Key Highlights
- A “friendly fraud” trick used against shopkeepers and restaurants is becoming an epidemic.
- The con involves customers requesting chargebacks for legitimate purchases under false pretenses.
- This issue has led to significant financial losses for small businesses, with one estimate suggesting costs of hundreds of billions globally.
- Experts warn that this problem is severe for all small businesses and entrepreneurs.
The Epidemic of Friendly Fraud
Britons are increasingly using a “friendly fraud” trick to steal from shops and restaurants, according to experts. This con involves customers paying for goods or services, then claiming the money was taken illegitimately through the chargeback mechanism.
This issue is becoming so prevalent that it has been dubbed an “epidemic,” with businesses like Nima Safaei of 40 Dean Street in London’s Soho experiencing significant financial losses. Safaei recounted how he lost £2,000 to fraudsters targeting his restaurant last autumn, highlighting the severe impact on small independent businesses.
The Consequences for Small Businesses
According to experts like Monica Eaton, CEO of Chargebacks911, this problem has become a major issue. “This problem has really become an epidemic,” she stated. “It’s really severe for all the small businesses and entrepreneurs.”
One of the key challenges is that chargeback fraud can be difficult to contest. The process involves submitting evidence to banks, which are often reluctant to take customers’ sides against their own merchants. This leaves many small business owners feeling helpless as they face repeated losses.
The Cost of Friendly Fraud
Experts estimate that the cost of chargeback fraud is astronomical. According to data from Datos Insights, 281 million chargebacks are projected for this year, with up to 70% being fraudulent. Visa reported that chargeback fraud, including “friendly fraud,” poses a growing challenge across the payments ecosystem.
The financial impact on small businesses can be devastating.
For every £1 in a chargeback claim, retailers lose £2.85 in fees, interest, and merchandise, according to regulation analytics firm Lexis Nexis. In extreme cases, such as a dispute over a £260,000 jacket handled by Chargebacks911, the costs could exceed £1 million.
Ravneet Gill, a pastry chef and TV presenter who runs Gina Restaurant in Chingford, shared her experience of facing fraudulent chargeback claims at least once a month. These claims are particularly detrimental for independent businesses that rely on reservations and face significant no-shows.
Industry Solutions and Advice
To combat this issue, experts recommend several steps for merchants. If they believe they’re being targeted, the first step is to work directly with their acquirer or payments processor, who can advise on what evidence is needed to challenge disputed transactions. Strengthening protection by using strong authentication tools, ensuring clear receipt and product descriptions, and making refund and return policies easy to understand at the point of sale are also recommended.
Building a relationship with customers can help mitigate some of these issues, as people are less likely to file chargebacks against individuals they know.
However, cash remains the ultimate failsafe, though most customers don’t carry it anymore.
In conclusion, friendly fraud is not just an issue for consumers but a major threat to small businesses and entrepreneurs. The cost of this epidemic goes beyond simple financial losses; it affects trust and the very sustainability of many independent enterprises.
