Payments
How QSRs can get chargebacks off their backs
The growth of delivery services has been great for QSRs, but it's also been pretty good for those ne'er-do-wells seeking to perpetrate fraud via chargebacks. Here, we look at the problem and possible solutions.
June 2, 2021 by Monica Eaton Cardone
Thanks to the proactive and rapid response of restaurateurs threatened with the loss of their livelihoods during the pandemic, consumers have still been able to enjoy a taste of their favorite foods, despite the last 15 months of varying degrees of restaurant restrictions. The collaborative efforts of restaurants and savvy technology providers, including Uber Eats, DoorDash, GrubHub and Tock, have ultimately created a carryout and delivery environment where very little is off-limits anymore.
And while the traditional restaurant ambiance associated with these channels may not be up to scratch, the food remains delectable. Yet, since QSRs have typically been operating a faceless service for much of the last year or more, it's time now that all these "fast food" providers take heed of the growing threat that tends to thrive under these systems: chargebacks.
A side of chargeback?
Chargebacks, of course, occur when a cardholder disputes a transaction. As mass digitalization has transformed all industries over the last year, chargebacks have have increased synergistically with the growth of delivery services and their use. This is because the lack of face-to-face contact makes it much easier for consumers to claim an order never arrived, or that their order was incorrect.
Such fraud can be incited by genuine customers trying their luck or by opportunistic fraudsters who want to have their cake and eat it too. Of course, sometimes mistakes are made and genuine chargebacks are filed, as well. Still, before the pandemic, the food and beverage industry had one of the lowest average chargeback rates at barely 0.01% of transactions. What a difference a year can make.
The trouble is, chargeback regulations are complex even for merchants that are used to dealing with them. But as merchants who are familiar with battling with chargebacks know, tackling them shouldn't just be a retrospective process, but rather a preventative measure.
To implement an effective preventative chargeback mitigation solution, however, restauranteurs must first understand how to spot the difference between a genuine chargeback claim and a fraudulent one. To do this, we're taking a closer look at the three main types of chargebacks to be aware of and how to tackle them:
Merchant error
Delivery and dine-at-home culture has shaped up to be a proving for fraudulent chargeback claims, as merchants can never really guarantee if an order has been delivered.
When diners eat in a restaurant and something has gone wrong with their order, they simply inform a waiter and the mistake is remedied. But should the same thing happen with an order taken or delivered to a diner's home, the solution isn't so simple. This is especially true if the order was made via a third-party app.
There is little the patron or restaurant can do in these situations and the issue is further compounded when the customer can only make a complaint via the app. This is a sure-fire recipe for a chargeback, as it is the consumer's only method of rectifying the situation.
Mistakes will happen, of course, but one of the easiest ways to stamp out chargebacks at the source is to eradicate merchant error as much as possible and keep lines of communication open and consistent with patrons. It sounds so simple, but providing a contact number for customers to call so they can obtain a refund directly or other form of compensation, while the brand can correct the mistake. The difference can be that of a dispute or no dispute.
Criminal fraud
Many fraudsters now operate in a similar manner as any legitimate business by providing an online service where other fraudsters can buy or subscribe to the tools or data needed to commit online fraud. This is known as Fraud as a Service or FaaS.
While this is not something restaurants had to think much about a year or so ago, today they must. Essentially, as technology becomes more innovative and sophisticated, so too does fraud – the two go hand in hand.
The most effective way to combat these fraudulent practices is to implement an equally aggressive, multi-layered form of defense. Once criminal fraud and merchant error are taken out of the equation, merchants get better and more accurate data to identify chargeback abuse in the form of "friendly fraud."
Friendly fraud
The traditional "dine-n-dash" trend is taking on new meaning. Recently, it's been used to define when consumers dispute charges and make claims of missing items or orders.
This type of fraud — while not committed by criminals looking to make huge profits off the losses of others — is still fraud. The chances are the patrons perpetrating dine-n-dash acts don't have any idea of the havoc they're causing. Regardless, QSRs need to have a system in place to combat this type of fraud or risk losing out on orders, ingredients and profits.
A simple way to guard against this is to require customers to pick up orders in person (while still at a safe distance) and provide a form of identification.
Looking ahead
As many restaurant merchants struggle to identify the source of their chargebacks, it's imperative they remain informed and seek help from an outside source. This is especially important considering how much time this process takes, and the focus it takes away from a merchant's core business.
About Monica Eaton Cardone
Ms Eaton-Cardone is an industry thought leader and preeminent expert in the field of chargeback management and has headlined business, technology and eCommerce events all over the world. She is a passionate diversity advocate and is committed to developing and sharing innovative solutions that empower the global fintech space with the very latest in sophisticated dispute management technology.
She has earned numerous awards, distinctions and special recognitions, including last year’s Retail Systems Awards where she received the ‘Outstanding Individual Achievement Award’ and being named Global Leader of the Year at the Women in IT Awards.
