UK Consumers Claim £3.5bn in Friendly Fraud Refunds

UK consumers have received a staggering £3.5 billion in refunds through illegitimate claims over the past year, according to new research from payment services provider emerchantpay. The study reveals that approximately 6.5 million people successfully obtained refunds after falsely disputing genuine transactions they had previously authorized.

The comprehensive research, conducted by Opinium among 2,000 UK adults and weighted to be nationally representative, sheds light on the growing problem of friendly fraud, also known as first-party fraud. This occurs when customers dispute legitimate transactions they previously approved, typically claiming the payment was made by an unauthorized third party.

According to the findings, 7.9 million UK consumers engaged in friendly fraud by disputing legitimate transactions during the survey period. Of those, 82% successfully received compensation from their bank, while only 18% of illegitimate claims were rejected. The average refund per successful claimant reached £441, with 18% receiving more than £500.

The research reveals a concerning pattern of repeat behavior among those engaging in friendly fraud. Nearly two in five (38%) individuals who reported legitimate transactions as unauthorized admitted doing so multiple times, with many making false claims more than twice.

Broader data cited in the report paints a troubling picture of public attitudes toward this type of fraud. According to Cifas data referenced in the research, 48% of UK adults believe committing friendly fraud is reasonable, with younger shoppers identified as the demographic most likely to make fraudulent claims.

While banks typically provide immediate reimbursement to customers at the start of a dispute, merchants often bear the ultimate financial burden. Financial institutions can transfer these losses back to retailers through chargebacks and dispute fees. Businesses must then absorb these costs unless they can conclusively prove the transaction was legitimate and properly fulfilled.

The financial implications for retailers are significant, particularly as they already operate on thin margins amid rising operational costs. With the average disputed refund at £441 and millions of claims processed through the banking system annually, friendly fraud has evolved from an occasional issue to a systematic problem affecting the retail sector’s profitability.

Industry projections suggest the problem is poised to expand. Mastercard forecasts that global chargeback volume will increase by 24% to 324 million transactions by 2028, with 45% of those expected to be fraudulent.

“Friendly fraud is not a victimless crime – banks and businesses are increasingly feeling the impact as cases continue to rise,” said Alexander Berrai, Deputy CEO of emerchantpay. “It remains a complex issue to manage, with genuine mistakes often difficult to distinguish from deliberately fraudulent claims.”

Not all cases stem from deliberate deception. Some disputes arise from consumer confusion – customers may fail to recognize a merchant’s name on their bank statement, forget making a purchase, or question unclear billing. The report suggests merchants can reduce these unintentional disputes by improving billing descriptors and maintaining comprehensive records of customer interactions.

Berrai emphasized that merchants can take practical steps to mitigate risks: “To effectively challenge the growing volumes of disputes, businesses must equip themselves with compelling evidence including detailed transaction information, proof of authentication, and records of customer communication.”

The report highlights several technological solutions that can help merchants combat friendly fraud, including implementing two-factor authentication to demonstrate customer approval and utilizing fully 3D Secure-authenticated payments. These transactions typically receive protection from fraud-related chargeback reason codes, potentially limiting the grounds available for false claims.

As friendly fraud continues to evolve, the collaboration between payment service providers, merchants, and financial institutions will become increasingly crucial in developing effective strategies to identify and prevent illegitimate claims while maintaining a positive customer experience for legitimate disputes.