First, I am not sure where we are headed when we can call fraud “friendly fraud” like we find in an article over at the Wall Street Journal. Sounds too much like “friendly fire” and there is nothing friendly about that. So what exactly is it? According to the article

Online merchants are fighting a surge in so-called friendly fraud, as more consumers try to get out of paying for their Internet purchases in the recession.

Online jeweler Ice.com Inc. and travel site Expedia Inc. are among companies seeing at least 50% spikes from October in friendly fraud, a term used to describe when a consumer disputes an online charge but doesn’t return the item or has already used the product.

While this practice has been around forever expect to see it on the increase during the current recession. People are increasingly shelving ethics to get what they want. Hey, just because times are bad and people are struggling it doesn’t mean that people should be deprived of their stuff right?

Since the markets tumbled last year, Ice.com says its rate of suspected friendly fraud has tripled, while Expedia says it’s up 50%. Athletic shoemaker K-Swiss Inc. says it’s seen suspected friendly fraud rise 10% since January. These companies say the fraud is sometimes blatant, with some consumers sending back boxes filled with rocks instead of the item that was shipped, and then asking for their money back. But in most cases it’s hard to distinguish between fraudsters and consumers who legitimately don’t receive their online purchases.

So as marketers what do you do? Stop marketing? Of course not but if this is going to continue and likely become more devious as things continue to decline economically, the impact could be troubling. Now, online marketers may need to build more into their budgets to account for more fraud possibly leaving less dollars for marketing.

While there are no numbers on the costs that friendly fraud incurs, companies say they get penalized twice because they lose both the revenue from a sale and also the item. Tom Sullivan, Expedia’s senior director of global payments and risk, says companies also carry extra labor costs associated with their investigation of disputed charges. In addition, he notes, companies that hit over a certain threshold of friendly fraud “chargebacks” are levied higher fees by banks and credit card companies.

So what’s next, “friendly assault?” How about “friendly extortion”? In a world that is increasingly moving online would this happen if people had to deal with real people. Case in point

Scott Shulman, K-Swiss’s director of e-commerce, says earlier this month, one person claimed he didn’t receive his $400 shipment of shoes. Mr. Shulman said he would send somebody to the customer’s post office to pick up the card that showed someone had signed for the shipment. The consumer backed off his claim.

Funny how Internet courage goes away with even the thought of being called out.

Comments

Rather than bemoan the fact that they are hindered by the lack of credit card use in the country (only 1 in 20 adults even has one or just one in every 3.5 internet users) but the author points out that some observations of this apparent obstacle miss the mark:

Personally I am looking forward to the other post but back to the story. To cut to the chase the Chinese have utilized one of the methods that we, I, America would find antiquated and probably say “Aww, isn’t that cute?”…….it’s good old fashioned C.O.D. (cash on delivery). I can’t remember the last time I did anything COD other than buying at the point of purchase. But what I do or what the rest of the world does is not the matter here. What does matter is that this huge market is finding ways to buy online despite not having credit cards. Maybe it’s the Law of Large Numbers in effect but the growth potential in China simply is staggering compared to anywhere else on the globe. In addition to the potential there is the desire. That is pretty cool.

Of course, there are inconveniences but they look worse when taken in from a Western point of view. This culture has been without so much that we call “normal” for so long that they are figuring out how to get things done. Banks are suspect of fraud online with credit cards so their reluctance to issue the cards is heightened. There are plenty of obstacles that, if removed, could open the floodgates but that may not happen. Until then I intend to keep a pretty close eye on the innovation and desire of the Chinese to compete with and benefit from the world economy that exists online.

As a marketer are you thinking “outside the box” to service the supposedly unserviceable right here in your own backyard? While we may not be looking to do business in China we should take lesson from them as to getting creative and maybe tapping some under served revenue streams. In this day and age of economic downturns and gloomy forecasts it looks like the truly savvy will come out on the other side as a winner.

Comments