Friendly fraud trends: Brazen consumer attitudes revealed in Ravelin’s Consumer Fraud Survey

When, a few months ago, we commissioned a new consumer survey around friendly fraud and abuse in ecommerce, we had some reason to believe that consumer fraudsters were on the rise.

The results that came in, however, were more alarming than expected.

Let’s look in more detail at Ravelin’s recent consumer fraud survey, titled “The dark side of online shopping – the rise of friendly fraud”.

Download the full survey for free right here.

As our CEO, Martin Sweeney, put it:

“In the first definitive survey of consumer fraud, we shine a light on the fast-growing problem that is costing online retailers dear. Our research reveals valuable insight into people’s attitudes to and motivations for this behavior, their moral compasses, the types of fraud they’ve attempted, and the companies most at risk.”

Key takeaways from Ravelin's Consumer Fraud Survey

• 40% committed online fraud or abuse in the past year (47% in France!)

• 36% would commit fraud in the future

• 45% believe it’s legitimate to take advantage of loopholes in policies

• 41% of consumer fraudsters are over 45 years old

• Big brands are most at risk, including supermarkets (39%) and high-street retailers (30%)

Martin also explained how social media has enabled this further:

“It’s not just the tech-savvy consumers; it’s everybody. And I think that really is because it’s been democratized. I suspect the 45+ group is on Facebook a lot. Facebook is a huge source of these how-to guides. [It’s] very easy to share: Your recent success? Oh, I just created a new account on this merchant and I got this discount, or I was able to return my pair of shoes after wearing them, and this merchant let me. It’s that ease of intelligence sharing.

What is friendly fraud?

The umbrella term friendly fraud is used to refer to all fraud and abuse committed against companies by known customers using their real identity, as opposed to criminals who might pose as someone they’re not.

Note that depending on the context and the company discussing it, sometimes the term friendly fraud is used to refer to fraudulent chargebacks in particular. However, there is a wide range of practices that fall under this umbrella term, as we’ll see in more detail below.

What is first-party fraud?

First-party fraud refers to any fraud or abuse committed by a known cardholder – the “first party”. This is why to most, first-party fraud and friendly fraud are used interchangeably.

If we were to be pedantic, it’s also possible for friendly fraud to come from second parties, meaning people who have access to the cardholder’s actual card without stealing it. For example, if the partner or child of a cardholder commits fraud using the card, that is – strictly speaking – not first-party fraud, though it is still friendly fraud.

How common is friendly fraud?

According to Ravelin’s consumer fraud survey as well as other sources, it is incredibly common. In fact, 40% of online shoppers we surveyed admitted that they have demonstrated such nefarious behavior in the past 12 months. A total of 36% would consider doing this again in the future.

Meanwhile, per Visa, first-party misuse of card issuers’ chargeback policies can be as high as 75% of a merchant’s dispute requests.

Importantly, this all depends on the merchant. Our Consumer Fraud Survey has highlighted the extent of the problem, as well as the wide variety of fraudulent activity that consumers participate in. These include everything from reusing discount vouchers when they can to casual multi-accounting and to claiming purchased goods never arrived.

What are the types of friendly fraud?

In reality, any fraud that is committed by a known shopper who isn’t hiding behind a fake persona is friendly fraud. Examples include fraudulent chargebacks, item-not-received fraud, refund fraud and voucher abuse.

Let’s take a closer look at a non-exhaustive list:

• Fraudulent chargeback: Whenever the cardholder files a dispute with their bank to receive a chargeback while misrepresenting the truth of what happened, this is a fraudulent chargeback, also known as chargeback fraud. For example, the shopper might claim that the item they bought arrived severely damaged, although it wasn’t.

• Voucher abuse: A type of promo abuse, voucher abuse is whenever a customer takes advantage of voucher-related promotions in a way that goes against the merchant’s Terms and Conditions, or even against the law.

• Refund abuse: This is whenever the cardholder misrepresents facts in order to claim and receive a refund on their order, requested directly from the merchant. It’s similar to chargeback fraud, the difference being the channel through which the fraudster is trying to get money back.

