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Friendly fraud — which refers to customers requesting a refund for an otherwise legitimate payment — is getting worse, increasing the danger of financial losses and the risk of security overreach to fight the problem. Officially called first party fraud, this scam has always been a problem, but it has expanded in recent years — particularly during the growth of e-commerce during and after the pandemic, and through the recent bout of high inflation.
"When friendly fraud occurs, the merchant is often left to absorb most of the losses of the dispute, despite providing a legitimate good or service to the consumer," said Paul Fabara, chief risk officer at Visa. "We've seen that these ramifications can include losses that can be up to double the original transaction amount, which can impact merchants' businesses and their bottom line."
