£3.5bn Claimed by Friendly Fraudsters Over 12 Months

UK consumers are estimated to have received £3.5 billion in refunds through friendly fraud over the past 12 months, according to a new report published by global payments provider, emerchantpay.

Over the past year, 7.9 million UK consumers disputed a transaction as part of friendly fraud. Of this number, 6.5 million went on to receive compensation from their bank, with the total refund value amounting to £441 per claimant, and one in five (18%) receiving more than £500. Only 18% of those who made an illegitimate claim were denied compensation. 

Friendly fraud, also known as first-party fraud, occurs when a customer disputes a legitimate transaction that they previously authorised, often claiming that the transaction was carried out by a criminal third party. This can be a result of an innocent misunderstanding, such as not recognising a retailer’s name on a bank statement, but it is increasingly being carried out intentionally.

The number of disputes is set to continue growing. Mastercard predicts that the global chargeback volume – 45% of which is classified as fraudulent – will increase by 24% to reach 324 million transactions in 2028.

emerchantpay’s research reveals patterns of repeat behaviour, with many individuals making false claims on multiple occasions. Two in five (38%) who reported a legitimate transaction as unauthorised admit to doing so more than twice.

The motivation and nature of friendly fraud differ claimant to claimant. Often a dispute can be the result of a misunderstanding, forgotten purchase or unclear bill, but concerningly, Cifas data shows that that half (48%) of UK adults believe it is ‘reasonable’ to commit friendly fraud, with younger shoppers the most likely to make fraudulent claims.

While banks typically reimburse customers at the outset of a dispute, the financial impact often extends far beyond the initial refund. In most cases, the bank will pass the cost back to the retailer through chargebacks and dispute fees. Merchants are then responsible for these costs unless they can provide compelling evidence that a transaction was legitimate and fulfilled correctly.

Alexander Berrai, Deputy CEO at emerchantpay, comments: “Friendly fraud is not a victimless crime – banks and businesses are increasingly feeling the impact as cases continue to rise. It remains a complex issue to manage, with genuine mistakes often difficult to distinguish from deliberately fraudulent claims.

“There are, however, practical steps merchants can take to mitigate this risk.  To effectively challenge the growing volumes of disputes, businesses must equip themselves with compelling evidence including detailed transaction information, proof of authentication, and records of customer communication.

“Partnering with a PSP can help to provide merchants with that depth of insight needed to do this effectively. emerchantpay supports businesses throughout the dispute lifecycle – from managing incoming cases to identifying recurring triggers behind disputed transactions.” 

Chargebacks are critical for building consumer trust, but some merchants need to overhaul dispute management approaches to mitigate risk.

Chargebacks are a vital part of consumer protection, helping merchants to foster a greater sense of security and trust with consumers, and enable the digital economy. Knowing that a dispute will resolve issues with an order or fraudulent transaction allows consumers to purchase with confidence, whether online, in a mobile app or in person.

But with friendly fraud on the rise, businesses must take a more proactive approach to dispute management. Implementing measures such as two factor authentication better positions a business to prove that a transaction was in fact approved by the customer, and more accurate billing descriptors can help consumers recognise approved payments, thereby reducing the number of accidental claims. These measures can be delivered by payment service providers (PSPs), which can provide the insight and tools needed to effectively challenge claims. 

Fully 3D Secure (3DS) authenticated payments add a further layer of protection, as they are typically shielded from fraud-related chargeback reason codes. This narrows the options available to fraudsters, who are more likely to turn to claims such as “services not rendered” or “not as described”. Supported by Compelling Evidence 3.0 (CE 3.0) and robust documentation, these cases are often easier for merchants to challenge successfully.

emerchantpay is a global payment service provider (PSP) and acquirer empowering merchants through simplified and effective payments processing to deliver faster, smarter and safer payments.