Friendly Fraud & Chargeback Fraud Prevention as a Competitive Advantage for Vulnerable Industries
by Vesta E-Commerce Blog July 7, 2021Recent fraud numbers can send a chill down any merchant’s spine. According to Experian, e-commerce fraud increased by 30% in 2017 while total online sales increased by 16%. This means that the number of fraudulent activities is growing twice as fast as e-commerce sales.
What’s even more challenging is that not all of these fraudulent activities are true fraud. Friendly fraud and chargeback fraud have become a revenue leak among online merchants. According to Shopify, merchants will lose at least $25 billion to friendly fraud by 2020. At the same time, 80% of those who file chargebacks admittedly did so because of convenience.
Friendly fraud and chargeback fraud are expected to escalate, which is why experts are calling on merchants to fight back collectively. This is especially important among industries wherein chargebacks and friendly fraud are most prevalent, including:
- Clothing
- Furniture
- High-end merchandise
- Digital content
- Products that can be easily resold such as consumer electronics
What’s the difference between chargeback fraud and friendly fraud? A friendly fraud equates to an honest mistake on the side of customers. For example, they may file for a chargeback with their banks if the item they received did not match the product they saw on a website. In short, there’s no fraudulent intention or malice involved. On the other hand, a chargeback fraud occurs when a customer makes a legitimate transaction and knowingly lies about it.
Being able to prevent possible financial losses due to true fraud, chargebacks, and friendly fraud will give you the following competitive advantages:
Greater Capacity for Customer Acquisition
Popular digital marketing expert Ryan Deiss said:
“He or she who is able and willing to spend the most money to acquire a customer, wins.”
In short, to earn money, you have to spend money.
Now, ponder on how much money you’ve recently lost in chargebacks and friendly fraud. Imagine the several customer acquisition campaigns you could have executed with that amount and how much ROI you could have generated.
Clearly, chargebacks and friendly fraud are not only profit leaks for merchants, but you’re also losing potential revenue growth opportunities, if you could have spent more money to acquire customers.
Focus Your Energy Where It Matters
To say that the e-commerce space is competitive is an understatement, especially within the industries enumerated above that are vulnerable to chargebacks and friendly fraud. Merchants such as yourself should be strategic regarding how you allocate your time and energy; ideally focusing on business functions that contribute to the growth of your revenue.
Dealing with chargebacks and friendly frauds is definitely not one of these profitable activities. Sure, you may recuperate some of the revenue that could have been lost, but the win rate for chargebacks is small: only 50% win 30% of chargeback cases and 20% of them win fewer than 15%.
Implementing safeguards against chargebacks and friendly frauds saves you time from needing to reverse the fees and penalties you could potentially incur. And in the fast-paced world of e-commerce, the merchant who has more time and energy to focus on the profit centers of their business is already miles ahead in the race.
The threat of fraud is always present and even more so in the world of online shopping. Collectively, merchants who belong in vulnerable industries should invest in the right solutions, technologies, and tools to prevent chargebacks and friendly fraud from eating into their profits. This allows them to gain a competitive advantage to excel their business.
First appeared on Vesta’s Blog on eCommerce Fraud.
