Subscription services thrive on convenience, but this very convenience can lead to card disputes. Recurring billing, while designed for ease, can cause consumers to forget about charges or fail to cancel services, resulting in "friendly fraud" disputes.
Friendly fraud, where a consumer disputes a legitimate charge, isn't always so friendly for merchants. While traditional fraud involves stolen information, friendly fraud occurs when a customer intentionally makes a purchase and then disputes it to get a refund. This type of fraud is a significant problem, potentially accounting for 18% of all fraud disputes. A substantial portion of chargebacks are actually first-party fraud, where consumers make false claims to recoup money from legitimate purchases. This impacts merchants significantly, both financially and in terms of time spent addressing these false claims.
Subscription-based businesses are particularly susceptible to friendly fraud. Many merchants believe transaction confusion is a primary driver of first-party misuse. The key to combating this issue is transparency throughout the purchase process. Tools like Verifi's Order Insight, which provides detailed transaction information (including digital receipts) within a customer's banking app, can be invaluable. Clarity prevents the confusion that often leads to friendly fraud.
Best Practices for Preventing Friendly Fraud in Subscription Services
Open communication is crucial for maintaining positive customer relationships and preventing chargebacks. Here are some best practices for subscription merchants:
Clear and Recognizable Transaction Descriptors:
Do Include: Recognizable merchant name, website name, phone number, order number (if applicable), and a concise description (20-25 characters). Use abbreviations like "&" instead of "and."
Avoid: Legal company names (if different from the customer-facing name), marketing statements, and frequent descriptor changes.
At the Time of Enrollment:
Free Trials: Clearly state the trial length.
Express Consent: Obtain explicit consent for ongoing subscriptions with recurring payments.
Billing Terms: Clearly communicate the billing frequency and terms, requiring agreement from the cardholder.
Front-End Protection: Gather customer information like IP address, device ID, AVS, billing/delivery address, item information, and account/login ID.
Disclose Fees: Clearly disclose all fees and restrictions, including termination fees and cancellation policies.
Prior to Each Recurring Transaction:
Trial Reminders: Send a reminder 7 days before the end of a free trial (or include the end date in the initial confirmation for shorter trials). Include subscription details, billing information, and a simple cancellation link.
Recurring Billing Notices: Send a billing notice 24 hours before the charge.
Opt-Out Link: Provide an easy-to-use cancellation link.
Post-Purchase:
Enhanced Descriptor: Use descriptors like "trial ended" or "recurring transaction" in the merchant name field.
Detailed Receipt: Provide a receipt with "Recurring Transaction" clearly indicated, along with cardholder agreement confirmation, service details, subscription dates, billing information, and a cancellation link.
Overall Communication:
The more easily accessible information a cardholder has, the better. Simplify the customer experience by creating a transparent transaction environment. Clear and consistent communication is the best defense against friendly fraud.