From Customer to Fraudster and Back Again: Fighting Friendly Fraud with Digital Identity

Growing up, we’re taught to look at the world through binary oppositions. There are cops versus robbers, superheroes versus villains, and good guys versus bad guys. As we grow up, however, the world starts to look a whole lot more complicated.

Take digital identity, for example. In the digital identity field, we often see the world through the lens of legitimate customers versus fraudsters and scammers. Our job at Prove is to create authentication and verification processes that make onboarding and log-ins a breeze for customers while stopping would-be fraudsters in their tracks. But what happens when a customer and a fraudster are one and the same? 

In the case of first-party or friendly fraud, a loyal customer of many years may decide to defraud a company by claiming a product delivered to their home arrived defunct or dishonestly reporting that their credit card was stolen when in reality they did make those purchases last month. After they commit the crime, these amateur fraudsters will often return to being regular customers again! 

Despite what friendly fraudsters might claim, first-party fraud is far from a victimless crime. In fact, first-party fraud costs merchants roughly $50 billion annually.

If you’re a merchant tired of losing money to friendly fraud or a fraud-fighter eager to learn about ways to correctly classify first-party fraud (a notoriously difficult feat), check out the article “Is your organization classifying First-Party Fraud correctly?” to learn about the different types of friendly fraud and how better identity proofing technology can identify and prevent friendly fraud.