First-Party Fraud in Digital Payments: How Social Sharing Fuels a New Wave of Abuse
TLDR
First-party fraud — where legitimate customers commit fraud against financial institutions or merchants — is emerging as one of the fastest-growing threats in digital payments. Enabled by social media, online forums, and viral “refund fraud” tutorials, it’s blurring the line between opportunistic abuse and organized crime. As BNPL, wallets, and online card payments grow, so does the risk of fraudulent claims and chargebacks masked as consumer error. This new wave of fraud requires a new kind of accountability. Ideem’s Zero-Trust Secure Module (ZSM) and Passkeys+ help institutions detect and prevent first-party fraud by identifying which specific device actually authenticated each transaction, providing the irrefutable evidence that separates fraud from legitimate disputes.
A changing definition of fraud
Traditional fraud usually involves an external bad actor stealing credentials or exploiting weak security. First-party fraud flips that model. Here, the “fraudster” is the customer themselves — a verified user exploiting the trust built into digital systems.
This can take many forms:
- Refund fraud: users claim they never received goods or that transactions were unauthorized.
- BNPL fraud: customers use credit-like installment services with no intent to repay.
- False disputes: legitimate cardholders initiate chargebacks after receiving products.
- Synthetic identity use: combining real and fake data to open accounts under partial truths.
What makes this trend so complex is that many perpetrators don’t even see themselves as criminals. On TikTok, Telegram, and Reddit, users now share detailed guides on “how to get free stuff” — complete with scripts for customer service calls and screenshots of successful refunds. This normalization of abuse is expanding the scale of the problem faster than traditional fraud models can adapt.
Why first-party fraud is different
Financial institutions have long relied on behavioral analytics and transaction scoring to detect anomalies. But first-party fraud breaks those models because the transaction appears entirely legitimate. The same device, same IP address, same verified user credentials — only the intent is fraudulent.
This makes first-party fraud particularly dangerous for:
- BNPL providers, who face delayed repayment cycles and low visibility into intent.
- Wallet platforms, where frictionless UX can be exploited by “friendly fraud” claims.
- Card issuers and acquirers, who bear the operational cost of disputes and chargebacks.
Traditional fraud prevention tools often stop short at proving that “a user logged in.” But in this new environment, institutions need to prove which device approved the transaction and whether it was authenticated under compliant, verifiable conditions.
The social media multiplier
The rise of “fraud communities” online has made first-party abuse scalable. On social platforms, videos and posts circulate explaining how to exploit merchant refund policies, how to file “lost parcel” claims, or how to time disputes for maximum payout.
In one viral trend, users shared methods to exploit digital marketplaces by claiming unauthorized charges on small-ticket purchases, taking advantage of automated refund systems. Another common pattern involves BNPL repayment manipulation, where customers switch devices to avoid linking their repayment accounts.
For institutions, these tactics create a costly loop: refund, re-fraud, and resell. Without precise device-level visibility, these behaviors appear as legitimate customer issues rather than coordinated fraud.
Device-level authentication as a new defense
First-party fraud prevention begins with accountability — knowing exactly which device performed a transaction and under what conditions. Device binding ensures that each transaction can be tied to a single, deterministic device identity, not just a username or account.
This is where Ideem’s approach becomes pivotal.
- ZSM (Zero-Trust Secure Module) creates a cryptographic link between a user’s device and their identity, ensuring every authentication event is traceable to a known source.
- Passkeys+ enables secure, device-bound credentials that verify both “who” and “where” the approval came from.
Together, they provide institutions with irrefutable transaction-level evidence.
When a chargeback or claim arises, banks and payment providers can prove whether the device involved matched the authorized credentials. This capability turns opaque “he said, she said” disputes into clear, data-backed investigations — significantly reducing losses from fraudulent claims.
Why accountability increases trust
Far from introducing friction, device-level authentication can actually strengthen consumer confidence. Users benefit from stronger protection against account takeovers, while institutions can apply risk-based controls more intelligently.
By pairing device identity with behavioral context, financial providers can distinguish between genuine mistakes and intentional deception. Over time, this supports more dynamic policies — such as offering instant refunds to trusted devices while flagging anomalies for review.
This balance of security and convenience creates a powerful differentiation point in competitive fintech markets. Institutions that invest in transparent, accountable authentication will win both user trust and operational efficiency.
A readiness checklist for fraud-resilient growth
- Map your dispute data
Identify where chargebacks, refund claims, and payment reversals originate. Separate first-party indicators from true third-party fraud. - Strengthen authentication visibility
Ensure every transaction captures device-level telemetry: OS, app version, cryptographic key, and authentication path. - Adopt device binding and passkeys
Move beyond SMS OTPs or password logins. Bind each user’s identity to their device cryptographically and verify with biometric or passkey-based credentials. - Integrate zero-trust logic
Apply continuous verification at each transaction step. Trust is not granted permanently; it’s validated per event. - Educate users and staff
Build awareness around refund abuse and friendly fraud, emphasizing that institutions can now detect misuse through device-level data. - Leverage systems like Ideem’s ZSM and Passkeys+
Deploy solutions that create auditable, device-bound records of every authentication, offering a clear fraud defense while maintaining seamless UX.
Looking ahead
First-party fraud won’t fade — it will evolve. As consumers become more tech-savvy and digital commerce accelerates, institutions must move from reactive fraud management to proactive accountability.
The next phase of fraud prevention isn’t about building higher walls. It’s about building smarter connections — between the user, the device, and the transaction. Ideem’s Zero-Trust Secure Module and Passkeys+ are designed for this era, where proving “who” acted is no longer enough — you must also prove “from where.”
For product, compliance, and growth teams alike, device-level trust is not just a security upgrade. It’s the foundation for sustainable digital finance in a world where even your own customers can turn into your biggest fraud risk.
Sources
- Federal Reserve Bank – First-Party Fraud: Increasing Challenges for Banks and Fintechs
https://www.frbsf.org/economic-research/publications/economic-letter/2024/first-party-fraud-in-digital-payments/ - The Paypers – The Rise of First-Party Fraud in BNPL and Digital Commerce
https://thepaypers.com/expert-opinion/the-rise-of-first-party-fraud-in-bnpl-and-digital-commerce--1259693 - PYMNTS – Refund Fraud Goes Viral on Social Media Platforms
https://www.pymnts.com/news/fraud-prevention/2024/refund-fraud-goes-viral-on-social-media-platforms/ - Finextra – Friendly Fraud and How Device Identity Can Help Stop It
https://www.finextra.com/blogposting/25141/friendly-fraud-and-how-device-identity-can-help-stop-it - Ideem – Device Binding and Passkeys+ for Fraud Prevention
https://www.useideem.com/passkeys-plus