As digital payments surge across the Asia Pacific region, so do incidences of ‘friendly fraud’. What can be done to counter this?
‘Friendly fraud’ may sound like a contradiction in terms, but it is in fact a serious and damaging problem for merchants and card issuers – and often a time-consuming headache for consumers too.
Friendly fraud occurs when someone makes a purchase with a credit or debit card and then later disputes the legitimate charge. There are various reasons why this may occur. One common cause is simple household miscommunication – for instance, children using a parent’s card to purchase apps or an in-game item.
Often though, it comes down to transaction confusion. According to a report by Ethoca and Aite Group, 77% of consumers said they have difficulty recognizing their transactions, while 96% – that’s nearly everyone – said that they would like more detailed bank statements.
Regardless of the cause, friendly fraud was estimated to have cost merchants up to US$50 billion in 2020. And while it has always been an issue, the rise in ecommerce over the past two years has led to payments being spread across multiple merchants and platforms, increasing the likelihood of consumer confusion, and driving the related rise in transaction disputes.
The fallout of friendly fraud
The financial impact for issuers and merchants of dealing with friendly fraud is clear, and it’s not getting better any time soon. By 2022, global chargebacks are expected to reach volumes 47% higher than 2019 pre-pandemic levels, putting a renewed focus on the urgent need for issuers in Asia to tackle the problem.
But it’s not just the financial cost that is concerning. There’s also the reputational impact. Online shoppers today are increasingly sophisticated – and impatient. Most of us expect a seamless, transparent experience when we shop online, and demand an immediate response to disputed payments.
Delays, operational dissatisfaction and perceived poor customer service can quickly push consumers into the arms of alternative merchants. For card providers, friction-filled disputes can result in lost customers or less frequent use of their cards.
Standing by after checkout
Knowing that fraud and dispute claims are key “moments of truth” in relationships with consumers, what practical steps can we take to create a positive encounter that ultimately gains the cardholder’s trust and loyalty? First and foremost, we need to provide a better post-transaction experience, one that gives people greater clarity around their transactions.
This is a consumer pain point that we, as an industry, need to solve. That means offering user-friendly, self-serve tools that give cardholders instant access to clear information on their transactions such as the who, what, where and when of their purchases.
For example, statements that provide easy access to merchant names and locations, delivery dates and itemized receipts, alongside refund and returns information. Our research estimates that 25% of friendly fraud disputes could be avoided simply by giving cardholders more details about their purchases.
Seemingly small changes yield big rewards
While the solution to consumer confusion appears straightforward enough, implementing such changes across the highly complex financial ecosystem will require industry-wide cooperation.
At Mastercard, we are facilitating this collaboration through Consumer Clarity™, an initiative that aims to give cardholders more transparency around their purchases. Consumer Clarity has two components – Enhanced Transactions and Digital Receipts. Reflecting the collaborative, card-agnostic nature of the program, it covers card transactions from other payment networks besides Mastercard.
Enhanced Transactions provides on-demand rich merchant information to cardholders, including easy-to-recognize merchant names and logos and purchase location details. This additional information helps to significantly reduce unnecessary credit card chargeback disputes caused by transaction confusion.
Meanwhile, the Digital Receipts component presents consumers with fully digital receipts with itemized details of what they bought in a simple format (including merchant logos), resulting in up to 40% reduction in friendly fraud.
Ultimately, addressing the issue of friendly fraud by providing greater clarity around purchases is a win for everyone. Card issuers can improve the banking experience for their cardholders. By adding their logos, merchants can reduce their operating expenses, increase revenue and increase their brand exposure.
Finally, consumers can bid farewell to confusing statements and onerous disputes – with their card issuer (or family members) – and enjoy overall more convenient and frictionless shopping and banking experiences.