The truth is that the overwhelming majority of these so-called frauds are not fraud at all. And ironically, the true fraudulent activity is increasingly committed by the cardholders who initiate false claims, enabled by a system that not only tolerates friendly fraud but actively encourages it.

In such cases, the card schemes and issuers are complicit, facilitating and legitimising false claims for the sake of user convenience or to shift liability away from themselves.

Take, for example, Visa’s Acquirer Monitoring Program (VAMP), which is now penalising acquirers and merchants for excessive fraud levels – fraud that is often just mislabelled as friendly fraud.

VAMP’s design is actually a form of competitive discrimination, as it measures an acquirer’s fraud ratio as a percentage of total volume. Large acquirers with massive volumes can absorb fraud without surpassing thresholds. Smaller acquirers, however, are disproportionately affected and far more likely to be non-compliant, leading to assessment fees, reputational damage, or restrictions on their operations.

Acquirers serving subscription-based merchants are especially vulnerable. These merchants naturally experience higher chargeback rates due to recurring billing, trial periods, and consumer forgetfulness. Yet, regulators often fail to understand that these so-called frauds are not crimes. Instead, they may wrongly view the acquirers as risky or non-compliant, potentially restricting or revoking their financial services licenses.

This is a systemic misrepresentation of risk and fraud, driven by flawed definitions and enforced through punitive programs like VAMP. It damages honest businesses while failing to address the root cause of the issue. While there’s a lot of good that Visa is doing right now for both small and large acquirers, it needs to rectify this problem as soon as possible.

Rather than penalising merchants and acquirers, the industry must rethink how it handles consumer disputes and defines fraud, for example, with any of the following:

• Enable cancellation of subscriptions directly in banking apps or card issuer portals.

• Create a new chargeback category for “consumer disputes” that does not require labelling transactions as fraud.

• Require supporting evidence for fraud claims, including optional police reports or formal declarations under penalty of perjury.

• Allow merchants to respond to fraud claims and provide context, especially in cases involving digital goods, subscriptions, or recurring services.

• Encourage regulatory oversight of card schemes to ensure compliance with legal standards and fairness principles.

The card schemes’ fraud programmes are built on a distorted definition of fraud. It punishes acquirers for chargebacks that arise from cardholder behaviour, while providing no meaningful recourse to the affected merchants. It creates regulatory confusion, distorts competition, and undermines the trust between financial institutions and their customers.

The financial authorities across Europe and the card schemes need to rethink how fraud in the payments world is handled and find ways to prevent the misuse of fraud classifications. A new framework must be established—one that distinguishes between criminal fraud and consumer disputes, respects the rights of all parties, and holds the real bad actors accountable.

Without this, card schemes will continue to shift blame to the wrong side of the transaction. Regulators may continue to unknowingly support a system that incentivises fraud, punishes innovation and discriminates against smaller players

Johannes Kolbeinsson is CEO and co-founder of PAYSTRAX

“Friendly fraud: The broken system fuelling a silent crisis for merchants” was originally created and published by Electronic Payments International, a GlobalData owned brand.

The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.