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Friendly Fraud is a Huge Enemy of Small Businesses

Friendly Fraud can kill a small business and it’s important to be aware of this issue. This type of fraud occurs most when customers are ordering physical good or digital goods online. Then, they claim they never received the goods and their credit card issuer gives them a chargeback. IT can also happen when purchases are made with stolen credit cards and the real credit card holder asks for a chargeback.

If you run an online business, you need to be aware of this type of fraud. It can hit an e-commerce site in many ways both large and small. This type of fraud is also on the rise because it’s harder to actually get away with fraud when making a purchase in person. Many thieves are using online shops because they are more vulnerable to this type of fraud.

How Costly can Friendly Fraud Become?

In 2012, friendly fraud costs businesses more than $11 billion and it’s rising. For a single business, a chargeback can cost, not only the amount of the purchase, but also a processing fee ranging from $15 to $100. It can also mean the loss of the goods shipped and with too many chargebacks it could mean another 1% of all transactions fee from the bank. You may even lose your merchant account.

How to Spot Friendly Fraud

When a transaction goes through, it may not always be fraud, even if it raises a flag. However, with the right fraud-management partner, you will catch friendly fraud before it costs you hundreds or even thousands of dollars. Some of the signs include:

  • The billing address doesn’t match that of the credit card billing address
  • The customers tries to enter the expiration date multiple times
  • Multiple credit card transactions coming from the same IP
  • First-time customers purchasing expensive items
  • Purchasing the same item in different sizes or colors
  • Customers repeatedly tries to make a purchase at increasing or decreasing amounts

These flags are not always fraud, but they can be. They may be a sign that the thief is trying to guess a credit limit, expiration date, address or something else necessary to process the transaction.

Fighting Friendly Fraud

It may be tempting to take care of fraud screening in-house or on your own. However, this could end up costing you quite a bit in the long run. Even if you don’t think you can afford a fraud expert, you need one on your side.

It’s best to choose a processor with protection services for fraud or hire a fraud service to screen your website transactions. There are many good choices out there and you need the right one for your needs. When a fraud screening service is used, you have the best protection against friendly fraud and it could save you thousands of dollars, along with plenty of headaches.

Before you lose everything due to fraud, make sure you’re protected. Check with your hosting company, as they may be able to recommend a fraud protection service they already use or one they are familiar with.

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