Many online merchants are discovering that fraud at the point of transaction is no longer the sole vulnerability in their ecosystem. Policy abuse is a growing phenomenon — Forter’s Sixth Annual Fraud Attack Index reported a 170% increase in these types of abuses since the end of 2017.
What is friendly fraud? So-called friendly fraud refers to the misuse of a merchant’s policies by good customers on a platform. When combined with the concerted efforts of bad actors to abuse a merchant by finding loopholes in the system or vulnerabilities around the enforcement of merchant rules and policies, these behaviors can wreak havoc on a business’ bottom line.
Hiding in Plain Sight
When looking to fight against policy abuse and friendly fraud – merchants must better understand the potential loopholes that fraudsters are looking to exploit from within their system. These touch points are often less obvious than traditional transactional fraud, making it more difficult to spot the fraud and reinforce the business rules created to protect them.
Vulnerabilities in the Customer Journey
- Returns Abuse – As of late, retailers have been enforcing stricter returns policies in order to better protect themselves against the serial returner. This form of abuse typically plagues retailers with looser returns policies, allowing their customers to return items months after the date of purchase. As such, fraudsters and good customers alike take advantage of these loose policies, returning used/worn items for a full reimbursement .
- Sign-Up and Multiple Account Abuse – Spotted a discount code on one of your favorite sites, but only if you’re a new user to the platform? If you created a new account in order to reap the rewards of the discount, you wouldn’t be alone. A Forter survey finds that 38% of customers have created one to two additional accounts to take advantage of sign-up rewards.
- Coupon Abuse – The redemption of coupons or the use of coupon codes is a rather innocuous and completely legitimate practice by good customers. However, when counterfeit or copied in excess, they can cause great financial losses for the business.
- Referrals and Loyalty Programs – Looking to capitalize on a good thing? Spamming of referral codes to earn more loyalty rewards or redeem credit on a particular site is a growing problem for retailers. This type of behavior dilutes the merchant’s customer ecosystem and creates a source of lost revenue for the business.
- Chargebacks – Between buyer’s remorse and claims of services or items not delivered, both fraudsters and good customers are to blame for high rates of chargebacks that can prove quite costly to merchants.
So, How to Fight the Friendly (and not-so-friendly) Fraudster
Striking a balance between fighting fraudsters and policy abuse while ensuring business preventative measures are not so stringent they turn away good customers, is key to continued brand success. This delicate balance requires a fraud prevention system that understands the nuances of your customer ecosystem, prevents against fraudulent actors or abusers, but does not create an onerous experience for the user.
If you want to find out more about how friendly fraud and policy abuse are growing problems for online merchants, and how you can help prepare and protect your business, download the full report here.