Chargeback frauds in restaurants- Part 1
Fraud is common in restaurants. Why? Large staffs with multiple people who have access to systems/register run a risk. Combine this with multiple shifts and high employee turnover, the owner can’t be there every second of the day to prevent restaurant fraud.
Chargeback statistics reveal alarming numbers
Any business that accepts credit or debit cards as payment—or is considering accepting these forms of payment—should be aware of how chargebacks impact their business. These statistics reveal how consumer shopping has changed dramatically over the past few decades as well as how the chargeback process has not kept up with these changes. Most importantly, by taking a look at chargeback statistics, you can see how the chargebacks themselves often result in unintended consequences for high-risk merchants. Let's take a closer look at chargebacks.
Chargeback statistics restaurant owners need to know
Also notable is that 86% of all chargebacks are probable cases of friendly fraud, and merchants lose $2.40 for every dollar of chargeback fraud. In total, fraud costs the average merchant 1.47% of their total revenue. If these stats don't provide a clear enough picture of how fraudulent chargebacks can impact your business, check out the stats below:
- 81% of customers freely admit to filing a chargeback out of convenience. Most customers can’t see any difference between a chargeback and a standard return. They either don’t know—or don’t care—about how a chargeback negatively impacts merchants.
- A customer who successfully files a chargeback is nine times more likely to file another one, and 40% of customers who file a chargeback will file another one within 60 days.
- Merchants only hear from 4% of dissatisfied customers, and only 1 in 20 customers will call and complain if there is an issue with their order. The remaining 19 are at risk of filing a chargeback.
Chargebacks increase by 41% every two years. The issue will only get worse as the problem spreads to other markets like the EU, Japan, and China. The financial impact of chargebacks will reach close to $30 billion by 2020.
Types of Chargebacks in Restaurants
- Merchant errors: This is a grey area of chargebacks. Neither the customer nor the merchant is at fault for this chargeback, one believes that the other has made an error. For instance, a customer may request a chargeback when they believe they didn’t authorize a transaction or have a disagreement on a dish’s price.
- Criminal fraud: Just as it sounds – criminal. This occurs when fraudulent credit cards are used, or when wait staff applies a larger tip to a bill that has already been signed off on by the customer.
- Accidental friendly fraud: These chargebacks occur on the customer end of the chargeback. Accidental friendly fraud is when a consumer authorized a purchase but files a chargeback without realizing they are responsible for the purchase. For example, a child may be verbally authorized to use their parent’s credit card. When the bill arrives, the parent may dispute the charge, assuming it’s a fraud.
- Intentional friendly fraud: This is much more malicious, a customer may have buyer’s remorse and dispute the charge with the hopes of a refund. This is most commonly found in night clubs and restaurants where the spending is high.
Fighting Chargebacks – Now easier than ever before
The risk of chargebacks and friendly fraud is real, which is why you need a service provider who is fighting in your corner to protect your business. ONE BCG has chargeback prevention methods in place and can help you identify potential fraud, implement and maintain business best practices, gather evidence, and dispute chargebacks. With our first-class chargeback management services, we have helped businesses just like yours.
Why you shouldn’t accept chargeback as a cost of doing business?
Most of the restaurant owners are incredibly busy with operations, the thought of gathering the evidence, writing up an explanation and going through a pile of receipts to fight a chargeback seems time-consuming. It feels like a task since you do not know if you can win the chargeback contested.
But letting chargebacks go—particularly when they’re unwarranted—can be a serious mistake, especially in the long run. Choosing not to fight an illegitimate chargeback can lead to:
- Significant loss of revenue over time
- A poor reputation among payment providers
- Repeated instances of fraud
- Higher-cost payment processing
- Penalties for failing to acknowledge chargebacks
Learn How to Fight Chargebacks and Win in part 2 of this blog.