Restaurants are a vast sector that continue to thrive on the mass number of customers that visit them. However, it is becoming harder for restauranteurs (especially start-ups) to grow their business due to the number of fraudulent chargebacks they face from customers.
Starting a restaurant is no walk in the park, statistically, 60% of restaurants close within the first three years. Keeping the restaurant’s profits high is essential. Too many chargebacks can be a make or break for a new restaurant, due to loss of revenue.
What are chargebacks?
To understand how to fight chargebacks, you first need to know what they are.
In simpler terms, chargebacks are when a customer goes straight to the bank to get a refund for an item, completely missing out the business to reverse a card payment.
It isn’t as easy as that. The bank will investigate the request, and based on the information given by the cardholder, they will give the correct Reason Code to the request. When the Chargeback is raised, the money will be removed from the merchant’s account.
The merchant will not have any say in the matter and will often only become aware of a Chargeback once they have seen the funds removed from their account.
How does this relate to the restaurant industry?
“Buy online, pick up in-store” (BOPUS) brings many opportunities for sales in the restaurant and bar industry, especially during COVID. The various restrictions have seen an increase in processing volume of these types of transactions. However, this can mean that merchants are more likely to be targeted by something we call ‘friendly fraud’. As digital commerce, like BOPUS, catches on, it has become more accessible for people to use chargebacks to commit fraud. Customers can file for chargebacks without a real reason by simply saying they do not recognise the transaction.
It is not always as sinister as that, sometimes it is just down to miscommunication between the customer and merchant that can lead to them filing a chargeback and therefore committing ‘friendly fraud’. Simple requests such as:
• The food order wasn’t delivered.
• The food wasn’t as described, and you wouldn’t take it back.
• The original transaction wasn’t authorized by the cardholder.
It is enough for a customer to file a chargeback, receive their money back, and keep the first product. If the Chargeback is not defended successfully, it can lead to a loss of both the transaction amount and Chargeback fees for the goods.