Why Friendly Fraud Matters to Subscription Businesses

Pallavi Kuppa-Apte
Chief Operating Officer,  

Subscription businesses have a lot to keep track of when it comes to their payments. Recurring transactions come with a host of complexities: authorizing repeat transactions, designing free trials, providing tools for customers to manage their accounts, collecting failed payments, and chargebacks.

Typically, subscription merchants think first about selling their product or service and successfully collecting their revenue. But often, they don’t anticipate the revenue losses that can occur after a payment has been collected, in the form of chargebacks and friendly fraud.



A chargeback occurs when a customer bypasses a merchant’s refund process and disputes a purchase directly with the bank. When this happens, the revenue from the transaction is immediately deducted from the merchant, and the onus is on them to submit evidence proving the legitimacy of the transaction in order to win the chargeback and recover the revenue.

Chargebacks can occur for valid reasons — for example, in cases of true criminal fraud in which the cardholder is the victim. However, up to 70% of chargebacks occur due to what’s called “friendly fraud” or chargeback fraud. Friendly fraud occurs when a customer legitimately transacts with a merchant, but initiates a chargeback anyway. The reasons why consumers do this can range from forgetful to opportunistic – maybe they got impatient with shipping or didn’t recognize the charge. Or maybe they simply want something for free and are taking advantage of what is supposed to be a consumer protection.

Regardless, once a dispute has been initiated, the merchant is at risk of losing legitimate revenue unless they can effectively address the claim. For large or growing businesses, friendly fraud and chargebacks have material financial impact.



Subscription businesses are particularly vulnerable to friendly fraud because people forget to cancel, don’t want to pay after a free trial, or don’t recognize a recurring charge on their statement. In some instances, customers may not have read the fine print on the purchase details or didn’t realize they checked the subscription option instead of a one-time purchase.

These types of chargebacks are almost impossible to prevent because they look like — and are — legitimate purchases at the point of sale. It’s only after a chargeback happens that the merchant realizes that friendly fraud has occurred.

With an accelerated shift to eCommerce underway, the opportunity for friendly fraud has grown in parallel with online transactions. From groceries, to fashion, to streaming and other digital services, subscription businesses of all kinds are growing fast. That’s why it’s essential that merchants who rely on recurring revenue implement scalable and effective processes for fighting and winning their chargebacks. Our data shows the overall win rate for merchant chargebacks in the third and fourth quarters was 18% higher in 2020 than in 2019—meaning the opportunity for revenue recovery is greater than ever for merchants who are able to effectively address 100% of their disputes.



While subscription businesses may be vulnerable to friendly fraud chargebacks, they are also equipped with the data and evidence necessary to win these disputes and protect the revenue they’ve collected. Most subscription businesses work hard to cultivate customer relationships, communicate about billing policies, and successfully deliver their goods or services. This means that when a dispute occurs, merchants have plenty of evidence to submit — items like a transaction history of undisputed charges, refund and cancellation processes, and proof of goods or services delivered are all instrumental in creating a successful dispute response.

However, putting together an effective response is only half the battle; subscription merchants need to be able to leverage these responses across their entire dispute volume to be protected from losses. Manual methods of fighting chargebacks are costly — compiling all of the evidence to create a compelling dispute representment is a time and labor-intensive process when done by hand. Manual processes also don’t scale to address business growth or seasonal fluctuations. By investing in technology partnerships and automation, subscription merchants can achieve a scalable and performant chargeback process that addresses 100% of friendly fraud and recovers maximum revenue without inflating costs.

For any business, a subscription billing model can be the key to unlocking growth – but be aware that it can also increase exposure to chargebacks and friendly fraud. In order to maximize revenue and grow successfully, businesses should be sure to make friendly fraud and scalable dispute representment a part of their overall payments strategy