Since early 2020, consumers have substantially increased their use of third-party delivery apps, such as Uber Eats and Grubhub, for online food orders. As online orders have increased, chargebacks have skyrocketed as a result. In fact, restaurant owners say chargebacks, which were traditionally at .5-1.0%, now range from 2.5-4.1%.
Increasing chargebacks is a growing concern for many restaurant owners. Our team at ITech Digital has worked with our customers and trusted partners to determine the cause for such a significant increase in chargebacks. While criminal activity and employee error are contributing factors, we also noticed a significant rise in chargebacks related to something known as friendly fraud.
What is Friendly Fraud?
Friendly fraud occurs when a consumer disputes a charge—knowingly or unknowingly—for any reason other than criminal fraud or not receiving their food. Here are some examples:
- A customer is missing an order of fries. Rather than reaching out to the restaurant, they dispute the entire charge.
- A customer is dissatisfied with the length of time it took to get the food or the meal itself. Instead of contacting the restaurant, they dispute the charge.
- A customer doesn’t recognize the charge on their bank or credit card statement when it comes, especially if they order through a third-party app, so they dispute it.
- A child orders food without notifying their parent.
- A customer knowingly orders a meal and then disputes it to avoid the expense.
- A delivery driver decides to skirt the system, sometimes with another party who orders the food.
For most of these scenarios, the customer should reach out to the restaurant and try to resolve the issue directly with a manager. Unfortunately, many customers either don’t realize this or think the procedure is too cumbersome. Still others simply want a free meal.
The chargeback remediation process itself is a cumbersome one for restaurant managers and owners. For many, it isn’t worth the time it takes to investigate and challenge a chargeback when compared to the amount of the return. However, increasing chargebacks start to cut into profit margins, which leaves the owner in a precarious place. That is to say, they have to decide between spending hours researching chargebacks or absorb the increasing cost.
It's important to understand how chargebacks are impacting your bottom line. If this is a concern for your business, get a copy of our FREE whitepaper where we'll explain more about Friendly Fraud and how you can quickly and easily adapt and protect your business from future chargebacks.