Friendly fraud occurs when a legitimate customer makes an online purchase but later disputes the charge with their bank or credit card company, claiming they never received the item or didn't authorize the purchase. Despite its name, there's nothing friendly about this type of fraud.
How friendly fraud works
The process typically starts with a real purchase. The customer uses their actual credit card and completes the transaction normally. Later, instead of requesting a refund from the merchant, they contact their bank to dispute the charge.
Common excuses used in friendly fraud include:
- Claiming the product never arrived
- Denying they made the purchase
- Stating they don't recognize the charge
- Claiming the product was defective or not as described
Impact on digital advertising
For advertisers, friendly fraud creates a double-loss situation. Not only do they lose the product or service provided, but they also waste the advertising spend that brought in the fraudulent customer. This includes CPC advertising costs and other marketing expenses.
When combined with click fraud and IVT, friendly fraud can significantly impact a company's bottom line. It makes it harder to calculate true return on ad spend (ROAS) and customer acquisition costs.
Prevention strategies
Businesses can protect themselves through several methods:
- Keeping detailed transaction records
- Using delivery confirmation
- Implementing strong customer authentication
- Having clear refund policies
Connection to other fraud types
While friendly fraud differs from click fraud, they often intersect in digital marketing. Some fraudsters may use click fraud to drive up advertising costs, then commit friendly fraud on any resulting purchases. This creates a compound problem for businesses trying to maintain profitable customer acquisition channels.
