Mastercard targets ‘friendly’ fraud to protect small businesses and merchants

• Mastercard First-Party Trust program to help merchants and issuers prove genuine purchases and prevent flawed disputes.
• The program leverages enhanced transaction insights, AI, and risk modeling to provide merchants with tools and technology to fight first-party fraud, sometimes referred to as ‘friendly fraud.’

Mastercard has announced its First-Party Trust program, with AI-powered insights, to combat the surging trend in first-party or 'friendly' fraud, where genuine transactions are mistakenly or intentionally challenged by cardholders. The program has been developed in collaboration with industry groups including the US Merchant Advisory Group and Merchant Risk Council.

Datos recently revealed that 75% of fraud experienced by digital businesses was first-party fraud^[1] . With current global ecommerce levels on the rise, increased safety and transparency of payments for merchants, small business owners and entrepreneurs is a necessity. For small businesses the benefits of the First-Party Trust program will be particularly valuable – as it assists them with previously burdensome time and resource-intensive issues, such as researching and addressing claims. Issuers will be able to more accurately determine what is a third-party fraudulent transaction as opposed to first party fraud and will have more reliable information when discussing disputes with their cardholders.

How it works

The First-Party Trust program aims to create greater transaction transparency by giving merchants, including small businesses, the opportunity to submit pertinent insights to counter first-party fraud. Mastercard will provide two paths for the sharing of these enhanced insights between a merchant and card issuer. Merchants can send the enhanced data directly as part of the transaction, or they can do so post transaction as part of the disputes process. The program will also enhance the resolution of such disputes by providing:

• AI and risk modeling to help identify genuinely fraudulent (third-party fraud) transactions and signal those that carry the highest levels of trust;
• enhanced signals for issuers enabling greater insight into the cardholder’s purchase history, device, delivery information, identity elements, and geographic location; and
• new rules defining compelling evidence to help recognize genuine purchases and prevent unnecessary flawed disputes, including merchant chargeback protection for disputes that meet First Party Trust data sharing requirements.
  
  

The First-Party Trust program is a global program, with the rollout starting with the U.S. in 2024.

What they are saying

“As more of our spending happens digitally, it has never been more important to reduce friction in the transaction process for the benefit of all parties involved. That’s why we are bringing our world-leading AI, identity and dispute resolution technologies to enhance the experience and reduce risk to businesses. Through our technology, banks and merchants can retain trust with their most vital constituents: their customers,” said Ajay Bhalla, President of Cyber and Intelligence at Mastercard.

“Businesses - big and small – have seen an immense pull forward in digitization, which is fueling new ways to pay,” said Linda Kirkpatrick, President, Mastercard, North America. “It’s an imperative that we empower the entire ecosystem with peace of mind, the right tools and technology to combat fraud, while maintaining protections that consumers have come to expect.”

“With the First-Party Trust Program, Mastercard is transforming the dispute experience and streamlining transactions for everyone involved. We're pleased to see this significant leap forward, reinforcing trust as the bedrock of the relationships between merchants and small businesses, issuers, acquirers, and most importantly, consumers,” said John Drechny, CEO, Merchant Advisory Group.

“Mastercard’s new program is an important step in combatting the misuse of the disputes system.  Including feedback from our extensive base of merchant members, our partnership with Mastercard to develop this service will positively benefit merchants of all types. We look forward to continuing this partnership in the coming months to help transform the dispute experience and streamline transactions for everyone involved,” said Julie Fergerson, CEO, Merchant Risk Council.

^[1] Seventy-five percent of digital goods’ merchants’ CNP fraud is estimated to be the result of first-party fraud [Datos]