Food Delivery Chargebacks

It’s already hard to remember a time when your favorite restaurant meals weren’t just a few swipes and taps away. Food delivery apps have changed the way we eat, making fast delivery a viable option for any restaurant. Consumers love the convenience, and for restaurants, these services are a valuable way to reach new customers and served as an important lifeline during the pandemic.

The downside is that many restaurants are experiencing digital dine-and-dash theft facilitated by abuse of the chargeback process. What do restaurants need to know about handling food delivery chargebacks? 

App-based services like DoorDash, Uber Eats, and Grubhub have gotten consumers accustomed to speedy, hassle-free food deliveries. Many restaurants work with one or more of these services, and some have launched their own delivery apps, but no matter how you go about it, online ordering and delivery is about as commonplace as takeout these days. 

The food delivery market is projected to reach $320 billion by 2029, carried forward by the momentum of the massive upsurge in usage associated with the COVID-19 pandemic. While most restaurants are back to dine-in business as usual, consumers aren’t going to forget the simplicity and convenience of placing an order on their phones and watching food show up at their doorstep a short while later. 

Unfortunately, simplicity and convenience can also be vectors for fraud and abuse. It’s all too easy to exploit food delivery services by misusing the chargeback process, and fraudsters are happy to use stolen cards and hacked accounts to score free meals. Delivery options are already likely to put a strain on restaurants’ profit margins, which makes it vitally important to do everything you can to protect your revenue from being taken away by chargebacks. 

What Kind of Chargebacks Affect Food Delivery Services? 

Food delivery services are frequently impacted by both true fraud chargebacks and first-party misuse, which is another term for “friendly fraud” chargebacks that result from false or erroneous disputes from customers. 

There are two ways for bad actors to engage in credit card fraud against food delivery businesses: 

  • They can add a stolen credit card number to a customer account they’ve created. 
  • Or, they can take over the account of an existing customer and use their stored payment credentials to make a purchase. 

Either way, the purchase gets charged to an innocent victim’s card, and when the fraudulent transaction is discovered, it will turn into a chargeback. True fraud chargebacks are not uncommon, but a high percentage of chargebacks are actually filed by legitimate customers against their own purchases. Sometimes there are valid reasons for these chargebacks, but in many cases, the customer is making false claims and deliberately misusing the chargeback process to get their money back. 

Why Do Customers Dispute Their Food Delivery Purchases? 

Legitimate customers may dispute food delivery purchases either because there was a problem with the order and they didn’t get what they paid for, or because they’re engaging in purposeful chargeback fraud to get their meal for free. 

Things can potentially go wrong with a food delivery order. The driver might drop the food off at the wrong house, porch pirates might grab the package before the customer can get to it, or there might be missing or incorrect items. Sometimes customers are disappointed in the quality of the food or the amount of time the delivery took. 

In these cases, the customer might request a chargeback from their bank instead of contacting the restaurant to ask for a refund. The customer might not realize that a chargeback is more harmful than a refund, but the restaurant certainly knows it.

Chargeback fees can easily exceed the amount of a typical food order, and an excessive monthly chargeback rate can get you penalized by your acquirer and the card network.

And then there are the customers who are perfectly satisfied with their food, but make up reasons to ask for a chargeback anyway. What they’re doing is no better than dine-and-dashing, or putting their own hair on the plate so they can demand that the restaurant comp them. In fact, these fraudulent chargebacks are worse, for the reasons outlined above. 

How Should Restaurants Handle Food Delivery Chargebacks? 

To deal with food delivery chargebacks, you need to follow a multi-pronged strategy of preventing true fraud and account takeover attacks, proactively dissuading unsatisfied customers from pursuing the chargeback route, and fighting the chargebacks that result from first-party misuse. 

If you deliver through a third-party app, true fraud prevention will be largely out of your hands. It’s up to the entity that actually stores and processes payment cards to protect the cardholder from fraudsters and hackers. Review your service agreements with these providers to find out what your liability is in these circumstances. 

If you do process food delivery credit card transactions yourself, be sure to select and deploy anti-fraud tools that screen out suspicious transactions or subject customers to multi-factor authentication.

If you manage customer accounts with stored payment credentials or reward points, require your customers to secure them with strong passwords. 

In dine-in situations, restaurants are able to avoid chargebacks by addressing customer complaints in the moment by fixing mistakes, replacing unsatisfactory dishes, and (when all else fails) comping meals. It’s not as simple to do these things for a delivery order, but if you make it easy for customers to reach you when they have a problem and offer a resolution that makes them happy, they’ll be much less likely to resort to payment disputes. 

That leaves us with first-party misuse, the so-called friendly fraud chargebacks. You can fight these by following the chargeback representment process, which involves re-presenting the transaction along with compelling evidence that convinces the issuing bank to reverse the chargeback.

Finding the right evidence for food delivery disputes can be tricky, but it’s important to remember that subjective disputes over things like product quality are not valid chargebacks. “I never received my order” is a common claim in first-party misuse scenarios, so ask your drivers to take photographs to prove that they dropped it off at the right house. 

Conclusion 

Food delivery can be a juicy target for fraudsters, and it’s not uncommon to see a spike in your chargeback rate when you start offering delivery services. When you don’t get fraud and dispute problems under control quickly, they can push your chargeback rate into excessive territory, and that can be dangerous to the health of your business. 

When a chargeback problem starts overheating, don’t hesitate to order up some expert assistance in dealing with it. Chargeback management companies that have experience working with the food service industry will have the right knowledge to help online restaurants put a lid on fraud and disputes. 

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