other payment methods, according to identity verification platform Socure.

According to a survey by Socure in October 2021, 35% of Americans have committed first-party fraud, and 40% know someone who has.

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Experts say that thanks to the efforts to improve mobile banking services, consumers can now easily dispute charges.

Rodrigo Figueroa, chief operating officer of Chargeback Gurus, stated that there are legitimate disputes and the chargeback process was designed to provide relief for those disputes.

"Now we see this massive level of abuse," he said.

Friendly fraud is a broad term

Credit card experts say identifying friendly fraud can be difficult.

"According to Robert Painter, vice president of partnerships at fraud protection platform Kount, an Equifax company, although there are numerous statistics about the increase of it, it appears to be becoming a catch-all term for anything that we don't fully comprehend. The term "fraud" is sometimes used in a more general sense."

Sometimes, there isn't an intent to defraud, experts admit.

If a consumer is unfamiliar with the merchant name on their credit card bill, they may challenge the charge as fraudulent, according to Chi Chi Wu, a senior attorney at the National Consumer Law Center.

"The consumer disputes the charge on their credit card account because the merchant did not use the commonly known name, which is a legitimate dispute under the law," said Wu. "The consumer has a right to clarification."

Still, this scenario can be labeled as friendly fraud.

The Socure report found that 29% of those who admitted to first-party fraud said it was an accident. Additionally, 34% said they were facing economic difficulties, while 19% claimed to have been influenced by someone else's successful attempt at this tactic.

Merchants take the biggest toll

Johnny Ayers, CEO and founder of Socure, stated that determining the intent of consumers is the most challenging task for fraud experts.

In 2023, the company established a consortium of banks and fintech companies to tackle this issue by identifying data not included in standard credit reports, in order to detect fraudulent activity.

"Ayers stated, "By examining the number of accounts, disputes, overturned disputes, and closed accounts, we can observe the behavior of this individual has a significant deviation from the norm.""

Experts claim that merchants may experience financial strain when their credit card provider requires them to compensate for a fraudulent transaction that has been disputed by the consumer.

Domenic Cirone, vice president of acquirer solutions at , which acquired Kount in 2021, stated that excessive chargebacks could negatively impact a merchant's ability to process cards or result in fines or fees being imposed by a credit card company.

In April, the Merchant Risk Council, comprising of 600 e-commerce companies, stated that 94% of its members had experienced first-party fraud in the previous year.

According to Socure's research, merchants lose $89 billion out of the $100 billion attributed to this type of fraud, with the remaining $18 billion coming from credit card fraud loss and $3 billion from dispute resolution by the top 15 U.S. banks.

'Most folks are honest'

It is advised by credit card experts and advocates to resolve issues with merchants before consumers file a legitimate dispute.

According to Wu, a credit card issuer may choose to accept a dispute to maintain its reputation.

""Credit card issuers must consider the impact on customer retention before engaging in frequent disputes with merchants," she stated. "Consumers often express satisfaction with issuers that handle disputes effectively and advocate for their rights," she added."

Social media is being identified as a contributing factor to the increase in friendly fraud, according to fraud professionals.

Hundreds of finance influencers share tips for disputing credit card charges on TikTok, while some people admit to disputing legitimate charges to get their money back.

"Ayers stated that they only provide instructions on how to steal money, without actually teaching any valuable skills or knowledge. They merely offer step-by-step guides on how to circumvent rules and take advantage of organizations, making it seem like it was done under duress or distress."

Simple misunderstandings between consumers, merchants, and card issuers are a common cause of disputes, according to Cirone.

"When a transaction is disputed as fraud, it goes through the system. However, the overall statistic is not influenced by social media. Cirone stated that most people are honest and there is a communication breakdown."