Food Delivery Fraud

Table of Contents

1. What Is Food Delivery Fraud?
2. What Are the Common Types of Food Delivery Fraud?
3. Why Is Food Delivery Fraud on the Rise?
4. How Can Merchants Prevent Food Delivery Fraud?

Until recently, most people didn't have very many options if they wanted food delivered. Pizza was the obvious choice, and in many cases, the only one. If you were lucky, maybe you could get some Chinese food delivered. In recent years, however, food delivery apps like DoorDash, Grubhub, Uber Eats have exploded onto the scene, giving customers the ability to order food delivery from any number of restaurants.

During the coronavirus pandemic, these apps became crucial for the survival of restaurants in many cases, and many of those that didn't have arrangements with these apps started offering in-house delivery services.

Unfortunately for merchants, a lot of fraud is being delivered as well. For a variety of reasons, the food delivery business is particularly attractive to fraudsters. What can merchants do to minimize food delivery fraud while continuing to give their customers the services they enjoy?

More than 45 million Americans used food delivery services in 2020, an increase of 25% over the previous year. Fraud is predictable—it follows the money. Any time an industry sector, like food delivery apps, sees an increase in usage and revenue, it’s a sure bet that fraudsters will be looking for ways to find vulnerabilities and take advantage. In food delivery, fraudsters have found targets that are appealing on a number of levels—and difficult for merchants to protect.

Whether you’re offering your own in-house ordering and delivery system or working through third-party apps, any merchants who offer online takeout and delivery services should learn about the current state of food delivery fraud and develop a plan to identify and weed out fraud to the best extent they can.

One of the big things that makes food delivery fraud different from other types of fraud is that the fraudster’s objective isn’t to convert stolen credit card numbers into goods that can be resold for cash—for the most part, food delivery fraudsters have every intention of eating their ill-gotten acquisitions.

Credit Card Fraud

In cases of credit card fraud, the fraudster simply logs into the restaurant’s ordering system, places an order with somebody else’s credit card, and waits. If the merchant processes the transaction, the fraudster has scored a free meal—and confirmation that the card may be usable for future purchases.

Account Takeover Fraud

Account takeover fraud occurs when a fraudster steals a user’s login credentials for a restaurant website or delivery app. Account takeover attacks can be particularly easy when food delivery is involved, because many restaurants and stores have loyalty programs that allow users to pay for meals with accumulated points. Fraudsters like this because they can cash out points to buy meals instead of trying to use stored payment cards, which may require them to know the card’s billing address or CVV.

Friendly Fraud

Friendly fraud, also known as chargeback fraud, is extremely common in the world of food delivery. The fraudster simply orders a meal on their own card, then disputes the charge by falsely claiming that they never received it. With many delivery services offering no-contact, leave-at-the-door options for coronavirus-wary customers, it can be difficult to disprove these claims.

There are also a few other factors that make food delivery especially vulnerable to fraud.

Checkout friction can be a big problem for food merchants serving impatient customers, and anti-fraud screening can add noticeable friction to any checkout process. Some merchants err on the side of minimal friction by cutting back on security, which allows fraudulent transactions to slip by more easily.

This also means that food delivery is a great vehicle for card testing fraud, with the side benefit of getting some free food out of it. Fraudsters frequently buy stolen card credentials in bulk on the dark web, where many of them have already been reported lost or stolen.

“Testing” these cards by making small purchases allows fraudsters to see which ones are still usable, and food delivery is often a quick, low-risk way to try out a new card number. 

For merchants in any industry, it’s tricky to decide how much fraud screening you can engage in before you’re alienating too many of your legitimate customers with friction or false flags.

Food delivery merchants are under a lot of pressure to complete transactions and fulfill orders quickly, but without adequate security, you can quickly find your profits devoured by true fraud chargebacks.

Analyzing your fraud and chargeback data can help teach you which fraud indicators are the most important to watch out for. Strong password requirements, push notifications, and two-factor authentication can help reduce account takeover fraud.

When friendly fraud chargebacks arrive, you should fight them through the representment process, using app and transaction data to present compelling evidence that you authorized the transaction appropriately and followed the customer’s instructions.

Modern fraud prevention software can use AI to automatically detect purchases that are likely fraudulent. While many merchants benefit from manually reviewing any red-flagged transactions, time-sensitive businesses like food delivery may benefit from allowing this software to automatically accept or reject transactions.

Merchants using this software must take care to precisely calibrate where the line for rejecting a transaction should be to avoid turning away legitimate customers.

The recent boom in the food delivery sector has given merchants a lot of new business opportunities, but whenever that happens it’s a sure bet that fraudsters will come to scavenge what they can.

Merchants must apply the best practices for fraud prevention to their food delivery operations and look for ways to reduce customer inconveniences without sacrificing security.

With the right data-driven approach, you can find ways to prevent and fight chargebacks while keeping your loyal customers coming back for the reliable and consistent service they’ve come to expect from you.

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