Friendly fraud presents a real and persistent challenge for modern businesses. Here's how businesses can protect themselves against this new deceptive practice.
Photo: Jonas/Pixabay
by Ben RobertsonThe Sentinel
Understanding Friendly Fraud
Friendly fraud occurs when a customer makes a purchase using their credit or debit card and later disputes the transaction with their bank. The reasons for these chargebacks vary—some claim they never received the product, others say they didn’t authorize the transaction, and some simply don’t recognize the charge.
Sometimes these disputes are the result of misunderstandings. A child may have made the purchase, or the buyer might not recognize the business name on their bank statement. But in many cases, the customer did receive the goods or services and is intentionally abusing the chargeback system.
According to WAND-TV, restaurants in particular have seen a noticeable spike in friendly fraud over the past three months. This is especially costly in an industry where margins are already thin.
"When this occurs, the restaurant is responsible for the original charge, and a chargeback fee,” WAND-TV reported. “Additionally, if there are enough chargebacks, businesses’ credit card processing fees increase for every order.”
Rick Carbaugh, General Manager of Sun Singer Restaurant in Champaign, told WAND-TV that his business has been hit hard in early 2025.
For merchants, the financial damage from friendly fraud extends beyond the lost sale.
“Ever since January, Sun Singer Restaurant has lost about $1,100 in chargebacks,” Carbaugh said. “We've had 11 chargebacks since January, which for comparison's sake, between 2021 and 2024, we had four chargebacks total.” Carbaugh noted that most of the recent disputes stemmed from deliveries to student housing. Customers would often provide inaccurate phone numbers or email addresses, preventing the restaurant from contacting them. As a result, Sun Singer was forced to stop offering online payment and delivery altogether.
The Cost to Businesses
For merchants, the financial damage from friendly fraud extends beyond the lost sale. Businesses are often required to pay a chargeback fee, which can range from $20 to $100 per transaction. Too many chargebacks can raise red flags with credit card processors, potentially leading to higher processing fees—or even termination of merchant services.
According to industry data, friendly fraud accounts for a significant portion of all chargebacks. As e-commerce grows, the opportunities for this type of abuse increase.
Prevention Starts with Clarity
One of the most effective ways to reduce friendly fraud is to ensure that the customer clearly understands what they’re buying and who they’re buying from. Here’s how businesses can improve transparency:
- Use recognizable billing descriptors.
Many chargebacks result from customers not recognizing a company name on their credit card statement. Businesses should make sure their billing descriptor matches their brand or website name as closely as possible. - Clearly outline refund and return policies.
Policies should be easy to find and written in plain language. Businesses that offer refunds or exchanges reduce the customer’s incentive to file a chargeback out of frustration. - Provide order confirmation and shipping details.
Sending automatic confirmation emails and tracking information can help prove that a purchase was authorized and fulfilled.
Photo: Hannes Edinger/Pixabay
Strengthen Internal Documentation
If a chargeback is initiated, having proper documentation on hand gives merchants a better chance of successfully disputing it. Key documents include:
- Signed receipts or order confirmations
- Proof of delivery, such as tracking numbers or delivery confirmation
- Screenshots of product descriptions and terms at the time of sale
- Communication logs with the customer
Use Payment and Fraud Protection Tools
Technology can also play a vital role in preventing friendly fraud. Most payment processors offer tools for flagging suspicious transactions or verifying cardholder identity. Some of these include:
- Address Verification System (AVS)
- CVV verification
- 3D Secure authentication (e.g., Verified by Visa)
Stay Proactive and Respond Quickly
When a chargeback is filed, time is critical. Businesses should respond promptly and provide clear, concise evidence to support their case. It’s also helpful to monitor chargeback patterns. If a particular product, region, or customer profile seems to generate more disputes, it may be worth adjusting how those transactions are handled.
Friendly fraud presents a real and persistent challenge for modern businesses. While no system is foolproof, a layered approach that combines transparency, documentation, and technology can significantly reduce the risk.
