Friendly Fraud Rarely Looks Like Someone Disputing a Purchase Outside the Store

A circulating video of a shopper calling to dispute a purchase while still sitting outside the store is an extreme version of a problem merchants see every day: friendly fraud, or first-party misuse. Most cases are not filmed. The order looks legitimate, the payment is authorised, the goods go out - then weeks later the cardholder claims they do not recognise it. Traditional fraud tools ask whether to allow the payment. This problem shows up afterwards.

A video has been circulating of a man sitting outside Louis Vuitton, apparently calling his credit card company to dispute the $4,000 purchase he'd just made. He's still sitting outside the store, claiming he didn't make the transaction.

I'll admit, the video is pretty funny, but the problem is what we should be talking about. The video appears to show an extreme version of a problem merchants deal with all the time. A customer makes a legitimate purchase and later disputes the transaction as if they didn't. In the industry, you'll often hear this described as friendly fraud or first-party misuse.

Most cases aren't anywhere near as obvious as someone filming themselves outside the store. A merchant might see a perfectly legitimate-looking order. The payment is authorised, the product is delivered, and nothing particularly unusual happens during the transaction. Then weeks later, the dispute arrives.

The customer might claim they don't recognise the transaction, never received the product, cancelled the subscription, or weren't responsible for the purchase. Now the merchant has to work backwards to prove what happened.

The question is different from stolen-card fraud

That's what makes this type of fraud particularly difficult. Traditional fraud prevention is largely trying to answer a question before the transaction - should we allow this payment? But with first-party misuse, the person making the purchase may be the legitimate cardholder. The problem appears afterwards.

That means merchants need to think beyond simply detecting stolen cards or suspicious transactions and ask:

• Can we clearly prove the customer made the purchase?
• Do we have strong delivery and fulfilment evidence?
• Are our billing descriptors recognisable?
• Are refund and cancellation processes clear?
• Can we distinguish genuine customer disputes from deliberate misuse?
• Are there customers repeatedly exhibiting the same behaviour?

The guy sitting outside Louis Vuitton apparently disputing the purchase he just made makes for a funny video, but remove the camera, the Louis Vuitton bag, and the absurd timing, and you have a problem merchants deal with every day. Usually, it's nowhere near this easy to spot.

Related: why so much fraud is classified as friendly fraud, how it works, pricing, and the FAQ.

If you want chargebacks classified by type - including friendly fraud versus stolen-card patterns - and ranked rule changes in Radar, Flow, Blockify, or RevenueProtect, book a demo.

Originally shared on LinkedIn.