If the pandemic wasn’t bad enough, restaurants are also struggling with fraudulent order disputes. While business have been fighting against chargeback fraud for years, the overall shift to e-commerce in the past 12 months has led to a marked increase in friendly fraud.

Positive growth in digital ordering is attracting fraud
Before March of last year, restaurants provided order and delivery services as a convenience. Que a pandemic, and off-premises service that limit personal interaction have gone from nice to have, to essential. There has been a marked increase in the number of consumers ordering and buying online. According to Adobe Analytics, right at the beginning of the pandemic between late February and late March, buy-online-pickup-in-store orders, which includes curbside, increased a whopping 87% year over year – and it has only continued to grow. These new purchasing habits are something that consumers have fully embraced – many of whom (80% to be precise) plan on stick with moving forward. And it’s not hard to see why. Ordering and buying online not only offer a higher level of convenience to the customer. In addition, transactions can remain contactless adding a level of safety many customers now expect and require. If anything, digital ordering has become an essential part of business operation.

The jump in mobile ordering has been a positive break for QSRs and restaurants that need every advantage they can to keep customers engaged and ordering as the ongoing pandemic continues to impact the restaurant industry. For many restaurants, the ability to quickly pivot to takeout and delivery through mobile ordering, curbside pickup, contactless drop-off etc. has been a saving grace during this otherwise catastrophically awful time.

Unfortunately, however, even in the midst of a pandemic, it seems opportunists know no bounds. While restaurants have been working relentlessly, struggling to stay in business, the welcomed increase in digital tractions has also brought with it an increase in chargebacks and friendly fraud.

Covid-19 sees rise in fraudsters slip through the cracks
Fraud is nothing new to restaurants. Fighting against chargebacks, also known as friendly fraud, is something business have being doing for years. One 2018 report stated that approximately one out of every 100 consumer transactions are targets of this type of fraud. While this may seem like a small portion, the food and beverage industry is more vulnerable because it is less equipped to recoup losses. As food is a perishable item, fraud can really push up costs for restaurants, especially for smaller businesses. Many restaurants and delivery services may not even realize for some time they are a victim of friendly fraud because the chargeback amount for a food order is typically low.
More transactions inevitably come with more chargebacks and fraud. But with the massive uptick in online orders over the last year has seen a significant increase in fraudsters using the increased order volume to hide their fraudulent activity. According to figures from MyChargeBack, a fund recovery firm, there was a 68 percent increase in month over month dispute-related requests between February and April 2020 for low dollar (less than $5,000) transactions. There was nearly a 25 percent increase in MoM dispute-related requests between February and April 2020 for high dollar (more than $5000) transactions.

This type of fraud is proving to be very costly for QSRs – in some cases detrimental. Due to the nature of digital ordering, fraud is being bolstered by the mechanical lack of interaction with restaurant staff. Many mobile apps come equipped with features or tools that only make it easier for friendly fraudsters to request illegitimate chargebacks or make other false claims at the click of a button. Because food orders must be fulfilled within a short period of time, giving a very short window in which restaurants can accept/or reject an order, fraud is difficult for QSRs to manage and contest. “With more consumers making more digital purchases than ever before, fraudsters hope to slip through the cracks in the midst of other priorities. And in the restaurant business, there is little to no time to do any manual review; consumers expect their food sooner rather than later,” Rich Stuppy, Chief Customer Experience Officer, Kount.

QSRs Can Fight Back Against Friendly Fraud
There is no doubt that the pandemic is responsible for a substantial increase in fraud and restaurants must be diligent in protecting their business — and their customers — from online threats as they navigate the “new normal.” However, virus or not, digital ordering is unlikely to rid itself of friendly fraud anytime soon. Any restaurant that is looking to expand their digital footprint must also properly ward against fraudsters that are sure to come knocking. Restaurants can mitigate their risk by leveraging the right tools and take necessary precautions against fraudsters.

Analyzing transactions and monitoring for suspicious behavior, such as exorbitantly large orders from first time customers or from billing zip codes far outside of your delivery area and providing just the right amount of friction are just some of the ways restaurants can keep their business safe.

Check out our blog for more information on protecting your restaurant from fraudulent transactions and chargebacks.