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First-party fraud, also known as Friendly Fraud, accounted for 36% of overall scams in 2024, according to LexisNexis® Risk Solutions’ annual Cybercrime Report. Titled “The Calm Before the Storm?“, the report analyzes more than 104 billion global transactions processed through LexisNexis®. It reveals a notable shift in international fraud, with first-party fraud emerging as the most prevalent type worldwide. Friendly Fraud accounted for over a third of all reported fraud in 2024, doubling from 15% in the previous year.
Key Points
- First-party fraud now leads global scam activity, accounting for 36% of fraud cases in 2024, more than double the rate from 2023.
- Economic pressures drive this trend, as inflation and financial strain prompt individuals to exploit chargeback and refund processes.
- Businesses face significant losses, including lost revenue, chargeback penalties, and damage to customer trust, due to the difficulty in detecting and disputing friendly fraud.
- Prevention requires a proactive approach, such as maintaining thorough records, using verification tools (AVS/CVV), clarifying billing descriptors, and offering responsive customer support.
What is First-Part Fraud?
Friendly Fraud or First-Party Fraud refers to instances where customers dispute legitimate transactions with their bank or credit card issuer. Unfortunately, this is common as the customer may not realize the proper action, such as contacting the merchant for a refund or resolution. This type of fraud falls under first-party fraud, as the cardholder is directly involved in the deceptive activity.
“First-party fraud is also known as opportunistic fraud, and for good reason, it’s often relatively low value compared to other [types of fraud] and often considered by the perpetrators as ‘soft’ fraud in so much as there’s no real victim, since it’s the commercial organizations that pay the price,” Stephen Topliss, vice president of fraud and identity at LexisNexis Risk Solutions reports in a letter, “It’s not that surprising we’re seeing this surge in opportunistic fraud now, given we’ve had several years of a cost-of-living crisis, high inflation, and economic uncertainty.”
LexisNexis® Risk Solutions’ “The Calm Before the Storm?” details that buy-now, pay-later providers, e-commerce retailers, and financial institutions were among the businesses experiencing a rise in first-party fraud. Regionally, North America, Europe, the Middle East, and Africa (EMEA) reported the most significant growth in first-party fraud compared to other types of fraudulent activity.
Why is Friendly Fraud so Dangerous?
Although first-party often arises from customer confusion rather than deliberate deception, it presents a serious and growing risk to businesses across sectors.
Topliss reports, “With account takeover fraud, for example, it’s a third party trying to break into an account using stolen credentials or similar, which you can mitigate with strong authentication steps and proxy detection—technology is now very good at keeping bad actors out. But when it’s a genuine customer that poses the threat, it’s a different challenge…to determine whether the customer’s intentions are genuine or nefarious.”
Its impact is far-reaching for the following reasons:
1. Financial Losses Without Recourse
Since friendly fraud involves valid transactions by the legitimate cardholder, it isn’t easy to detect or object. Businesses frequently lose both the product or service provided and the associated revenue, with limited options for recovery.
2. Chargeback Fees and Processing Consequences
Each friendly fraud chargeback carries financial penalties from payment processors. Elevated chargeback rates can lead to higher transaction fees, reputational damage and merchant account termination.
3. Undermines Confidence in Payment Systems
Recurring instances of friendly fraud weaken faith in digital payments. This affects merchants and financial institutions, making transaction verification and customer support more challenging.
4. Strained Customer Relationships
Customers may unknowingly initiate friendly fraud, believing they follow proper dispute procedures. Addressing these claims can lead to difficult conversations and long-term damage to the customer relationship.
5. Hard to Detect and Dispute
Friendly fraud is notoriously difficult to identify and prove because the fraudster is the actual cardholder. Unlike external fraud, it often lacks the typical warning signs, making prevention and dispute resolution particularly challenging.
6. Potential for Abuse
When left unchecked, first-party fraud can lead to repeat offenses. Consumers who realize they can dispute legitimate transactions without consequence may continue to exploit the system.
First-Party Fraud Detection and Prevention
Detecting first-party fraud is often challenging, as it typically surfaces days or weeks after a transaction is completed. However, specific behavioral patterns can help businesses identify potential instances. Common indicators include claims of non-receipt despite confirmed delivery, assertions that a returned item was not refunded, or statements from customers that they do not recognize a specific charge. Disputes initiated long after the original purchase, particularly those made without prior contact with customer service, may also suggest friendly fraud. Multiple chargebacks from the same customer over time can also be a strong signal of first-party fraud.
To help protect your business from friendly fraud, it’s essential to take a proactive, well-rounded approach. Start by keeping thorough records of each transaction, including order confirmations, shipping and delivery details, and any customer communications. For more expensive items, asking for a signature upon delivery can serve as solid proof that the product was received.
It’s also helpful to make sure your billing descriptors are clear and easy for customers to recognize, which can prevent confusion and accidental disputes. Using tools like Address Verification Service (AVS) and Card Verification Value (CVV) checks adds another layer of security to each transaction.
“While many organizations have improved their defenses over the past few years, we also know that cybercriminals are embracing … innovative, AI-enhanced capabilities, and we will likely see these extensively tested and executed over the coming months,” the report says. “Our analysis of attacks over a longer multi-year period shows that significant attacks often come in waves, and this latest set of figures could indicate the imminent arrival of the next, AI-enabled wave of global attacks.”
Above all, prioritize customer support. Offering fast, friendly, and easy-to-reach service allows customers to resolve issues directly before considering disputing a charge. By staying alert to warning signs and implementing strong verification practices, you’ll be better equipped to reduce the impact of friendly fraud on your business. Aligning yourself with a qualified merchant service provider who can help walk you through fraud detection and prevention measurements will also set your business up for success..