• Return abuse: Often overlapping with refund abuse, return abuse involves returning an item after using it, or after destroying it – or even pretending to return an item while in reality not doing so. The fraudster will be attempting to receive a refund, replacement item or store credit in return.

• Loyalty fraud: Another type of promotion abuse, loyalty fraud sees consumers bend the rules and find loopholes in brand loyalty programs in order to acquire more money or goods for themselves than they are legitimately entitled to.

• Multi-accounting: A simple way to fool retailers into giving them more than one customer offer, multi-accounting is done by both consumers and professional fraudsters to benefit from new sign-up offers, referral schemes and loyalty programs.

Friendly fraud can be accidental, opportunistic or premeditated. Most companies will not suffer much owing to a single case of friendly fraud, yet when this behavior is accepted en masse, the results can be devastating.

According to the friendly fraud survey, 13% of consumers have gained more than GBP/EUR 500 in the past year from committing fraud and abuse. As you can see in the table below, taken straight from the Report, there are several different scenarios that can be classed as consumer or friendly fraud.

Why do consumers commit friendly fraud and abuse?

According to the respondents to Ravelin’s survey, cost of living troubles are a big motivator for consumer fraud, as are unemployment and disregard for merchants.

In our research, we distinguished between triggers and reasons for committing friendly fraud and consumer abuse. Triggers identified included the cost of living crisis at 51% (interestingly, 65% for the UK specifically) and the pandemic. As for reasons, many said it’s easy and that it “isn’t illegal” – though it can be argued that this depends on the specific type of scheme carried out.

Moreover, 42% of those who committed fraud said they have seen celebrities and influencers encourage this behavior on social media.

For more details, please refer to the full report, available here.

How to prevent friendly fraud

For merchants, preventing first-party fraud coming from consumers requires concerted effort that involves quantifying and qualifying their specific consumer fraud landscape, deploying fraud and abuse prevention tools, as well as knowing when to block abusers and when to attempt to rehabilitate them into legitimate, non-abusive consumers.

Interestingly, 52% of the surveyed consumer fraudsters believe that dishonest behavior pushes up the prices for everyone – and yet these behaviors prevail. Almost a quarter (22%) say brands make it too easy for people to rip them off.

In many cases, identifying consumer fraud is similar to identifying professional fraudsters. When conducting manual reviews, for example, a fraud analyst will take into account several data points relating to the customer’s current and past orders, behavior and device.

At scale, this translates into machine learning models that consider shoppers’ behavior patterns, previous requests, device and habits, among others, to make recommendations. What’s more, Connect link analysis will identify hidden links between different accounts and shoppers, to catch instances such as multi-accounting.

Our Consumer Fraud Survey results indicate that realizing it’s not fair for the retailer is the main reason why a consumer would stop fraudulent activity, at 37%. Second was coming to see it as criminal behavior, at 16%.

Both of these findings are good news to those following Ravelin's recommended "rehabilitation" strategy for consumer fraudsters – attempting to nudge first-party abusers to drop this behavior but remain customers, rather than blocking them outright from buying again.

Next steps for those looking to stop friendly fraud

If you’re a merchant who sells products and/or services online, and suffer from repeated customer fraud, here are the steps to take:

1. First off, you will want to understand your first-party fraud landscape as well as you can: What are the specific subtypes of friendly fraud you see more often? Are there any you might be missing? How high is your fraud tolerance and is it aligned with the overall business goals?

2. Identify metrics that you will want to see a change to, such as refund/keep rates, number of disputes received, or blocked voucher use.

3. Set up rules to catch consumer fraudsters.

4. If you’re using ML in your fraud prevention stack, consider adding labels to help both humans and algorithms learn from previous patterns.

5. Consider distinguishing between consumer fraudsters that can be “rehabilitated” and those you would prefer to ban from your online shop outright. Create rules to experiment with both.

6. Review and fine-tune your strategy according to constantly-monitored results.

A fraud prevention partner such as Ravelin can help you with all the steps of the above. If you’re looking for a solution to prevent promo abuse, chargebacks, refund fraud and other customer fraud pain points, reach out to our team of friendly fraud experts.