The terms ‘friendly fraud’ or ‘chargeback fraud’ have become notorious in the area of e-commerce: packages that allegedly failed to arrive at the customer, fake returns or the abuse of advantage programs. This is where supposedly honest customers fraudulently obtain products or other services and never pay for them. However, this type of fraud is starting to spread into other industries. In the area of gambling, for instance, the operators of betting and casino websites are being targeted. Consequently, providers are not only incurring financial losses but are under pressure to distinguish between ‘good’ customers and those with fraudulent intentions. Read our latest blog post to learn about the different types of friendly fraud, how operators detect them and how you can prevent them.
Types of chargeback fraud – intentional and unintentional
For friendly fraud to occur, all it takes is for a cardholder to request a chargeback to their account for a transaction they made – even though they have already received the service. After making a payment to a betting or casino site, the customer can issue a request to the financial institution, claiming that the transaction was made by someone other than them. The bank charges the amount back to the player’s account, who nevertheless continues to use the gambling provider’s services.
However, other cases of friendly fraud frequently occur by accident rather than as a result of fraudulent intentions. Minors often use a parent’s credit or debit cards to make payments on gambling websites. The parent or guardian then requests the relevant financial institution to return the money without realising that services were actually purchased.
In both of these scenarios, online gambling providers are left out of pocket. Since the amounts are often small, operators frequently write off the chargebacks as standard business costs. But in doing so, they often underestimate just how much income they are foregoing due to this type of fraud – regardless of whether it is committed with malicious intent or not. Furthermore, investigating these fraudulent acts also entails additional costs for the gambling company and the financial institution, as it is often difficult for the operator to prove that the service was actually provided. Another point to consider is that payment service providers are wary of having gambling companies as customers due to the greater risk of fraud in the industry.
Solutions and measures to prevent friendly fraud
Friendly fraud is difficult to prevent – a patented solution to these types of attempted fraud has yet to be found. However, the situation for providers of online games and online retailers is not without hope. That’s because there are practical measures that can be useful in practice and can prevent at least a couple of the more prominent types of fraud.
- Offer your customers first-class service
With the help of top-class customer service, you can ensure from the outset that a user will contact you first before calling their bank to request a chargeback. Make sure you can be contacted at all times via various channels. Respond quickly to any mention of your business on social media and set up a chatbot or even a multilingual FAQ section. We also recommend that you operate a generous refund policy. Taken together, these initial measures ensure a positive customer experience that eliminates the risk of friendly fraud and rules out the use of flimsy excuses.
- Use blacklists to combat repeat offenders
What do blacklists have to do with friendly fraud? Very simply: they help identify customers with a track record in friendly fraud who could become repeat offenders in the future. To do this, gambling and iGaming providers create a list in which they gather details about the customers involved and their behaviour. These details are then expanded to include information about fraud cases and are then analysed in relation to the timing, methods of work and the amounts involved. This creates a clear profile of the fraudster, their modus operandi and possible warning signs – making it possible to issue alerts earlier in the future.
- Use AI to analyse and prevent fraudulent behaviour
The potential of artificial intelligence in the gambling environment should also not be underestimated because it can be used to process data quickly, effectively and relatively cheaply. It is also an essential tool for automating customer behaviour analysis – thus eliminating possible errors that can occur during manual checks. As a result, friendly fraud can also be directly detected.
- Use the latest authentication and authorisation methods
Authorisation is the key to preventing friendly fraud because it puts a stop to fraudsters early on in the game. This calls for reliable customer data that you can use to verify the user's identity during a transaction. This is where the authentication method comes into play because it allows user identities to be checked when they log in using one-time passwords (OTP) or PINs. With the help of biometric procedures such as fingerprints, users can be clearly identified.
- Ensure that purchases and services are confirmed
To prevent fraud within a family, the account holder can also be asked to provide confirmation in the form of an email acknowledgement before each transaction. If a minor attempt to complete a transaction using a credit or debit card belonging to a parent, the parent/guardian will realise what’s happening at the latest when they receive a confirmation request in their inbox. At this point, a refund can be made to avoid needing a chargeback.
Friendly fraud is unlikely to go away in the near future. On the contrary: the number of cases will probably continue to increase as new variants of this type of fraud emerge. To avoid financial losses, gambling providers should take good care of their customers and implement up-to-date security measures.