Restaurants have already been hit hard during the pandemic, as they are subject to various restrictions. Many places cannot open for anything other than delivery. Reduced dining room capacity keeps these businesses from bringing in as much income as usual. There’s also the worry about further restrictions coming later.
One other concern that is harming restaurants entails friendly fraud. This issue has become more prominent during the pandemic. People are buying more products and services online than ever. It has become easier than ever for people to get refunds on purchases they already consumed or utilized. People can get chargebacks instead of restaurant-issued refunds on their purchases.
The problem is simple, but it can be resolved or reduced if a restaurant uses the right measures. These include efforts for reviewing disputes and for accepting alternate forms of payment.
What Is Friendly Fraud?
Friendly fraud is where a customer will get a chargeback on a transaction the customer completes while online. The effort entails a few steps:
- A customer will complete a purchase with a credit card while online.
- The person receives the products or services.
- The customer will then request a chargeback from the issuing bank. The person must file an explanation surrounding the removal.
- The bank will review the request.
- The bank then decides to accept or decline the chargeback.
- If accepted, the bank will cancel the transaction.
- The consumer receives a refund of whatever one spent on that purchase.
The effort makes it easier for people to get things they want for free. Restaurants are hurt by this as people purchase foods for delivery or takeout online. Those people can then ask for chargebacks after they acquire whatever foods they ordered. The move provides free meals at the restaurant’s expense.
Who Is Liable?
A restaurant or other business will be held liable when a chargeback occurs. The merchant is accountable despite any efforts to verify the deal. Sometimes the customer requesting the chargeback might say the transaction was unauthorized. The move makes it easier for that person to get the full refund.
This concern has become prominent during the pandemic. Fewer people are dining at restaurants and are ordering home delivery. They do this for safety reasons, but some are starting to abuse the system.
It is easier for friendly fraud to occur when someone completes an online to-go order. The card doesn’t have to be present for an online transaction.
Other Payment Platforms Hurt
Another concern restaurants are dealing with entails how other payment platforms work. Many digital platforms people use for ordering foods from restaurants will move transaction data through an outside party. There exists another layer between the customer and restaurant due to these external programs.
It could become easier for people to request chargebacks if they purchase foods through these other platforms. The customer could claim that the food one ordered was ruined while in transit, or the delivery never came. But these points might not be valid, and it might be tough for a third party to dispute this point.
Why Do Card Issuers Usually Side With the Customers?
While the customers often lie about their chargebacks, it is easy for them to take advantage of this point. There are many reasons why card issuers will stick with the customers in these disputes surrounding friendly fraud:
- Card issuers have zero-liability policies, meaning the customer isn’t liable for any unauthorized purchases.
- Online transactions are card-not-present deals, meaning anyone could use a card so long as one has it in one’s possession.
- Consumer protection regulations focus on protecting customers from abusing card companies or businesses. They may be more willing to support the customers to keep their positive images intact.
Why Are People Engaging In Friendly Fraud?
The main reason people participate in friendly fraud towards restaurants entails their own financial struggles. Many people have lost their ability to bring in income during the past year. People might be willing to do anything they can to reduce their expenses.
The faulty mechanisms surrounding fraud protection for online food purchases are another factor. Since these transactions are card-not-present deals, it becomes easier for people to produce claims. They could say someone else had the card in hand, for example.
How Can Restaurants Fix This?
Friendly fraud is a legitimate concern that will likely become worse. More people will start to learn about it and take advantage of this point. But restaurants can fix this problem before it can become more widespread. They can use a few points for help:
- Digital wallets can add protection.
Digital wallets like Google Pay or Apple Pay allow people to complete transactions through a P2P network. The system doesn’t require any outside banks or delivery parties. It is also easier for people to confirm their identities through these digital wallet programs.
- Cash-on-delivery may also work.
Cash-on-delivery transactions may become necessary for some restaurant purchases. COD deals allow people to pay for their foods when they are delivered or when they pick them up. The customer can use a credit card, although cash could also work if the customer prefers this option.
- Artificial intelligence support is necessary.
Restaurants can use artificial intelligence or AI technology to review and resolve disputes. AI can review customer disputes and identify the best resolution methods. The work reduces the risk of chargebacks and ensures businesses can issue refunds when they are legitimate.
- Regular interaction is critical.
A restaurant can also communicate with the customer whenever there’s a problem. The restaurant can talk with the customer about the issue at hand. The two parties can find a reasonable way to resolve the issue before a chargeback is necessary. Having a more transparent system may also discourage people from committing friendly fraud.
Friendly fraud will be a significant concern for restaurants to watch for now and into the future. But the taking the right efforts for preventing the issue will help.