Fighting Friendly Fraud and Winning More Chargebacks

While the benefits of digitized payment methods are apparent, it is also true that credit/debit cards and other digital transaction methods have opened the door for new types of fraud. Cyberattacks involving tactics such as ransomware or social engineering often come to mind when discussing security risks and fraud, but colleges and universities need to be wary of another risk: friendly fraud.

Also known as chargeback fraud, friendly fraud causes financial losses and administrative headaches for colleges and universities. The more you know about how to understand, prevent, and effectively manage friendly fraud, the better you can protect your institution from financial risks.

What is friendly fraud?

Friendly fraud is a term used to describe situations where a payer who made a valid transaction later disputes the charge with their card issuer. Unlike traditional fraud, friendly fraud involves a legitimate payer who, for various reasons, decides to reverse a valid payment through the chargeback process. This type of fraud can present in various aspects of higher education finance, including tuition payments, bookstore purchases, and online course enrollments.

Examples of why chargeback requests happen:

• The payer doesn’t recognize the statement identifier for the merchant (“What’s this charge for?”)
• The payer may be disputing to try to get out of paying for the goods/services
• The payer didn’t read the relevant disclaimers that a service fee is required for a credit card payment

How much does friendly fraud impact higher education?

Recent reports indicate that chargebacks and friendly fraud are common occurrences. According to the 2023 Chargeback Field Report, 72 percent of cardholders in the general market prefer to dispute through their bank rather than request a refund from a merchant, and 44 percent of all chargebacks are friendly fraud. Additionally, Chargebacks911 projected that chargebacks would cost merchants an estimated $117.46 billion in 2023.

4 ways to prevent friendly fraud

1. Implement strong authentication measures: Strengthen security by implementing robust authentication measures for online transactions. This may include using Card Verification Value (CVV) and Address Verification Service (AVS), two-factor authentication during secure login processes, and identity verification to ensure that the person making the transaction is authorized.
2. Clear communication and transparency: Ensure that billing descriptors on credit card statements clearly identify your institution, minimizing confusion and reducing the chances of chargebacks because payers don’t recognize the statement identifiers.
   Review the DBA name on your Merchant ID (MID). Does it make sense to the payers? Also, consider breaking out revenue streams into new MIDs to make transactions more clear. For example: YOUR UNIVERSITY TUITION or YOUR UNIVERSITY DONATION versus simply YOUR UNIVERSITY for all transactions.
3. Educate students on maintaining financial security: Proactively educate students about financial security, any fees associated with various payment methods, the consequences of friendly fraud, and the importance of working directly with your institution to resolve issues. Proactive communication can minimize misunderstandings and prevent disputes.
4. Click to agree policies: Include clear language about any non-refundable or cancellation policies during the checkout process and require the payer to click a box indicating they agree to the policies.
5. Responsive customer support: Do payers have an easy way to contact your office regarding transaction questions? Establishing an accessible and responsive support system encourages students to reach out to your institution first to resolve any issues before resorting to chargebacks. Addressing concerns promptly can help prevent chargebacks.

Best practices to win more chargebacks

Winning chargebacks requires a proactive and strategic approach. Here are some ways to increase the likelihood of success in disputing chargebacks:

1. Have a chargeback game plan: Establish a standard process for addressing chargebacks. Make sure everyone on your team knows who receives chargeback notifications and who is responsible for actioning disputes, adjusting student accounts, and communicating with the payer.
2. Keep detailed documentation: Maintain comprehensive records of transactions, including authorization information, communication with students, and evidence of goods or services delivered. These records are essential when disputing chargebacks.
3. Robust rebuttals: Any document that helps establish the legitimacy of the original transaction and contradicts the cardholder’s claims can be considered compelling chargeback evidence. The evidence must clearly exhibit the validity of the transaction in question. The stronger the evidence, the better the odds that the chargeback will be reversed. It is also important to remember to read the dispute carefully to understand why the payer is disputing the transaction. For example, if they are disputing a charge based on the fact that they believe they have already paid (duplicate payment), only attaching proof of enrollment is not sufficient. Provide the account history that shows when they have made payments.
4. Timely action: Respond to chargeback notifications as quickly as possible. Timely action on disputes helps accelerate the process.

Fighting fraud by foes and friends

Friendly fraud poses a challenge to the financial stability of colleges and universities, but by prioritizing clear communication, implementing robust security measures, and staying informed about industry best practices, higher education institutions can not only prevent friendly fraud but also create a secure financial environment for all stakeholders.

To learn more about how you can prevent fraud (whether friendly or not), watch our on demand webinar, “Reducing Payment Risk with Fraud Prevent Tools.” WATCH HERE