How to deal with surging chargebacks as food delivery and take-out service soar?
There's no doubting the impact that COVID has had on the restaurant industry. Local and state-wide shutdowns have badly affected all dining establish, with dine-in restaurants suffering the most. However, it's not all been doom and gloom. Food outlets have responded by piloting restaurant pickup and online ordering systems to keep the orders flowing in while diners have been prevented from eating inside.
However, while demand for restaurant online orders may have surged, the increase in food delivery and curbside pickup is likely to be met with a proportionate rise in unwelcome chargebacks. So how bad is the problem set to become for restaurants taking an ever-increasing amount of online orders?
Chargebacks Set to Soar with Boom in Card-Not-Present Food Transactions
While chargeback figures are still to be analyzed for the last six months, the general expectation is that chargebacks will have dramatically increased in line with the boom in online orders. These predictions have been shaped by reports undertaken before the pandemic that demonstrated online credit card fraud increased by a staggering 79% in the food and average industry during 2018 alone.
Given that online restaurant-to-consumer delivery only increased by 7.6% in 2018, compared with the projected 17.6% in 2020, you can see why restaurant owners are so concerned about the possible repercussions posed in the form of increased restaurant chargebacks.
If you're wondering whether the biggest threat to your restaurant is online fraud or chargebacks, it's essential to understand they aren't mutually exclusive. In particular, so-called 'friendly fraud' is one of the most significant issues you need to stay on top of as a restaurant owner.
Increase in 'Friendly Fraud' is a Concern
If you're wondering what friendly fraud is, it's highly likely that you've already been a victim of this crime. It's the process whereby a customer makes a legitimate purchase using their credit card before filing a damaging chargeback after-the-fact without a valid reason. There are many instances where scenarios culminate in a friendly fraud incident.
For example, let's say someone regrets ordering $50 on their pizza delivery from your restaurant. Or perhaps they felt what they received for their money wasn't worth the expenditure. In either scenario, a chargeback isn't an acceptable resolution. Yet, many customers will try to initiate one based on made-up reasons such as the food was cold, the food wasn't what you ordered, or the cardholder didn't authorize the transaction.
According to data from Chargebacks911, around 60-80% of the average merchants' chargebacks are a result of friendly fraud. In many cases, there was a genuine mistake, such as the food not arriving or the order was wrong. Still, customers don't realize that this scenario's appropriate resolution would be a refund, not a chargeback.
However, an increasing number of individuals wish to use the chargeback function as a tool to commit fraud deliberately. It's akin to a diner sneaking off from a table without paying the check. A customer will place through your restaurant's online order system, knowing full well that they are going to make up an excuse to issue a chargeback after they've consumed the meal.
This practice continues to increase because it's easy for people to commit. Worse, the punishment for doing so is almost non-existent, since the onus is on the restaurant to provide evidence contrary to the chargeback claims.
Why Are Chargebacks Such a Problem for Restauranteurs?
The truth is that chargebacks are bad news for any company, regardless of whether they are in the restaurant industry or not. This is because every time a customer issues a chargeback, it costs your payment services provider money to challenge the claim. Many of these providers pass those costs back on to you, the business owner, which can quickly eat into profits.
However, the damage can be even more severe. The acquiring bank that handles and processes your payments will have specific chargeback tolerances in place. However, if you continuously exceed them, they may refuse to process your payments period, citing the disproportionate costs of doing business with you. In other words, excessive chargebacks could leave you in a situation whereby you cannot process customer payments at all, effectively bringing your business to a sudden halt.
That's why it's imperative that, given the surge in online delivery, and buy online, pick up in-store (BOPUS) orders, you must do everything you can to ensure that chargebacks are kept to a minimum.
What Can Restauranteurs Do to Reduce Chargebacks?
There is already momentum for change in the industry led by card companies such as Visa and Mastercard. Each company has revamped its chargeback processes to make it much more difficult for customers to commit restaurant credit card fraud. However, these actions will not be enough to curb the continued surge in chargebacks within the restaurant industry.
Instead, restaurant owners will have to reassess current operational processes to ensure the occurrences of chargebacks and fraud remain at minimum levels. That review procedure should start with your POS system, to make sure that it's processing online orders correctly. With POS systems automating ordering and handling the checkout process, and the number of face-to-face interactions between cardholders and restaurants falling off a cliff, there's more potential for errors and misunderstandings than ever before.
That's why you need to review both your ordering software and the physical process of fulfilling orders to try and eliminate any scope for making the types of errors that could lead to a costly chargeback. For instance, regarding physical order fulfillment, you could instruct your delivery drivers to take a picture of each customer with their order after they’ve checked that it’s correct. That way you have an incontrovertible defense against a customer saying they didn’t receive an order, or claiming that it was incorrect.
Next, you need to consider upgrading your payment technology to ensure that you are using the latest built-in anti-fraud tools such as Address Verification Service (AVS), CVV verification, and IP address tracking. These tools all help to stop any suspicious card-not-present purchases in their tracks. Speak to your merchant services provider about whether they can implement these tools on your behalf since it's also in their interest to lower chargebacks.
Given that card-not-present transactions present the most prominent threat in terms of chargebacks, you can implement processes to take them out of the equation. While you can use your website and POS system to process online orders, you can use the latest advances in wireless handheld POS devices to take payment in person from the customer. State-of-the-art wireless credit card terminals can connect via Wi-Fi or 4G, meaning they can take payment on the doorstep as well as for restaurant pickup orders.
Lastly, you need to evaluate your customer experience processes. Mistakes can happen. But it's how you respond that will determine whether or not that error will lead to a chargeback or not. Ensure that you have easy-to-find and straightforward refund policies in place, and provide accessible customer service channels so that customers can receive a fast resolution to their problem. Not only will these steps help to reduce your restaurant chargebacks, but it will make it easier to win your appeals against any that slip through the net.
Beat Chargebacks with an Industry-Leading POS System from POSTRON
With the restaurant industry turned on its head by the global pandemic, online sales for delivery and restaurant pickup are leading the recovery. However, the increase in online transactions poses a threat to your business. With the POSTRON POS solution, you can set up seamless online ordering experiences, minimize mistakes, and avoid chargebacks.
You can also use our wireless payment terminals to reduce your restaurant’s exposure to card-not-present payments. By being proactive with our solution, you can maintain your restaurant's payments integrity and continue to scale during these challenging times.
If you would like to learn more about how POSTRON POS software can help protect your business from deadly chargebacks, don't hesitate to contact a member of our team for more information.