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First-Party Fraud - The Not So Friendly Fraud Reality
Combatting AI-Powered Fraud wtih AI-Powered Fraud Prevention
Written by Karl Kaluza
on November 07, 2023

What is First-Party Fraud?

First-party fraud occurs when a credit customer purchases goods or services with a credit card or BNPL (buy now pay later) and has no intentions of paying for the item.

Examples of first-party fraud include:

  • Claiming an item was not delivered and requesting a refund.
  • Intentionally not paying off a credit card or BNPL loan.
  • Disputing a legitimate financial transaction.

Demographics Behind First-Party Fraud

Research from Socure found that 52% of Gen Zers said they'd commit first-party fraud if there were no negative consequences. 19% of the same group said it is not ethically wrong, while only 6% of Baby Boomers said the same. 30% of Gen Zers said they have taken out a BNPL with no intention of paying it back.

What is Friendly Fraud?

Friendly fraud is another term used for first-party fraud. It is called friendly fraud because the fraud is committed by valid card-holding customers. Traditional card fraud generally occurs among those with stolen cards or not valid card holders. This type of fraud is called a third-party fraudulent transaction.

 Mastercard's First Party Trust Program

Mastercard has established a program to better detect first-party fraud. It uses AI to detect when cardholders mistakenly or intentionally challenge valid transactions. The program works by having merchants send pertinent information without each transaction in real time or post. This additional or enhanced data helps Mastercard to determine if fraud may be taking place and which type of fraud it might be.

The program will provide greater insight into the cardholder's: 

  • Purchase history
  • Device
  • Delivery information
  • Identity elements
  • Geographic location

Mastercard's program should also help small businesses that must spend much of their limited time and resources trying to resolve first-party fraud incidents. It is expected to begin rolling out in 2024.


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