How QSRs Can Curb Chargebacks

It was a great day for customers when fast-food restaurants (quick-service restaurants, or QSRs) started accepting credit cards. It meant a lot of convenience and even the ability to place bigger orders for more food. The QSRs certainly appreciated that.

And then with the advent of ride-sharing services like Uber and Lyft, plus the proliferation of pizza delivery, it only made sense that someone would combine the two and start hiring Uber drivers to pick up a food order and bring it to the person’s house.

QSRs like Burger King are facing more and more chargebacks as food delivery services grow in popularity.

This gave us GrubHub, DoorDash, and a number of other dedicated food delivery services, which meant you could get food delivered from just about any restaurant, including your favorite fast-food joints. And that model got even bigger during the pandemic as many restaurants pivoted to a carryout/delivery model and shut down their dining room.

But what this development has also led to, says, is the growth of chargebacks, which was something the QSR industry had never really seen before.

They’re growing more frequent during the pandemic, and QSRs are not sure what to do about it.

Restaurant chargebacks are usually one of two types: legitimate disputes related to customer service, such as an order being late or never showing up in the first place.

The other type is called friendly fraud. That’s when a customer falsely claims their order was incorrect — or even a small part of the order — and then issues a chargeback for the entire amount.

Let’s say someone ordered six cheeseburgers, fries, and drinks. They might say they only received five orders of fries, and then charges back the entire order. That means the restaurant is out the money for the whole order and their chargeback ratio gets dinged.

When this happens at a clothing store, the item is nearly always returned and it can be placed back out on the floor to be resold. That can’t happen with food. Not only that, but there’s the loss of time and ingredients to prepare the food, so it’s a bigger loss than just the cost of the order.

A chargeback, depending on all the fees and penalties the issuing bank and credit card network assesses, could be anywhere from 40 percent to 300 percent the amount of the original order.

Enough chargebacks in a single month and a merchant could be put on a credit card monitoring program, which takes out even more fees. Merchants in Visa’s Chargeback Monitoring Program are subjected to a $100 fee for each additional chargeback, plus even more penalties if they can’t keep their chargebacks below a certain level.

Last year, an industry study found that 28 percent of the foodservice industry had chargeback rates between 0.5 – 1 percent of transactions. An additional 10 percent had a chargeback rate of more than 1 percent. This may not seem like very many — the ecommerce industry would love a ratio that low — but it’s a lot more than five years ago when restaurants had no chargebacks whatsoever.

So how can QSRs reduce chargebacks?

To start, keep track of all your sales and customer data. It may seem like a headache, especially if you have a high volume of orders, but you need a POS system that will keep track of every order, whether it was dine-in, carryout, delivery, or third-party delivery, and a CRM to keep track of all your credit card orders.

Second, be aware that chargebacks rarely ever happen if a person ate at the restaurant. If the customer ate in and issued a chargeback, you can rightfully contest the chargeback and demonstrate that the customer never brought any problems to the manager’s attention. (This is one reason to keep track of your orders.)

Third, be sure to immediately issue refunds if there are any problems. If a customer does complain and nothing is done, they can elevate their complaint to a chargeback. Believe us, the refund is preferable to the chargeback.

Fourth, implement extra security measures like address verification and CVV verification on your website or mobile app. A lot of chargebacks happen for card not present (CNP) transactions (like online food orders) because the issuing bank is worried about identity theft and stolen credit card numbers. These security precautions can help reduce the likelihood of fraud.

Even if you only have one chargeback out of every 100 transactions, that can still be painful if you have a few hundred transactions every day. If you could even reduce these numbers by half, you could save yourself hundreds of dollars in lost orders and needless fees.

For more information on how QSRs can fight chargebacks and save money, CB-Alerts can help. To learn more, please visit the CB Alert website.

Photo credit: Anthony 92931 (Wikimedia Commons, Creative Commons 3.0)

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