Card-Not-Present Creates Chargeback Challenges for Restaurants

Friday, June 21st, 2019

Gone are the days where ordering food was as simple as making a quick phone call, picking it up and paying in-person. Today, new payments technologies offer a myriad of options for ordering dinner. While this is great for keeping up with customers’ expectations and new trends, it makes it much harder for restaurants themselves – and riskier.

More and more restaurants are offering delivery and “buy-online, pick up in-store”, or BOPUS, options. In fact, some are even using their own branded mobile app to streamline the customer experience. The features offered allow customers to customize items, participate in loyalty programs and learn about promotions and new items.

To simplify the process even further, and win loyal customers, buyers can even save payment information and favourite items. The next visit, their personal profile makes for a faster checkout. Customers can simply order and pay with a few quick clicks.

Great opportunities, new challenges

These perks for the customer, however, create big challenges for the restaurants themselves. Yes, expanding mobile payment usage in the food and beverage industry has created many opportunities. But it has also created new threats.

Automation in ordering and checkout process opens the door for errors. It removes or reduces face-to-face interaction between cardholders and merchants, opening the door for errors, misunderstandings and even criminal fraud. Unfortunately, where there are errors and fraud in card-not-present (CNP), it inevitably leads to chargebacks.

What are chargebacks?

Essentially, chargebacks are a forced payment reversal. The process begins when the customer goes to the card’s issuing bank and claims a transaction was fraudulent (or had some other issue). The bank then overturns the sale on the cardholder’s behalf. Contrary to popular belief, this issue is not experienced solely by online retailers.

More and more businesses are experiencing this issue as technology transforms industries and the way customers choose to pay, especially restaurants. Why? The change in payment preferences happened suddenly and dramatically for this industry. Before 2013, the industry rarely reported chargebacks. Fast forward to just five years later, 28 percent of respondents in the food and beverage industry had a chargeback rate between 0.5 and 1 percent of all transactions. One in ten respondents had a chargeback rate above 1 percent.

Why are fraud threats on the rise?

A recent report found that 75 percent of food and beverage merchants reported an uptick in mobile fraud attempts. So, why the increase in fraud? Why has the introduction of CNP transactions impacted restaurants so dramatically? According the experts:

• Fraudsters are opportunistic, and CNP fraud is easier to get away with.
• Criminal fraud is not the only problem. Chargebacks are meant for consumer protection, but they are often used as a tool to enable fraud today (e.g. “friendly fraud).

Is anyone helping to solve this problem?

Many providers are working hard to help the industry protect their businesses and customers’ information. The best payment processors offer chargeback protection programs that help you stay on top of chargebacks, notify you when they occur, and help you address them before they become a big problem.

If chargebacks and fraud are something your business is struggling with – and the costs that go along with it – consider what chargeback insurance providers can do for you. Learn more about chargeback protection and browse providers at Best Payment Providers. Find all the information you need to protect your business’ growth.