How Do You Mitigate Risk When It Comes To Friendly Fraud?

September 12, 2022

During our first session of Fraud Office Hours, an attendee asked, "How do you mitigate risk when it comes to friendly fraud?" Watch this video clip to see how Unit21's Head of Fraud Risk, Alex Faivusovich, responded.

Mitigating Friendly Fraud Risks

"Friendly fraud is directly connected to the uptick we've seen in the number of bad actors who actually commit fraud, and this includes friendly fraud also. Friendly fraud is also known as first-party fraud. Obviously, it has many different faces. Originally, friendly fraud started within the e-commerce industry, but we are seeing a great shift pretty much into any different vector of the financial industry and especially Fintechs and crypto companies.

So basically, we'll have bad actors who use their own identities a lot of times. In these situations, there's no stolen identity or compromised identity. The fraudster uses their own identity to pass through onboarding, bypassing your KYC procedures, and then they conduct fraud on your platform. So I think, if you think about mitigation, I would put it into two different pieces.

I think a great way to mitigate first-party fraud would be, first of all, to understand the outcome of the KYC result that you had for the specific applicant and understand how you can manage risk correctly right after the onboarding is finished.

And the second part is to have a strong policy around customer segmentation.

And I think if you combine those two together, you should have the ability to know how to take the risk from the KYC vendor along with your customer segmentation to allow good customers to operate on your platform as freely as they can while also keeping you safe from customers that you might not know well enough, at least in the first few months of tenure. I think this is a good approach to handling friendly fraud."

Want to discover how Unit21 can be used to mitigate friendly fraud instances? Check out our first session of Fraud Office Hours on demand for a brief demo of how the platform works.

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