Friendly fraud, or chargeback scams, first-party fraud, is increasing. Businesses in the United Kingdom and all over the world are coming to realize its chilling effects. In response, customers participate in a dishonest act by claiming credit card purchases were never made. They assert that they never approved the charge and eventually get refunded. With the prevalence of friendly fraud increasing every year, business owners are some of the hardest-hit victims of this costly crime.
Rusty Nart is the proprietor of Green Monkey London and Fingers Kebab shop. He is now putting the pedal to the metal on this emerging focus. He mentioned how hard friendly fraud hits small businesses such as his. “People will come in and spend a certain amount of money, and then within a three-month period, they’ve got a window where they can chargeback a payment,” Mr. Nart stated.
Nart has been affected by this frustration himself, even going as far as taking matters into his own hands to investigate some of the fraudulent claims. He noted, “I took it into my own hands and started keeping every food order receipt within a three-month period.” With this method he was able to identify customers who had called in and disputed their charges. He was equally clear-eyed about the risks of such actions, warning fellow business owners. “I don’t advise other business owners to do this as it could be a little dangerous, but this was the route I took since the card machine providers and banks don’t seem to be doing anything.”
In reality, the problem of friendly fraud extends well beyond Nart’s enterprises—or even the UK. This is a challenge Ariel Chen, founder and CEO of Chargeflow, took on directly. He realized it while creating his own international beauty empire that included a subscription box service. He explained how chargebacks affected his business: “We built a fast-growing global beauty brand with a subscription box loved by hundreds of thousands of customers. And then the chargebacks hit.”
Perhaps surprisingly, Chen’s interest in tackling friendly fraud started with business considerations and the financial impact it has on small businesses. He highlighted the burden placed on merchants, stating, “Not only do you have to pay back the money that they spent, but the card provider makes a chargeback fee of £28 plus VAT.” This double whammy of attrition revenue and new charges is hugely damaging to small and medium sized businesses.
With economic pressures mounting, analysts at the Merchant Risk Council forecast that friendly fraud will worsen through 2026. As Adam Scarrot from UK Finance explains, this misses an important point. Although the current cardholders may think that sometimes committing friendly fraud is harmless and victimless, as Peterson explains, it’s actually a form of crime and theft. He elaborated on that by saying “every fraud has a victim,” pointing to the wide-ranging consequences for companies.
Such friendly fraud occurs when customers call their credit card companies and dispute transactions that they themselves authorized. This sometimes results in an awkward situation for merchants who are required to jump through hoops to show that the transaction was valid. Scarrot elaborated on the chargeback process: “If something goes wrong with the payment, or if something goes wrong with what you’ve purchased, you can go to your bank who will raise a chargeback. That feeds into the appropriate card network, either Visa or Mastercard. They’ll reach out to the store’s merchant.
In light of these challenges, professionals across disciplines are calling for proactive strategies to be implemented by business owners. One such recommendation involves confirming orders through text or email before dropping off items. “When you’re taking orders by phone or email – text them to confirm – and do not give over the goods until they’ve texted back,” one expert advised.
The friendly fraud problem goes deeper than the tangible effect of lost dollars. Not only is it causing a worse customer experience—it’s driving up operational costs, too, as companies are just trying to mitigate this type of fraud. For Rusty Nart, this reality makes an impact on his day-to-day operations. He is just as fierce in defending his businesses. He is compelled to express his anger as he walks through the world of chargeback scams.
As understanding about friendly fraud increases, it’s important for business owners and consumers to understand its effects. Many people may view these types of actions as innocuous. Friendly fraud truly shorts the livelihoods of millions of small businesses and entrepreneurs.