Taking a closer look at third party chargebacks

Gareth Bakewell (pictured), head of business development (UK&I), DTiQ – a provider of intelligent video-based surveillance and loss prevention services – takes a closer look at the topic of chargebacks.

NOT AN ISSUE?

You may think of a fraudulent delivery chargeback here and there is no cause for concern. Although the impact of delivery chargeback fraud can vary, over time, chargeback fraud can make a negative impression on profit, particularly when pizza restaurants and takeaways run on narrow margins. It can also potentially affect your brand’s reputation.

As the pizza delivery sector has grown, with it we have seen a proliferation of aggregators such as Uber Eats and Just Eat, ready to deliver on behalf of QSRs across the UK. This in turn, has opened up the opportunity for fraudulent third party chargebacks.

It’s difficult to quantify the size of the issue for restaurant operators across the industry. We know that Covid has resulted in further increases in fraud overall in the UK and beyond, because more transactions are occurring via credit card and online.

The Office of National Statistics states: “Fraud and computer misuse offences have increased substantially over the last two years; while many other types of crime have decreased, affected by periods of national lockdown during the coronavirus (Covid-19) pandemic.” The ONS goes on to confirm that fraud offences increased by 25% (to 4.5 million offences) compared with the year ending March 2020, driven by large increases in “advance fee fraud” and “consumer and retail fraud”.

Ok it’s not pizza, but one ice cream parlour boss in the UK reported losing £60 per week to the Manchester Evening News due to chargeback fraud (Furious Manchester ice cream parlour boss says customers lie to get free Uber Eats ordersleaving him out of pocket, 23 January 2023). Further, one global QSR brand was losing $500 per location per month and was able to reduce this to $150 with help from our expert data analysis and video surveillance solutions from DTiQ.

What we do know, is how third party chargeback fraud can and does occur, and that incidents are growing. We also know what pizza firms need to do to minimise the impact so let’s take a closer look.

WHAT IS THIRD PARTY CHARGEBACK FRAUD?

A third party chargeback is where a customer makes an online purchase, typically using a credit card and the payment is reversed by the customer’s bank, meaning the merchant loses the money, the cost of goods and any costs incurred by making the product. Some chargebacks are simply misunderstandings, but others are a form of intentional theft.

Chargebacks are legitimate if a customer didn’t receive the product. There is an increasing trend for dishonest customers to commit chargeback fraud even though their delivery was received and correct. With limited staff and resources, it’s often difficult for restaurant owners to dispute chargebacks.

There are three types of false chargebacks.

Friendly fraud is when a customer files for a chargeback from their bank on a legitimate transaction instead of trying to obtain a refund from the merchant. A friendly fraud chargeback may be deliberate or unintentional, as a customer may receive a credit card statement and genuinely believe a fraudulent transaction took place.

Criminal fraud occurs when an individual steals credit card information to purchase goods and services fraudulently.

Merchant errors are types of errors that can occur because of operational mistakes. For example, a customer might be charged for an item that has already been cancelled, or the merchant may accidentally issue a duplicate charge.

When a customer disputes a charge that appears on their credit card account, the bank can reverse the charge, meaning the merchant loses the money – even if they’ve already issued goods or services to the purchaser. An individual might order a pizza online, claim it was never delivered – even if it was – and request a false chargeback.

Strategies To Prevent Chargeback Fraud

Every restaurant deals with disgruntled customers from time to time, so it may not be possible to eliminate chargebacks completely. Taking steps to prevent fraudulent chargebacks needs to be part of a comprehensive loss prevention solution. Restaurant owners should implement the following strategies to avoid chargeback scams.

Invest in fraud prevention technology. It’s estimated that up to 30% of chargebacks are the result of fraudulent credit card use. Partner with reputable delivery services and use a smart surveillance system that integrates with your POS system and can alert you to suspicious activity.

Implement loss prevention solutions. DTiQ offers sophisticated video surveillance solutions, drawing on intelligent video and advanced analytics to identify and minimise loss prevention. Key metrics and reports on transaction times, customer conversion and employee behaviour can identify issues and other trends to enable positive action to be taken.

Make It Easy For Customers To Contact You

Your restaurant’s contact information should be prominently displayed on your website, customer receipts, and email messages. This is to encourage patrons to contact you directly if they have an issue rather than resorting to their bank. This can help reduce accidental and friendly fraud incidences and provide an opportunity to build customer loyalty.

Concentrate On Staff Training

Merchant error can result in lost revenue and frustrate your customers. Make sure you’ve provided your staff with thorough training on your point-of-sale (POS) software, so they know how to process delivery orders correctly. Always confirm with delivery drivers that the customer received the order. Some delivery services will even take a photo of a curb side dropoff to serve as proof in case of disputes.

Often there is no need to upgrade current CCTV or EPOS to get on board with intelligent video, as the latest tech can work with existing infrastructure. DTiQ, for example, even offers SmartAudits to evaluate working practices remotely and provide data-driven insights to improve employee performance and company efficiency. The company also works with some of the leading QSR brands across the world, including Domino’s and Pizza Hut.

It varies, but most of our QSR customers see a three month return on investment. Overall, we aim to add approximately 2% to an average customer’s bottom line through savings in wastage, loss prevention and an increased in speed of service/turnover.

With increasing costs and customers limiting spend due to the current cost of living crisis can you afford not to take a closer look at reducing third party chargeback fraud?