First-Party Misuse AKA Friendly Fraud

The MRC Merchant-Issuer Executive Committee identified several challenges impacting both merchants and issuers. One such major issue was the growing problem of so-called friendly fraud.

The MRC gathered a group of the largest eCommerce merchants amongst the membership, as well as some of the biggest card issuers globally, to form the Merchant-Issuer Executive Committee. This group discussed and redefined friendly fraud. The new definition, under the revised term “first-party misuse,” is already being used across the industry and is being considered by card networks.

The problem of first-party misuse represents up to 80% of all fraud-related chargebacks for many of our merchant members. It was recognized as one of the biggest areas of concern, with considerable growth in the issue over the lockdown period in recent years. MRC gathered relevant information from merchant members on the extent of the issue, with the purpose of discussing it with, and educating, regulators globally. The MRC’s goal was to raise awareness about the need to change payment regulations to allow issuers to question their cardholders as disputes are raised as fraud claims, where the card issuer knows the claims are false. With issuers under regulatory pressure to dispute any fraud claims on behalf of their customers, there is a rise in consumers’ awareness of the ability to charge back purchases and increased organized crime gangs’ attempts to use mules for purchasing high-value goods using their personal cards and then claiming back the cost via this regulatory “loophole.”

MRC has already contributed to the latest PSD2 review noting the need, to the European Commission, to review article 71 of the payment services directive. Discussions are also ongoing in the U.S. with the CFPB, FTC and other merchant organizations, raising awareness of the industry challenge and how payments regulators can help resolve the problem.

In our 2023 Global Payments & Fraud Report, first-party misuse Is one of the highest-ranking fraud challenges our members report.