While the early stages of the pandemic may have pushed e-commerce retail purchases up 81 percent, it also brought some new realities for consumers and retailers alike.
One of the new normals was shipping delays. As more merchants were forced to shift to digital commerce to stay afloat, they were in the lucky position of having extra time to get things out. However, many were so focused on fulfilling orders that they became easy prey for fraudsters.
Scammers were having a field day with the newfound opportunity. Consumers reported $3.3 billion in fraud and identity theft losses in 2020 -- nearly double from 2019 -- according to the Federal Trade Commission.
Enter “friendly fraud”
Many of those consumer losses came at the hand of something called “friendly fraud” (a.k.a. accidental fraud). Friendly fraud works in three ways:
A consumer makes a legitimate purchase but doesn’t recognize the charge when it appears on their bank statement. At that point, they call their bank or credit card company to dispute what they think is a fraudulent charge.
A primary cardholder isn’t told when someone else on their account makes a purchase. They then mistake it for fraud and report it as abuse. This can often happen when spouses share an account.
A consumer makes a legitimate -- but unauthorized -- purchase. This type of accidental fraud is fairly common in the gaming industry when children use their parents’ credit cards to make in-app or in-game purchases. While the purchases are legitimate, the cardholding parents might not recognize the charge and contact their bank or credit card company to dispute the charges. While Facebook isn’t in the gaming industry, it has also been accused of “friendly fraud.”
Mind you, not all cases of friendly fraud are accidental. Experts at Kount, an Equifax-owned company specializing in fraud prevention, say customers often commit intentional friendly fraud when they find ways to keep products without paying for them.
The friendly fraud fix
To address friendly fraud, emerging technologies are now able to push transaction data directly to banks so that action can be taken more quickly. That’s good for retailers that might feel the pinch of post-authorization chargebacks. It also helps honest consumers who might be completely naive about a specific charge. However, it’s not such good news for consumers who try to intentionally commit friendly fraud.
The data used in newer systems directly connects any purchase to the consumer so banks can be notified when friendly fraud is in progress. That gives these institutions a valid reason to push back when this kind of fraud occurs.
“We now have technology that can stop it right before that happens with our alerts,” Scott Adams, Vice President of Friendly Fraud at Kount, told PYMNTS. “And that flows right into the system for our AI to use and for reporting. And those alerts are near real time, so that a merchant could stop shipment or if you’re a digital company, you can stop the usage of that digital product. You can ban the gamer, you can do whatever you need to do to prevent that fraud in the future and from losing resources and revenue.”