Friendly fraud is rising for more than 83% of enterprise merchants

§ 01 Executive Snapshot

• What: Friendly fraud is on the rise among enterprise merchants, with significant implications for pricing and operational strategies.
• Who: Chargebacks911, enterprise merchants, LexisNexis.
• Why it matters: The increase in friendly fraud is reshaping the economics of digital commerce, leading to higher consumer prices and operational challenges for merchants.

§ 02 Key Developments

• 83.4% of enterprise merchants report an increase in friendly fraud over the past three years.
• Nearly three-quarters (74.4%) of merchants describe friendly fraud as a moderate or significant concern.
• 38% of merchants say chargeback costs are influencing the prices of their goods and services, up from 32.5% in the previous report.
• 26.7% of merchants currently use AI-based fraud prevention tools, with another 37% planning to adopt them.
• 27.1% of all returns are estimated to be abusive requests, with 62% of merchants describing refund abuse as a moderate or significant concern.

§ 03 Strategic Context

• The rise of friendly fraud signifies a shift from occasional costs of doing business to a material risk for merchants, affecting their pricing strategies and customer relations.
• The report highlights a broader trend where chargebacks and fraud are increasingly impacting consumer prices, showcasing the interconnectedness of fraud management and overall business health.

§ 04 Strategic Implications

• Immediate implications include the need for merchants to enhance their fraud detection and management processes to mitigate losses and maintain competitive pricing.
• Long-term implications may involve increased investment in AI and technology solutions to better manage fraud risks and streamline chargeback processes.

§ 05 Risks & Constraints

• Potential regulatory risks arise from evolving card network monitoring requirements and the impact of Visa's Acquirer Monitoring Program (VAMP).
• Competition from alternative payment methods, such as BNPL, may introduce additional vulnerabilities to chargeback exposure for merchants.

§ 06 Watchlist / Forward Signals

• Monitoring the adoption rates of AI-based fraud prevention tools among merchants will be crucial to understanding future shifts in fraud management strategies.
• Future developments in chargeback regulations and network requirements will signal how merchants adapt to the changing landscape of fraud risk management.