Many quick-service restaurant chains have proven themselves adept at responding to the rapidly-changing needs and expectations of modern consumers.

New customer-centric offerings like delivery services (either managed in-house or through third-party apps like DoorDash or Grubhub), online orders, and curbside pickups have enabled the $300 billion industry to flourish, even in the face of a global pandemic.

However, while these new offerings have undoubtedly provided greater convenience to customers, they have also opened up new avenues for fraudsters, inadvertently rendering the industry more vulnerable to fraud and transaction chargebacks.

Given that technology-driven delivery and pickup options are likely here to stay, it’s essential for quick-service operators to determine optimal strategies to shield themselves from fraud, unwarranted disputes, and preventable chargebacks.

Quick-service chargebacks: at a glance

Chargebacks happen when a customer disputes a transaction with their issuing bank. The customer contacts their card issuer, resulting in the funds being returned to the customer’s account, oftentimes instantaneously or within a few days. There are a number of reasons that quick-service restaurants in particular can find themselves a hotbed for chargebacks:

  • Speed over security

    Quick-service restaurants emphasize speed and convenience to provide a seamless customer experience. This often means forgoing additional verification measures (like asking for a signature or a PIN) that could slow down the transaction but might provide extra protection against fraud.
  • Card-not-present transactions

    The new online ordering, delivery services, and mobile apps for order pick-up are all categorized as card-not-present transactions. These transactions are particularly susceptible to chargebacks because it’s harder to verify the identity or validity of the customer.
  • High volume, low-cost transactions

    Quick-service restaurants process a large number of transactions, usually of relatively low dollar value. Due to the sheer volume, it can be challenging to monitor all transactions effectively for potentially fraudulent activity. Moreover, it’s not financially feasible to dispute every chargeback, given the time and resources required.
  • Friendly fraud

    Also known as chargeback fraud, a consumer makes a purchase with their credit card and then requests a chargeback from the issuing bank after receiving the goods or services, usually under false pretenses. For example, a customer may claim they did not receive the order or that it was unauthorized. Due to the nature of quick-service transactions, this type of fraud can be quite common.
  • Lack of a robust verification system

    Unlike many other retail establishments, quick-service restaurants usually do not have robust systems in place to verify and authenticate transactions. This makes it easier for fraudulent transactions to go unnoticed until a chargeback request is made.

While chargebacks are not always malicious, that doesn’t make them easier for merchants to deal with, and there are always financial and reputational consequences borne by the seller, no matter who is at fault.

How do chargebacks impact the quick-service industry?

Payment disputes can have a number of damaging effects on individual businesses, as well as impacting the quick-service industry as a whole.

Chargebacks commonly cause reputational damage, tarnishing the company’s image in the eyes of not just customers, but financial institutions (FIs) too. Each chargeback signifies a customer’s dissatisfaction, so a high number can create the perception that a business is failing to deliver satisfactory services or honor its commitments.

Frequent chargebacks may also attract heightened scrutiny from payment processors and regulatory bodies. Businesses can be subject to additional risk assessments and monitoring, which could lead to stricter regulations, higher processing fees, or even the termination of partnerships with payment processors.

Even without the increased operational complexities and costs that this heightened scrutiny can bring, chargebacks can cause serious disruptions. In order to handle them, businesses must divert resources and manpower from core business operations. Time and effort that is invested into investigating, documenting, and responding to chargeback claims could be better utilised on crucial operations like customer service, fulfillment of services, or product development.

Overall, chargebacks hurt everyone involved in the process, sometimes even the customers that file them through increased prices to help merchants make up for lost revenue. This is why it’s so important for operators to keep ahead of the curve by implementing a few best practices to limit overall industry exposure. 

Strategies for prevention

There are a number of strategies that can be utilized at every stage of the customer journey to decrease businesses’ overall chargeback issuances, such as having strong verification processes, reliable customer service, analyses of customer feedback, and up-to-date rule changes and regulations.

Implementing thorough verification processes during a transaction can help confirm your customers’ identities, intentions, and understanding of the service. This can include additional authentication measures or validation checks to mitigate instances of fraudulent or unauthorized transactions.

Timely and empathetic customer support can go a long way in preventing disputes. Maintaining strong customer service is vital for addressing customer concerns as they happen and resolving issues promptly. By offering accessible channels of communication, such as phone, email, or live chat, operators can proactively assist customers, clarify uncertainties, and address complaints before they escalate to chargebacks.

Regularly seeking customer feedback through surveys, satisfaction ratings, or online reviews can provide valuable insights into which improvements may be necessary. Addressing common customer concerns helps to enhance their experience while minimizing the potential for chargebacks.

Staying up to date with industry regulations and adhering to best practices for data security and privacy can minimize potential compliance issues. Complying with regulatory requirements can reduce the risk of penalties, legal disputes, and subsequent chargebacks.

A proactive approach is required

Quick-service and fast-food restaurants must proactively address chargeback issues through improved communication, enhanced customer satisfaction measures, and effective dispute resolution when necessary.

Businesses need to embrace a customer-centric approach focused on transparency and satisfaction, which in turn fosters trust, prevents misunderstandings, and ensures customers make informed decisions about purchases.

Implementing the best practices outlined above can help your business create a solid framework to minimize quick service restaurant chargebacks. You can also enhance customer satisfaction and ensure a smooth and secure experience for customers in the process.

Monica Eaton is the Founder and CEO of Chargebacks911 and Fi911, as well as Chief Information Officer of Global Risk Technologies. Monica has worked tirelessly to educate merchants and financial institutions about hidden threats in the rapidly changing payment fraud landscape. Leading Chargebacks911, was founded in Tampa Bay, Florida, expanding internationally also to become Europe’s first chargeback remediation specialist to tackle the chargeback fraud problem. In ten years, Chargebacks911 has successfully protected more than 10 billion online transactions and has recovered over $1 billion in chargeback fraud.  

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