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.

How to protect yourself:

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1. Enable 3DS

3DS technology is designed to add another layer of security to fight back against fraud and chargebacks. Customers will be automatically directed to a separate page where they’re asked to put in a unique code. If it is the actual cardholder, then the process shouldn’t be an issue, and the payment will go through, but this is a little more difficult for fraudsters as they shouldn’t receive this code. Unfortunately, 3DS will not protect you in situations where a cardholder raises a dispute when their goods aren’t received, but they will help if a transaction is given as Card Not Present Fraud.

2. AVS (Address Verification Service)

This tool is provided by processors and issuing banks to merchants to detect suspicious card transactions and prevent fraud. The AVS checks the billing address given by the card user and refers to the billing address on record at the issuing bank through the authorisation process. The credit card processor then sends a response code back to the merchant showing the degree of address matching, thereby authenticating ownership of a credit or debit card in a non-face-to-face transaction. This process is there to help merchants in deciding whether a card transaction should be accepted or rejected.

3. Analyse the data

If you’re receiving a high number of chargebacks for a particular reason, you can take steps to sort out these problems. It doesn’t need to be super complicated. For example, if the reason you’re getting chargebacks is that “the food hasn’t been delivered”, then you could change the re-presentment document. Do this by adding tracking to your deliveries or requesting a photo of the goods at the door. If the chargebacks are related to “the food not being how it was described”, then change the description of the meal online or on the menu to reduce these disputes.

4. Ethoca and Verifi

These two platforms can act as the middleman for any chargeback from a customer. They are platforms for the leading card issuers, Mastercard (Ethoca) and Visa (Verifi), to help fight back against the increasing volume of chargebacks. Merchants can decide which disputes to deal with depending on the alert from the reason code and the transaction amount, just to name a few. This reduces the time taken to service chargebacks and, therefore, can save them from a high revenue loss once you add in Chargebacks fees.

Knowing how to find chargebacks and protect your business from them is the best way to keep your high profit. No one wants to deal with them, and they can be very damaging to your image and customer relationships. So, staying on top of them will keep you from falling for nasty fraudsters and their tricks.