Businesses Face Surge in ‘Friendly Fraud‘ Chargeback Scams
LONDON - A growing wave of fraudulent chargebacks is hitting businesses across the UK, with smaller firms particularly vulnerable, according to industry warnings. The scam, often termed “friendly fraud,” involves customers falsely claiming they didn’t receive goods or services, or that the items were not as described, to receive a refund from their bank - even if the transaction was legitimate. While chargebacks are a vital consumer protection, experts say criminals are exploiting the system, leaving businesses to absorb the losses and potentially face notable financial strain.
The practice isn’t new,but UK Finance reports a recent surge in these scams,prompting concern and collaborative efforts to address the issue. Credit card fraud itself is punishable by up to 10 years in prison if tried in the Crown Court, according to official information. Though,the current problem centers on the misuse of the chargeback system,designed to protect genuine customers.
Adam Scarrot of UK Finance explained to BBC Radio London, “It’s what we call friendly fraud, but it’s still a fraud, and every fraud has a victim.” He emphasized the importance of chargebacks as a protection for legitimate consumers, detailing the process: ”If something goes wrong with the payment, or if something goes wrong with what you’ve purchased, you can go to yoru bank who will raise a chargeback…they will contact the shop’s merchant enquirer…who will then look at that, and then they will have to pass that onto the merchant, and get the money back from them, if it’s a valid charge back.”
The system aims for an “even balance” between protecting consumers and merchants, Scarrot said, but the current trend is disrupting that balance. UK Finance is actively working to “root out” the problem and ensure fair and consistent handling of disputes.
What Businesses Can Do:
To mitigate risk, businesses are advised to:
* Keep meticulous records to defend any claims.
* Use couriers with proof of delivery.
* Invest in fraud prevention tools and follow industry guidelines.
* Adopt customer-friendly terms and return policies to encourage refunds or exchanges outside the chargeback process.
* Prioritise good customer service.
* Make refund processes clear and easy to reduce the likelihood of chargebacks.
UK Finance advises businesses taking orders by phone or email to text customers to confirm details and avoid dispatching goods until a confirmation text is received. The organization stresses that these chargeback scams target all business types, but are disproportionately harming smaller firms.
