Startup Check-In

What To Do When The Fraud Call Comes From Inside The House

In the age of data breaches, there’s a lot of talk and tools emerging in the fraud prevention and risk mitigation spaces, but many merchants are overlooking one of the most damaging types of fraud: the kind that is carried out not by criminals, but by the merchant’s own trusted customers.

Adrian Sanders, co-founder and CEO of the chargeback automation startup Chargehound, said that so-called “friendly fraud,” or “first-party fraud,” often spikes after a merchant suffers a data breach.

Customers get jittery about doing business with that retailer, said Sanders, even if the recently reported data breach actually took place a year ago. This leads them to file a dispute rather than following the appropriate process to reverse recent or pending charges with the merchant.

He added that, even if the majority of chargebacks are coming in with the “criminal fraud” bucket, friendly fraud could still be to blame – after all, when a customer files a dispute, he or she gets to state why the chargeback was issued, and many will simply tick the box to claim the charge was fraudulent.

A merchant could have the best risk and fraud prevention in the world, said Sanders, but when the call is coming from inside the house, prevention won’t help. Instead, retailers must be able to mitigate the impact of those charges after the fact – and if the fraud is friendly rather than criminal, then the merchant can get a lot of that money back.

Sanders said merchants need a system in place to identify whether fraud is friendly or criminal, because the solution for each will differ. That’s something Chargehound aims to help with by putting due-diligence tools in place before chargebacks happen.

That way, said Sanders, merchants can show the banks that they did their due diligence before approving a transaction by verifying data points, such as matching shipping and billing addresses. A merchant that asks for nothing but an email address, or has no system in place for authenticating, will face an uphill battle with issuing banks when trying to win disputes.

Sanders said automating chargeback responses can help merchants fight friendly and criminal fraud, and maximize the money they get back from non-criminal incidents. Responding to all chargebacks (which can be impossible if the process is done manually) creates a robust data set around which disputes the merchant has won and lost, he said, helping it better utilize its fraud mitigation resources going forward.

Merchants with more questions about disputes and friendly fraud can connect with Chargehound at the CNP Expo in Orlando May 14 – 17, or reach out to


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.