Welcome to the world of fintech in Africa, where cross-border payments meet real-world financial challenges—and by challenges, I mean the never-ending riddle of friendly fraud and chargebacks that comes with business expansion in Africa. It’s the fintech version of trying to catch smoke with your bare hands.

If you’re not careful, you will find your profits slip through your fingers faster than you can say “unauthorized transaction.” But don’t worry, with the right approach, managing friendly fraud and chargebacks doesn’t have to be a nightmare—it can just feel like a particularly tricky game of chess. 

So, let’s get started and approach this problem with a dash of strategy.

Friendly Fraud and Chargebacks: The Frenemies You Didn’t Ask For

Imagine this: you’ve just facilitated a smooth, legitimate transaction for a customer. Everyone’s happy, right? Then, out of nowhere, that same customer says, “I never made that purchase!” and initiates a chargeback. Welcome to the not-so-delightful world of friendly fraud—when customers dispute legitimate transactions for various reasons, from forgetfulness to downright trying to get value for a product or service for free. 

The whole idea behind friendly fraud is that a customer makes a legitimate purchase but later disputes the charge with their bank, claiming it was unauthorized or that they never received the product or service. For businesses handling cross-border payments, this issue is particularly common

This results in chargebacks; where your payment processor reverses the funds from your account and refunds the customer. Not only do you lose the transaction amount, but you also give value for funds you didn’t receive and aget slapped with fees. Oh, and if it happens too often, your processor might just start treating you like a problem child by raising your rates or even terminating your account. Yikes.

Why Is This Happening?

The Nigerian fintech space is booming, but with rapid growth and business expansion comes the growing pains of disputes, fraud and chargebacks. Here’s why fintech startups face an uphill battle:

1. Your Wallet is smarter than your fraud detection system: Many fintech startups can’t afford top-tier fraud detection tools at the beginning, making it easier for fraudsters to slip through the cracks. Or in this case, let’s say your system can’t tell the difference between a genuine dispute and someone just being ‘forgetful.’
   
2. Consumers are still learning the ropes: The adoption of cross-border payments is growing in Africa but a significant amount of customers across Africa are new to digital payments, which means they might not recognize a legit transaction on their statement and panic. “What’s this charge? It must be wrong!” And boom—another friendly fraud case due to a knowledge gap.
   
3. Regulations can be tricky: Navigating Africa’s regulatory environment can be like playing chess while blindfolded. There’s a lot to figure out, and payment businesses can’t afford to miss a move. The regulations that guide business compliance in Africa require extensive knowledge and experience to navigate.

Did you know? Startbutton helps you stay compliant across over 10 African markets at the same time.

4. Dispute resolution moves at snail speed: In startups, resolving disputes can feel like trying to put out a fire with a teaspoon of water. Long delays lead to frustrated customers initiating chargebacks rather than waiting to resolve disputes.

How to survive friendly fraud and chargebacks

Managing fraud and chargebacks can be like playing a game where the rules keep changing. But hey, you can still win if you know the right moves. Here’s how:

1. Upgrade your fraud detection—Your wallet will thank you
   Sure, fraud detection systems can be expensive, but so is losing your revenue to constant chargebacks. Investing in machine learning-driven tools that flag suspicious activity before it turns into a problem is like having an extra set of eyes on every transaction. And who doesn’t want that?
   
2. Make them prove they’re Legit—Because, why not?
   Time to put two-factor authentication (2FA) and biometric verifications to work. These are the digital equivalent of checking ID at the door. Two-factor authentication (2FA) significantly reduces the risk of fraud in Africa. For example, multi-factor authentication, including 2FA, can reduce fraud attempts by up to 23% during onboarding and KYC processes.
3. If customers are legit, they’ll appreciate the extra security. If they’re up to no good, you’ll catch them before they can cry “I didn’t make that purchase!”
4. Speak loud and clear—Communication can save you a ton of money

No one likes surprises on their bank statement. So, make sure your customers can recognize your merchant’s name and transaction details easily. Send real-time notifications after every purchase. “Congrats! You just bought something awesome” goes a long way in reducing disputes later.

4. Teach them the chargeback game

Customers should know that chargebacks aren’t a get-out-of-jail-free card. Take a little time to educate them on the process. A clear refund policy and a friendly reminder to contact your support team first can save everyone the hassle.

5. Data is your best friend—Track Everything

Keep an eye on dispute patterns. Are there specific customers or products that seem to trigger more chargebacks than others? Analyze your chargeback data carefully. Then, adjust your policies, improve descriptions, or tighten security where needed. You’d be amazed what a little tweaking can do.

6. Team up with your payment processor

Think of your payment processor as a teammate, not just someone who charges you fees. Work with them to understand fraud trends and how to reduce chargebacks. They’ve seen it all before and can give you valuable advice—plus, they want to keep you in business just as much as you do.

7. Fight back when it’s not your Fault

Chargeback representation may sound like a fancy legal term, but it’s basically you saying, “Hey, I’ve got proof this transaction was legit!” Collect the necessary evidence (like delivery confirmations or receipts) and challenge those invalid disputes.

Embrace the madness (and win)
Managing friendly fraud and chargebacks is a regular part of doing business; it. But don’t panic—with the right tools and strategies, your fintech startup can navigate the fraud waters with finesse.

By focusing on fraud detection, clear communication, educating your customers, and working closely with your payment processor, you can keep chargebacks to a minimum and protect your profits. And remember, every fintech startup faces these challenges—it’s how you handle them that will set you apart. So, take a deep breath, crack a smile, and manage that friendly fraud like the fintech superhero you are.

Let Startbutton Handle the Fraud Frenzy—So You Can Focus on Growing!

In a world where chargebacks and friendly fraud can disrupt business operations, having a partner that simplifies the shenanigans is a game-changer.

Startbutton is THAT partner you need. With Startbutton your business can expand into Africa without ever having to worry about managing chargebacks and staying compliant with local regulations. Our advanced fraud detection tools, dispute resolution system, and tailored compliance expertise across African markets ensure that you can focus on growing your business without losing sleep over fraud. With Startbutton, you can confidently expand across borders, knowing that your security and dispute management are in trusted hands.

Ready to get started? Visit www.startbutton.africa or [email protected] to get started.