According to Mastercard (Mastercard’s State of Chargebacks 2025 Report), friendly fraud is currently becoming a hidden crisis in 2025, making up over 45% of all chargebacks, despite advancements in fraud prevention. Friendly fraud disputes originate from actual customers rather than from stolen cards or automated systems, in contrast to classic fraud. The cardholder doesn’t recognise a descriptor, a family member makes a purchase, or the customer just decides to change their mind and clicks “dispute” with their bank. Friendly fraud is particularly common in industries where services are provided instantaneously or virtually, such as digital goods, travel and subscriptions.
This surge in chargeback fraud is hard to identify and almost impossible to stop for PayFacs, Payment Service Providers (PSPs), and high-risk merchants. Even worse, whether or not the transaction was fraudulent, these challenges raise VAMP ratios, draw attention from acquirers, and add long-term dispute risk to your MID portfolio. Improved visibility is the first step in stopping it.
Why It’s So Hard to Detect… Until It’s Too Late
Although it doesn’t appear to be fraud at all, friendly fraud, which frequently takes the form of a valid complaint, eludes the majority of prevention methods. These are instances of first-party misuse rather than outside attacks. An in-app purchase made by a child is forgotten by a parent. Poor descriptor formatting causes a customer to fail to recognize a charge. A spouse contests an ongoing subscription that they were unaware of.
These chargeback triggers are caused by buyer regret, poor recall, or confusion rather than criminal intent. Furthermore, fraud systems hardly ever identify them beforehand because they frequently originate from valid cards with accurate cardholder information.
Many PSPs and merchants still have operational blind spots, such as unclear digital receipt records, generic billing descriptions that confuse consumers, or post-purchase communication delays. These minor exceptions allow challenges to be lodged under vague categories such as “unauthorized transaction” or “product not received,” even in cases where the transaction was legitimate.
The chance to inform the customer or address the issue has already passed by the time it has effected your MID account. Friendly fraud becomes reactive and unavoidable in the absence of early signals from the issuer, also known as Chargeback Alerts. To create a more intelligent, data-driven defence, PSPs, PayFacs, and merchants must comprehend these underlying issues.
The Damage It’s Causing: Financial, Operational, and Reputational
At first glance, friendly fraud could seem low-risk, but the costs are high and frequently worsen behind the scenes. Non-refundable fees, possible lost income, and hours of operational time spent gathering proof for a transaction that was often entirely valid. Even the most effective fraud teams find it difficult to keep up when this is multiplied over thousands of disputes.
In addition to the short-term chargeback loss, friendly fraud has long-term effects. First-party fraud still contributes to your fraud and dispute rates under Visa’s VAMP 2025 framework. This implies that merchants may inadvertently violate thresholds due to avoidable misunderstandings rather than actual fraud.
The effect is significantly more pronounced for PayFacs and Payment Service Providers (PSPs). Increased reserves, onboarding limitations, or program breaches may result from high dispute ratios throughout a portfolio, particularly when they are driven by “legitimate” consumers. Friendly fraud also doesn’t discriminate; without significant operational adjustments, even “low-risk” businesses in software, fitness, or subscription services may experience spikes in dispute volume.
Friendly fraud erodes trust between issuers, merchants and the platforms that link them, undermining risk management and revenue growth. In the absence of a proactive approach, It is a hazard to the entire portfolio, not just individual merchants.
The Fix: Building a Strategy to Deflect Friendly Fraud
More than just fraud filters are needed to prevent friendly fraud; a comprehensive response plan covering the entire customer journey, from purchase to possible dispute, is also necessary. Clear communication, pre-dispute intervention and continuous improvement are the three most successful strategies in 2025.
1. Strengthen descriptors and digital communication.
Confusion is the starting point of many disputes. Customers may initiate a chargeback without getting in touch with the merchant due to an unclear billing description or a missing receipt. This uncertainty is reduced by using automatic digital receipts and clear, recognizable billing statements that clearly indicate what was bought, when it was bought, and by whom. First-party misuse is prevented by branded post-purchase processes and email confirmations.
2. Intercept disputes before they escalate.
Businesses can be alerted as soon as a consumer calls their bank by using pre-dispute resolution tools such as Ethoca Alerts and Verifi RDR/CDRN Chargeback Alerts. This creates a window of time before a dispute turns into a formal chargeback providing businesses a chance to give a refund, explain a purchase, or fix the issue at hand.
3. Feed insights back into fraud and CRM systems.
Every dispute that is settled sends a signal. Was it because someone in the family bought it? Confused about your subscription? Both future detection and customer experience are enhanced when you incorporate fresh information into your fraud scoring models and customer communication channels.
PayShield enables teams to stop chargebacks at scale, particularly in areas where friendly fraud is most challenging to detect, by assisting PSPs, PayFacs, and merchants in tying together fraud signals, alerts and data.
Summary
Friendly fraud is one of the most prevalent and costly types of chargeback risk in 2025, it is no longer a minor concern. It conceals itself behind actual consumers and evades detection by conventional fraud detection techniques, leaving Payment Service Providers (PSPs) and merchants liable for the consequences.
A complex issue like friendly fraud needs more than one tool to solve. Better pre-dispute protocols, increased visibility across the transaction lifecycle, and the capacity to link fraud signals to operational solutions, such as enhanced descriptions and digital receipts, are all necessary.
By integrating pre-transaction scoring, chargeback alerts, chargeback automation and post-chargeback learnings from data into a closed-loop system will genuinely makes a difference for your business, PayShield enables PSPs, PayFacs, and high-volume merchants to develop scalable and effective friendly fraud protection.
Want to stop chargebacks before they happen?
Contact PayShield here to explore how we help you deflect friendly fraud and protect your portfolio in 2025 and beyond.
