The growth in delivery services has been great for QSRs, but it has also been pretty good for criminals looking to commit fraud through chargebacks. Here we take a look at the problem and possible solutions.
Thanks to the proactive and swift response from restaurateurs threatened with losing their livelihoods during the pandemic, consumers have still been able to sample their favorite dishes, despite the past 15 months of varying restrictions at restaurants. The collaborative efforts of savvy restaurants and tech vendors, including Uber Eats, DoorDash, GrubHub, and Tock, ultimately created a delivery and delivery environment where very little is now off-limits.
And while the traditional restaurant vibe associated with these chains may not be up to par, the food is still delicious. Yet, since QSRs have typically operated a faceless service for much of the past year or more, now is the time for all of these “fast food” vendors to consider the growing threat that tends to thrive in these. systems: chargebacks.
One side of the chargeback?
Chargebacks, of course, happen when a cardholder disputes a transaction. As mass digitization has transformed all industries over the past year, chargebacks have increased in synergy with the growth of delivery services and their use. Indeed, the lack of face-to-face contact makes it easier for consumers to say that an order never arrived or that their order was incorrect.
Such fraud can be instigated by real customers trying their luck or by opportunistic scammers who want to have their cake and eat it too. Of course, sometimes mistakes are made and real chargebacks are filed as well. Yet before the pandemic, the food industry had one of the lowest average chargeback rates with just 0.01% of transactions. What a difference a year can make.
The problem is, chargeback regulations are complex, even for merchants who are used to dealing with them. But as traders accustomed to battling chargebacks know, dealing with them shouldn’t be just a retrospective process, but rather a preventative measure.
However, to implement an effective preventative chargeback mitigation solution, restaurateurs must first understand how to differentiate between a true chargeback request and a fraudulent request. To do this, we take a closer look at the three main types of chargebacks you should know about and how to deal with them:
The culture of home delivery and dining has turned into evidence of fraudulent chargeback claims, as merchants can never truly guarantee that an order has been delivered.
When diners eat at a restaurant and something is wrong with their order, they simply notify a waiter and the error is corrected. But if the same should happen with an order taken or delivered to your home, the solution is not so simple. This is especially true if the order was placed through a third party application.
There is little that the customer or restaurant can do in these situations, and the problem is further compounded when the customer can only file a complaint through the app. This is a sure-fire recipe for a chargeback, as it is the consumer’s only method to rectify the situation.
Mistakes will happen, of course, but one of the easiest ways to eliminate chargebacks at source is to eliminate merchant errors as much as possible and keep lines of communication open and consistent with customers. It sounds so simple, but providing a contact number for customers to call so they can get a refund directly or some other form of compensation while the brand can correct the mistake. The difference may be that of litigation or no litigation.
Many scammers now operate the same as any legitimate business by providing an online service where other scammers can purchase or subscribe to the tools or data needed to commit online fraud. This is called Fraud as a Service or FaaS.
While that wasn’t something restaurants had to think about a lot about a year ago, they have to today. Essentially, as technology becomes more innovative and sophisticated, so does fraud – the two go hand in hand.
The most effective way to combat these fraudulent practices is to implement an equally aggressive form of multi-level defense. Once criminal fraud and merchant error are removed from the equation, merchants get better and more accurate data to identify chargeback abuse in the form of “friendly fraud”.
The traditional ‘dine-and-dash’ trend takes on new meaning. Recently, it has been used to define when consumers dispute charges and make complaints for missing items or orders.
This type of fraud, even if it is not committed by criminals seeking to make huge profits on the losses of others, is still fraud. Chances are, customers who commit dinner-n-dash acts have no idea of the havoc they’re causing. Either way, QSRs must have a system in place to tackle this type of fraud or risk losing orders, ingredients and profits.
An easy way to guard against this is to require customers to pick up orders in person (while staying at a safe distance) and provide ID.
As many restaurateurs struggle to identify the source of their chargebacks, it is imperative that they stay informed and seek help from an outside source. This is especially important considering the time this process takes and the attention it takes away from the core business of a trader.