The Rise of “Friendly” Fraud and the Real Harm to UK Businesses

UK businesses are increasingly facing a form of fraud that is often misunderstood and frequently underestimated. First-party fraud, also known as friendly fraud, or chargeback fraud, occurs when customers falsely dispute legitimate card payments by claiming they did not authorise or receive a purchase. The financial and operational damage to businesses can be severe.

Recent reporting has highlighted a growing number of UK firms affected by this issue, particularly smaller businesses that lack the resources to absorb repeated chargebacks and associated fees.

What Is Friendly Fraud?

This is first-party fraud pure and simple, and occurs when a customer disputes a legitimate transaction through their bank or card provider. The customer receives a refund, while the business is forced to repay the amount and often cover additional chargeback fees. In many cases, the goods or services have already been provided, meaning the merchant loses both revenue and product.

This type of fraud is prevalent where payments are taken remotely, over the phone or, for example, when ordering food from a restaurant, making it harder for businesses to prove authorisation.

The Impact on Small Businesses

For many small businesses, even a small number of chargebacks can have a disproportionate impact. Each disputed card transaction often attracts a fee of around £28 plus VAT, in addition to the refunded amount. Over time, this can significantly erode profit margins. (BBC, Nov 2025)

Beyond financial loss, this type of fraud creates operational strain. Business owners are required to gather evidence, manage disputes and communicate with payment providers, diverting time and resources away from core business activities. In some cases, frustration has driven business owners to investigate claims personally, which carries obvious security risks and isn’t encouraged.

A Growing and Global Problem

Industry data shows that this type of fraud is not only increasing in the UK but globally. It is now one of the most reported forms of fraud worldwide. Analysts attribute this rise partly to economic pressure, where some consumers are tempted to misuse chargeback protections as a way to recover money dishonestly. In the same way that some people magnify or invent insurance claims.

Balancing Consumer Protection and Merchant Risk

Chargebacks play an essential role in the card payments system, protecting genuine consumers when goods are not received or services fail to meet expectations. However, misuse of this protection undermines confidence in the system and penalises legitimate businesses.

The challenge for the payments industry is maintaining a fair balance between safeguarding customers and ensuring merchants are not exposed to abuse. For businesses, this means taking proactive steps to protect themselves without damaging customer relationships.

Practical Steps Businesses Can Take

To reduce exposure to first-party fraud, businesses should consider the following measures:

• Keep clear and accurate records of all transactions.
• Retain receipts, delivery confirmations, and communication logs.
• Use couriers that provide proof of delivery.
• Confirm remote orders in writing before releasing goods.
• Make refund and return processes clear and customer-friendly.
• Invest in fraud prevention tools and follow industry best practices.

Good customer service also plays a critical role. When customers can resolve issues easily through refunds or exchanges, they are less likely to resort to chargebacks.

How AJC Can Help

At A Jolly Consulting, we support businesses in understanding, identifying, and preventing fraud, including first-party and chargeback fraud. We help organisations develop proportionate prevention strategies, strengthen transaction controls and improve evidence processes so that genuine disputes can be defended effectively.

“Friendly” fraud is anything but victimless. It impacts livelihoods, weakens trust in payment systems and places unnecessary strain on small businesses. With the right controls and guidance, businesses can protect themselves while continuing to provide a positive customer experience.

If your organisation is experiencing chargeback fraud or wants to strengthen its fraud prevention framework, AJC is here to help.

Contact us on 020 7101 4861 or email us at info@ajollyconsulting.co.uk if you think we can help.

Sources:

https://www.bbc.co.uk/news/articles/c9vjk3ezyjeo

Image accreditation: Getty images from Unplash.com. Last accessed on 16th January 2026. Available here.