Ai Editorial: Coming to grips with friendly fraud is like anticipating damage control

First published on 17^th August, 2016

Ai Editorial: Given the growth in card-not-present transaction volume, airlines need to be proactive to understand what triggers friendly fraud and how to deal with it, writes Ritesh Gupta from Kuala Lumpur

Airlines are constantly looking at ways to minimize the impact of chargebacks and one of the topics keenly discussed during the 5^th ATPS Asia Pacific was “friendly fraud”.

Unlike fraud initiated by a criminal, friendly fraud is the case where a “cardholder” claims fraud for a transaction they were involved in.  This type of fraud is hard to deal with as the legitimate cardholder uses the card with all of the correct information, and then disputes the same. What works against airlines and merchants is the fact that chargeback dispute procedure doesn’t support them, as banks and credit card organizations tends to seek only a small amount of proof from customers to corroborate a dispute claim.

Speaking here in Kuala Lumpur, Brett Small, Regional Director, APAC – Ethoca, mentioned that friendly fraud refers to “fraud that is committed when an individual had knowledge of and/or was complicit with and/or somehow benefited from the transaction on their own account, although the individual reported the transaction as unauthorized”.

Talking of airlines, Small said in case of airlines, friendly fraud is generally the result of buyer’s remorse, additional charges or fees, disagreement with refund rules, and a transaction that is completed by another party. He also explained the spectrum of behavior – varying from a benign one that generally involves a household/ family member (so may be a traveller is on the check-out page on a device, and someone inadvertently clicks to complete the transaction. So the cardholder was unaware of purchase made by a household member. Or as Small said it could be a simple case of just not recognizing the purchase – descriptor issue, statement is confusing, etc.) to the cardholder deliberately abusing the system with the intent to commit fraud. 

Issues for merchants

Friendly fraud is difficult to distinguish from genuine fraud and even harder to prove for merchants:

·         Difficult to detect at time of purchase.

·         Issuers usually accept a customer’s assertion.

·         The chargeback process does not adequately address friendly fraud.

·         There is no way of collaborating with issuers.

·         High impact to customers and risk of social media damage.

·         Time consuming and labour intensive.

Why issuers struggle?

Explaining how issuers comprehend friendly fraud and the way it can be dealt,  Small highlighted that friendly fraud is difficult to distinguish from genuine fraud.

·         Issuers cannot see what is purchased.

·         It may involve a dispute with a merchant that issuers are unaware of.

·         Issuers are under pressure internally and from regulators to believe and refund customers.

·         Issuers have thousands and sometimes hundreds of thousands of disputes per month.

·         Issuers ask customers questions to try and validate disputes and also look for repeat disputers. But, cardholders have learnt how to “use” the system.

Issues being raised, but long way to go

Friendly fraud has raised the overall chargeback level, making acquirers more watchful about accepting risk liability. The industry has been looking at this issue, for instance, Visa last year chose to accept airline-supplied flight manifests as a remedy for fraud payment card chargebacks (when the passenger name matches the cardholder name).  As explained by Monica Eaton-Cardone, COO, Chargebacks911, in one of her recent blog posts, initiatives taken such as one taken by Visa are being taken to help fraud-burdened merchants, but still it isn’t a definitive solution. She asserts that savvy consumers continue to exploit loopholes and merchants still report significant losses. She recommends that fraud filters need to work better. Also, merchants need to be sharp enough to understand the buying behavior, and consumers need to understand that their actions have consequences, and that getting involved in friendly fraud is going to have detrimental impact eventually.

More specifically, airlines need to look into booking history and any other internal and external data sources to verify travel. Evaluating customers’ chargeback history can be useful, too.

“There is a need to leverage merchant historical data -  card number + device/ IP address for previous orders. Also, make household profiles and link all their devices. On another note, one may call the cardholder when it makes sense. This is based upon transaction amount, customer relationship, evidence etc,” said Small. “Airlines can look at implementing simple, clear refund policies. But, don’t be too easy as the new trend is refund abuse,” cautioned Small.

Other areas that can help:

·         Chargeback representments (if evidence exists.)

·         Using modified merchant descriptors.

·         Making change and refund policies clear in the booking flow and post booking communications.

As it turns out, completely doing away with chargeback fraud isn’t a possibility, though curtailing the risk of such kind of credit card fraud is possible. Airlines have to count on ways to avert the danger of becoming a victim of friendly fraud. Merchant-issuer collaboration is essential and can play a big role in dealing with such malicious behavior.  

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