Posted May 26, 2009 11:21 am by with 11 comments

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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 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, 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.

  • Xahnia Livia

    Credit card companies must work with on-line merchants. when a customer claims theyh ave not recieved their order, then this claim MUST be registered with the credit card company. The merchant MUSt refund the order. This way the credit card company can flag these individuals as possible on-line fraud, and deactive the fraudster credit card . With this paper trail, these individuals can then be charged for theft.

    When a client claimed they did not recieve their order I sent out this email notice to them, which 99% of the time the client would always locate their parcel.

    Due to the increasing number of lost internet orders, a new policy to help Canadian and international government agencies through international agreements, in the investigation of and, if necessary, the prosecution of mail order fraud, all missing orders are to be refunded, creating legal documentation of the refund with the credit card company.

    This procedure of documenting missing orders with the credit card institution provides investigators with a client history and a geographical representation for missing orders lost during shipping.

  • Timely. I just blogged about this myself, where, as a freelance copywriter, people are asking for refunds way past the refund policy period. Others are literally asking for refunds on digital products or online memberships 1-2 years after purchase.

    Their excuse? “I need the money,” or, “I never used it.”

    One person had the gall to ask not only for a refund but also extra cash to compensate him for the interest charges on his credit card bill. Wow.

    We see this all too often in the online marketing arena, especially when it comes to digital products. People buy a product, download it, and then ask for a refund moments later.

    It's disheartening, but I will no longer be taking credit cards for services — and suggested some kind of blacklist of known refunders, not to post the information publicly but to stop/prevent their order from being processed. One person referred me to this site: and (same company).

    It's not a 100% foolproof solution, but I'm investigating it. Anything to lower “friendly fraud” (although I despise that term) is better than nothing.

  • charlesneville

    I'm wondering whether Zappos would give a refund on a box of rocks?

  • jdmartindale

    It's just one more step towards complete socialism. No one pays for anything, you just get to have what you want and the cost is offset by what you will eventually get in return. Money has no meaning.

  • I was just talking about this today with my students on reducing chargebacks.
    So this post is very timely.

    I like Michel Fortin's idea of just not taking credit cards for services and accepting checks only.

    We used to worry about unethical businesses online, now we worry about unethical customers

    -Christina Hills
    the “Shopping Cart Queen”

  • I can't believe that people would be so dumb to send back a box of rocks. I would be interested to know what the estimated costs to retailers is each year involving friendly fraud. Great article

  • Got sent here my Michael Fortin's tweet.

    You have to build that into the cost of doing business.. you will do more business, after all chargebacks are said and done, then you will if you didn't do those sales at all.

    Many people do business with you using their credit cards BECAUSE they know that have that extra layer of “protection” that if things go haywire they can get a refund.

    Having said that… after 120 Days or so (check your payment processor agreement) a chargeback can no longer be done.

    I personally once paid a company twice $900, once by Credit Card and once by check.. and was able to prove it.. and the CC company denied my claim because it was over 120 days later…

    it's again, another manefestation of the 80/20 rule. Try to get rid of the 80, and try to get paid via non-refundable means when you are doing a project that is your personal time on the line (as opposed to a product.)

    When I am Mentoring someone, I start with accepting credit cards and paypal– but once they really start seeing results, I try to move to other means of payment, such as bank transfer.

    Paypal Masspay is also a good way to get paid— no chargebacks are allowed, and the fees are lower as well!

  • Something you have to make sure is that the click you are going to do for any purchasing on online should be real click that is very true, otherwise this is simply a “internet fraud” if the click is something else.

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  • In my country we don't trust very much the customers because is the country which participated the most on fraud over the internet so we learned from our people's mistakes. We use COD and that's all. Or payments by SMS up to 20 Euro where fraud is Zero. Now, with the new laws nobody try to fraud anybody because they get up to 12 years in prison and ISP are forced to keep logs of everything for 6 months. From my point of view, this is the future for internet sales. Never use international shipment. Build a forwarding company which delivers internationally your products, payment by sms or phone bill charge and that's all.


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