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Internet Fraud is Internet Fraud, Right?



fraudAs online marketers most are concerned about click fraud. The endless battle to make sure that when you are buying a click it’s a real click and not something else. Marketers lose sleep over this every night but ht economy may have created a whole other category of fraud called “friendly fraud”.

First, I am not sure where we are headed when we can call fraud “friendly fraud” like we find in an article over at the Wall Street Journal. Sounds too much like “friendly fire” and there is nothing friendly about that. So what exactly is it? According to the article

Online merchants are fighting a surge in so-called friendly fraud, as more consumers try to get out of paying for their Internet purchases in the recession.

Online jeweler Ice.com Inc. and travel site Expedia Inc. are among companies seeing at least 50% spikes from October in friendly fraud, a term used to describe when a consumer disputes an online charge but doesn’t return the item or has already used the product.

While this practice has been around forever expect to see it on the increase during the current recession. People are increasingly shelving ethics to get what they want. Hey, just because times are bad and people are struggling it doesn’t mean that people should be deprived of their stuff right?

Since the markets tumbled last year, Ice.com says its rate of suspected friendly fraud has tripled, while Expedia says it’s up 50%. Athletic shoemaker K-Swiss Inc. says it’s seen suspected friendly fraud rise 10% since January. These companies say the fraud is sometimes blatant, with some consumers sending back boxes filled with rocks instead of the item that was shipped, and then asking for their money back. But in most cases it’s hard to distinguish between fraudsters and consumers who legitimately don’t receive their online purchases.

So as marketers what do you do? Stop marketing? Of course not but if this is going to continue and likely become more devious as things continue to decline economically, the impact could be troubling. Now, online marketers may need to build more into their budgets to account for more fraud possibly leaving less dollars for marketing.

While there are no numbers on the costs that friendly fraud incurs, companies say they get penalized twice because they lose both the revenue from a sale and also the item. Tom Sullivan, Expedia’s senior director of global payments and risk, says companies also carry extra labor costs associated with their investigation of disputed charges. In addition, he notes, companies that hit over a certain threshold of friendly fraud “chargebacks” are levied higher fees by banks and credit card companies.

So what’s next, “friendly assault?” How about “friendly extortion”? In a world that is increasingly moving online would this happen if people had to deal with real people. Case in point

Scott Shulman, K-Swiss’s director of e-commerce, says earlier this month, one person claimed he didn’t receive his $400 shipment of shoes. Mr. Shulman said he would send somebody to the customer’s post office to pick up the card that showed someone had signed for the shipment. The consumer backed off his claim.

Funny how Internet courage goes away with even the thought of being called out.

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