Friendly fraud: how chargeback scams are hitting UK hospitality

Don’t let the name fool you. “Friendly fraud” is anything but friendly.

In fact, it’s something that’s been deeply affecting hospitality businesses across the UK, with firms being hit with high chargeback costs and lost revenue due to dishonest claims.

What might look like a simple dispute on the customer’s end can quickly spiral into lost income, administrative headaches, and hours spent fighting charges that should never have been reversed in the first place.

As the issue grows, hospitality firms are finding themselves forced to balance providing good customer service with the need to protect their businesses from increasingly common — and costly — fraudulent claims.

What is friendly fraud?

Friendly fraud — also known as chargeback fraud or first-party misuse — is a type of scam where a customer makes a purchase with their credit card, receives the goods or services, and then later contacts their bank to dispute the charge, claiming it was fraudulent or unauthorised.

In hospitality, friendly fraud often takes the form of disputed meal charges against a restaurant business, room fees for a hotel, or cancellation and no-show charges.

Sometimes, friendly fraud can be accidental, such as when someone forgets they made a reservation, misunderstands hotel or restaurant policies, or doesn’t recognise a charge from a third-party booking site.

Either way, beyond the direct cost, the increase in friendly fraud can add to more administrative work, strain customer service resources, and even raise insurance or processing fees for the business.

How is friendly fraud affecting hospitality businesses?

The rise in disputes and chargebacks is putting significant strain on businesses that are already operating on tight profit margins, and it’s expected to get worse in the next year.

According to a report by Chargeflow, there is forecasted to be a 40% increase in friendly fraud cases by 2026, with global chargeback volume expected to reach 337 million transactions.

Meanwhile, The Fintech Times reported that just last year alone, UK merchants lost a total of £128m to friendly fraud.

The effects are especially stark for small businesses. Nima Safaei, owner of a local Italian restaurant in Soho, told The Telegraph that chargeback fraud has cost his business £5,000 in just three months.

Hugo Remi, CEO at payment solutions company Cardaq, says the growing volume of chargebacks is creating yet another pressure point for already struggling hospitality firms.

“British high streets are failing amid rising overheads and less expendable income from potential customers,” Remi comments. “For hospitality businesses especially, customers may only visit once. This makes friendly fraud particularly hard to track and dispute.”

How to address friendly fraud in your business

To address friendly fraud properly, businesses should create clear and visible policies outlining cancellation rules and service charges at the time of booking or order, and make sure they are communicated through channels like booking pages and confirmation emails.

You should also keep detailed records of transactions, including receipts, timestamps, and digital logs, so that you have evidence if a dispute arises.

Additionally, secure payment methods like pre-authorisations or 3D Secure can help reduce unauthorised claims, as they add extra verification steps (such as two-factor authentication), creating clearer proof that the customer actively improved the transaction.

And if you are hit with a chargeback, having a proper process that gathers evidence and responds quickly can help improve your chances of winning a dispute.

Remi also added that the financial services industry should collaborate more with hospitality businesses, and have “firmer penalties”, which prohibit bad actors from payment services.

“While not all chargebacks are sinister, we must be hot on the heels of actors that are caught. The patterns are there; a more secure, transparent, business-first payments industry can act on them.”