Friendly fraud: what it is and how to prevent it

What is friendly fraud?

Stripe defines friendly fraud, also called "first-party misuse" or "first-party fraud", as a legitimate cardholder making a purchase and then disputing it later. There are two kinds:

• Accidental: the cardholder doesn't recognize the transaction on their statement.
• Deliberate: buyer's remorse, or an attempt to get goods or services without paying.

It differs from stolen-card fraud, where someone else used the card without the cardholder's permission.

How does friendly fraud show up?

Usually as a dispute in the fraudulent category, where the cardholder claims they didn't authorize the payment. Stripe calls this the most common dispute reason and says fraud disputes make up over half of all disputes. Disputes filed as "unrecognized" are, in Stripe's words, effectively indistinguishable from fraudulent ones.

The dispute costs the same either way. On Stripe, $15 for each dispute received, plus $15 to counter it, returned if you win.

Why does it happen on payment plans?

Stripe's guidance points to the same causes for any business: a charge the customer doesn't recognize, and policies they didn't see or don't remember. A plan adds more charges, spread over months, each one a new line on a statement. Stripe advises businesses that bill on a schedule to make it clear at signup that the customer is agreeing to recurring payments, and to say whether they'll be notified before each one.

How do you prevent friendly fraud?

From Stripe's prevention guidance:

• Use a recognizable statement descriptor. Your business name or website domain, 5 to 22 characters.
• Send a receipt for every payment, so the customer remembers what they paid for.
• Show the full policy before purchase. Issuers may reject a checkbox that only links to your terms as evidence the customer saw them.
• Require agreement to your terms and keep the record.
• Use separate Stripe accounts for separate businesses, so each has its own descriptor and contact details.

Can you win a friendly fraud dispute?

Sometimes. Fraud disputes are hard to win, because in many cases the claim is correct. To overturn one, Stripe says to show that the legitimate cardholder, or someone they authorized, made the payment, or that the customer has since acknowledged the charge.

For Visa, Compelling Evidence 3.0 lets a business show previous non-fraud transactions with the same cardholder within a specified period. On a plan, earlier installments paid on the same card are that kind of history. Stripe checks whether a Visa fraud dispute is eligible and pre-fills most of the evidence when it is.

If a customer says the dispute was a mistake, they can withdraw it with their bank. Stripe still recommends submitting evidence, and a withdrawn dispute still counts toward your dispute rate.