By Alexander Berrai, Deputy CEO at emerchantpay
Merchants already face mounting pressure when it comes to fraud prevention. They must contend with increasingly sophisticated AI-driven threats, evolving regulatory requirements, and rising customer expectation for seamless and secure payment experiences.
At the same time, businesses must also remain alert to the growing challenge of first-party fraud.
Often referred to as “friendly fraud”, first-party fraud occurs when consumers dispute legitimate transactions, typically claiming a purchase was unauthorised or carried out by a criminal third party. In some cases, this stems from genuine confusion or forgotten purchases. Increasingly, however it is becoming intentional.
First-party fraud is now one of the fastest-growing forms of payment fraud globally. According to LexisNexis Risk Solutions, it accounted for 36% of all reported fraud globally in 2024, up from 15% the previous year.[1] Our recent report[2] highlights the scale of the problem in the UK, with consumers estimated to have received £3.5 billion in refunds linked to friendly fraud over the past 12 months.
Over the last year alone, 7.9 million UK consumers disputed transactions associated with friendly fraud. Of those, 6.5 million received compensation from their bank, with our research revealing the average compensation value hitting £441 per claimant and nearly one in five (18%) receiving more than £500. Alarmingly, only 18% of illegitimate claims were denied compensation.
The wider financial impact on merchants is significant. While banks often reimburse customers at the beginning of the dispute process, the fees, penalties and chargeback costs associated with this are frequently passed back to retailers through the acquiring chain. Merchants are therefore left to absorb these losses unless they can provide compelling evidence that a transaction was legitimate and fulfilled correctly.
Businesses must fully understand the scale of this threat and implement stronger controls and dispute management processes – or risk being left out of pocket.
What’s driving the fraudsters?
Friendly fraud is a complex issue because the motivations behind it vary significantly. Genuine mistakes are often difficult to distinguish from deliberate abuse driven by buyer’s remorse or refund exploitation.
In many cases, disputes arise from misunderstandings, forgotten purchases, or unclear transaction descriptors on card statements. Common examples include recurring subscription charges forgotten by the cardholder, purchases made by family members without the cardholder’s knowledge, or legitimate transactions that simply appear unfamiliar on a statement.
Transaction confusion, in particular, has become a major challenge as consumers increasingly shop across multiple digital channels, devices often using a variety of payment methods. Merchant names displayed on statements also frequently differ from the brand names consumers recognise. According to Aite-Novarica, 77% of consumers regularly find unrecognisable transactions in their statements.[3]
More concerningly, attitudes towards friendly fraud appear to be shifting. Data from Cifas shows that nearly half (48%) of UK adults now believe it’s “reasonable” to commit friendly fraud, with younger shoppers the most likely to submit fraudulent claims.[4]
Our own research also points to patterns of repeat behaviour. Two in five (38%) consumers who admitted falsely reporting a legitimate transaction as unauthorised said they had done so on more than two occasions.[5]
It’s evident that consumers are becoming more aware of chargeback rules and protections, with some viewing them as a convenient alternative to traditional refunds or even a way to obtain “free” goods. As a result, dispute volumes are expected to continue rising. Mastercard predicts that global chargeback volumes – 45% of which are classified as fraudulent – will increase by 24% to reach 324 million transactions in 2028.[6]
How merchants can reduce risk and improve customer service
Chargebacks remain a vital part of consumer protection and play an important role in maintaining trust in digital commerce. However, merchants must now modernise their approach to dispute management to minimise the impact of friendly fraud.
There are several straightforward steps merchants can take, starting with clear and transparent communication. Refund and cancellation policies should be highly visible at checkout, alongside straightforward guidance on payment issues. Responsive and accessible customer support channels can also prevent frustration from escalating into unnecessary disputes.
To successfully challenge the spike in fraudulent claims, merchants must also arm themselves with robust evidence. This includes detailed transaction and billing information, customer communication records, IP and device information delivery information and usage or access logs where applicable.
Deploying 3D Secure 2 (3DS2) the authentication protocol for online card payments, also adds an additional layer of protection for online card payments. Fully authenticated 3DS2 transactions are typically shielded from fraud-related chargeback reason codes, reducing the opportunity to commit friendly fraud. Combined with initiatives such as Compelling Evidence 3.0 and stronger documentation practices, merchants now have more tools available to successfully to challenge legitimate disputes.
Partnering with a payment service provider (PSP) can further strengthen fraud prevention and dispute management capabilities. The right PSP can help merchants integrate authentication, fraud monitoring and dispute management tools directly into the payment journey while also identifying recurring dispute triggers and behavioural patterns.
Ultimately, tackling friendly fraud requires a balanced approach — one that protects consumers without leaving merchants unfairly exposed to abuse of the chargeback system.
Research commissioned by emerchantpay and conducted by independent research agency Opinium which surveyed 2,000 UK adults weighted to be nationally representative between 13th – 17th February 2026.
[1] Research from LexisNexis Risk Solutions: https://risk.lexisnexis.co.uk/about-us/press-room/press-release/20250513-cybercrime-report
[2] Fraud frontiers: How innovation is future-proofing payment security. Research conducted by independent research agency Opinium which surveyed 2,000 UK adults weighted to be nationally representative between 13th – 17th February 2026.
[3] Aite-Novarica research, highlighted by Mastercard: First-Party Fraud | Friendly Fraud | Ethoca
[4] Cifas data: Cifas research reveals nearly half of UK adults feel first party fraud is acceptable | Cifas
[5] Research conducted by independent research agency Opinium which surveyed 2,000 UK adults weighted to be nationally representative between 13th – 17th February 2026
[6] Mastercard data: https://www.mastercard.com/us/en/news-and-trends/Insights/2025/2025-global-chargebacks-outlook.html
