4 Steps to Help Prevent 'Friendly Fraud'
With some shoppers resorting to “creative ways” to snag free gifts for their friends and families this past holiday season, retailers were once again confronted by an age-old problem: return or “friendly” fraud. Credit card chargebacks and fraudulent returns cost the retail industry an estimated $2.7 billion this holiday season, and around $9.6 billion in 2009, according to the latest annual Return Fraud Survey from the National Retail Federation. Online retailers were hardest hit, as thieves find it easier to dupe retailers when they don’t have to come face to face with them.
In an effort to appease customers, credit card companies have made the chargeback process easier than ever. With a simple phone call, customers who are unscrupulous, lazy or suffering from buyer’s remorse can request full refunds for their purchases. Merchants are stuck paying fines and fees to the credit card companies, plus the loss of the merchandise, which is often not returned.
In other cases of return fraud, customers have been known to send back boxes of rocks in exchange for pricey diamond jewelry, used equipment in place of expensive electronic gadgets or simply empty boxes.
Fortunately, there are four fairly simple and easy steps that merchants — both online and brick-and-mortar — can take to reduce the risk of chargebacks and return fraud:
- Have a clear and easy method for contacting customer service. The easier it is for customers to locate and speak to a real human being, the less likely they are to resort to chargebacks.
- Establish a simple return process, and communicate it to customers before and after sales. An easy return process helps reduce customers’ temptation to go the chargeback route.
- Participate in an anti-fraud database system. So-called “bad customers” listed in the database are prohibited from purchasing from participating merchants. By submitting the names and contact information of frequent fraud customers to a shared “blacklist” database, you can reduce the risk of future fraud for yourself and other retailers.
A number of established, big-name merchants maintain in-house customer blacklists to help prevent chargebacks and other return fraud, but shared databases make this service available to smaller retailers as well. The service is free for retailers; customers who find themselves on the list must pay a removal fee to have their purchase power reinstated.