How customer chargebacks can hit restaurants hard

July 1, 2019

Chris Algie

Head of Business Development

The restaurant sector is one of the most notoriously difficult industries to succeed in, and a growing culture of customers issuing fraudulent chargebacks is making it harder than ever for restaurateurs to grow their business in an already challenging financial climate.

Research suggests that nearly 60% of restaurants in the leisure sector close within the first three years. While that’s better than the perception that 95% fail in their first year, it’s still a terrible statistic that any business owner wouldn’t want to be part of.

For restaurants to grow, though, they need to hold onto their profits. Dealing with customer chargebacks in the right way can help them to do so and stop fraudulent claims holding their business back.

A culture of chargebacks and ‘friendly fraud’ is hitting businesses of all shapes and sizes. How can companies adapt to an evolving consumer chargeback philosophy, protect their profits and keep markets happy at the same time? Read ‘What is friendly fraud and how do chargebacks work?’ to learn more.

How chargebacks work in the leisure sector

Customer chargebacks are a unique problem in the restaurant sector. Domino’s Pizza, for instance, has recently had to fight back against fraudulent customer chargebacks through ‘tips’ spreading through social media that suggested issuing one could net people ‘free pizza’ once their food was delivered.

Chargebacks are necessary, though, and a great way for people to claim money back when they’ve been hit by fraudulent activity themselves. So, what are the most common chargebacks that restaurant owners are currently facing?

  • Lost or stolen cards: There has been a spike in restaurant owners facing chargebacks because of claims that the card used to pay for a meal has been lost or stolen
  • Poor payment procedures: Some restauranteurs are facing chargeback claims simply because of the way they handle their payments and use technology that doesn’t accept EMV payments
  • Poor admin systems: Customers can initiate a chargeback long after they’ve left a restaurant, but some restaurants poorly store or don’t keep hold of their receipts and other crucial admin documents to fight a claim

How your restaurant can fight fraudulent chargebacks

Your restaurant may need a slight technical upgrade or a complete overhaul in how you handle chargeback requests.

Sometimes it can be a method as simple as changing how your restaurant appears on billing statements to abate customer confusion, or you may have to train your staff in new ways of conflict resolution to mitigate chargeback requests.

The nature of the leisure industry means that, more often than not, chargeback requests can be greatly reduced by implementing POS systems and digital software that protects both the customer and the restaurant from fraudulent activity, is EMV-ready and makes it easier than ever for people to complete a purchase.

Restaurants, sadly, are very susceptible to ‘friendly fraud’. Using the right hardware, software and adjusting some of your internal procedures can go a long way to reducing the amount of chargeback requests you receive, allowing you to keep hold of your profits and grow your restaurant.

If you’d like to know more about how chargebacks work in the restaurant sector and how you can fight back against fraudulent activity to grow your business, contact the Fibonatix team today.