In 2011, Facebook sent out a memo to employees to help them educate game developers about the company's fraud practices. One of the bullet points in that memo read: “Friendly Fraud – what it is, why it’s challenging, and why you shouldn’t try to block it.”
In Facebook's jargon, "Friendly Fraud" refers to people accidentally spending money on games. Sometimes it can be hard with mobile/Facebook games to tell when you're spending real money. This is particularly true of minors, who may not realize their parents' credit cards are tied to their accounts, or that in-game purchases are actual purchases to begin with.
For years Facebook turned a blind eye to kids spending their parents' money on Facebook games---sometimes thousands of dollars. Despite angry parents, chargebacks from credit card companies and numerous warnings from employees, the risk to the bottom line was simply too great. For Facebook, it was better to defraud kids and their parents than to lose out on all that money.
A new investigative report from Reveal sheds light on newly unsealed court files dating between 2010 and 2014 that show a pattern of fraudulent behavior from the social media giant, just the latest in a long string of public relations blows to the Menlo Park, CA based corporation.
Children were spending so much money on Facebook games without their parents permission or knowledge---and often without even knowing they were spending real money---that chargeback rates for Facebook games hit 9%, 18 times the average for businesses. This is over four times the "red flag" threshold for the Federal Trade Commission which considers 2% an indication of "deceptive" business practices.
The chargebacks were so high that some developers worried about it in correspondence with Facebook. One of these was Angry Birds developer Rovio. In an email that developer wrote: “We have been seeing refund rates of 5-10 percent in terms of credits spent so far on Angry Birds. This seems quite high to me, but it might just be normal for games on Facebook."
But where the report becomes the most damning is in Facebook's response. Many companies have faced this challenge in the past. Companies like Apple and Google implemented basic checks on in-game spending, requiring kids to enter passwords or credit card info before making a purchase for instance.
An internal Facebook team, led by Tara Stewart, tried to do the same thing way back in 2011:
She and her colleagues began working on a solution to curb children from spending money without their parents’ permission.
An internal Facebook survey of users found that many parents did not even realize Facebook was storing their credit card information, according to an unsealed document. And parents also did not know their children could use their credit card without re-entering a password or some other form of verification.
Perhaps even worse, the children didn’t even realize they were spending real money within the game, because as Stewart would later write, “It doesn’t necessarily look like ‘real’ money to a minor.”
So as a test, Stewart and her colleagues tried requiring children to re-enter the first six credit card numbers on certain games before they could spend money. Stewart called it a “good first step.” It worked, according to the unsealed documents. It lowered the number of refund and chargeback requests from children.
Unfortunately, it also risked drastically reducing Facebook's revenue from children who the company referred to as "whales" a term common in mobile gaming and gambling. So the simple but effective plan was not implemented (Facebook only took steps to curb the problem in 2016.)
“In nearly all cases the parent knew their child was playing Angry Birds, but didn’t think the child would be allowed to buy anything without their password or authorization first (Like in iOS),” a Facebook employee wrote in response to Rovio's inquiry. “If we were to build risk models to reduce it, we would most likely block good TPV.”
TPV stands for "Total Purchase Value" and, ultimately, for Facebook the bottom line was more important than preventing kids from unwittingly spending their parents' money---much like the bottom line has been more important to Facebook than protecting its users' personal data and privacy.
Facebook's alternative solution was one we've seen other companies attempt in the past: Instead of offering refunds, try to buy off upset customers with in-game items. (We saw this recently with Bethesda's offer of virtual currency in Fallout 76 to placate upset gamers, an attempt that failed miserably.) This was because "“Virtual goods bear no cost" according to one internal Facebook email revealed in court documents.
In other words, Facebook would take no action to prevent "Friendly Fraud" and when it occurred they would attempt to pay off upset parents with virtual goods that cost the company and developers nothing.
There's a lot more in Reveal's report, including stories of families racking up massive charges and the lawsuit which eventually led to all these documents. You should absolutely go read that right now.
It's just another blow to the social media giant, and another good reason to back up all your photos and videos and strongly consider shutting down your accounts. The utter disregard Facebook and its management have for users' privacy, finances and wellbeing is truly galling.
Oh, and if you think Instagram is a good alternative just remember: Facebook owns Instagram. That's not so much out of the frying pan, into the fire as just shuffling from one side of the pan to the other.
Facebook declined to comment on Reveal's report but said in a statement that “we routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchased made by minors on Facebook.”
I suppose you'll have to judge for yourselves whether "better late than never" is good enough in this instance.
