The past year has been — by almost any measure — one of the hardest ever for the restaurant industry, with the ongoing pandemic hurting few sectors more than hospitality and dining.
The National Restaurant Association‘s initial 2020 outlook was bright, as it projected sales just shy of $900 billion. Social distancing guidelines, stay-at-home orders and mandated dining room closures around the U.S. slowed restaurant traffic to a trickle, however, resulting in just $659 billion in revenue by year’s end. This revenue free fall could result in 100,000 restaurants nationwide closing either temporarily or permanently, with 40 percent of all restaurant operators unsure whether they can survive six months into the future.
Eateries are turning to online and mobile ordering as well as delivery to stay afloat, with online order volume from food chains spiking by 225 percent since the pandemic began. These growing revenue streams carry their own risks, however, not the least of which is their propensity to be targeted by fraud. Bad actors are deploying numerous schemes to take advantage of online ordering during the health crisis, such as false chargebacks, fake reviews and “pizza plugs,” all of which can severely impact restaurants’ revenues at a time when they can ill afford to lose any money.
The following Deep Dive explores the fraud methods that bad actors have exploited in 2020 as well as the lessons restaurants have learned from these schemes and how they can tap into this knowledge to safeguard their operations in the decade to come.
The Fraud Threats Of 2020
Chargeback fraud is now one of the most pervasive threats against the quick-service restaurant (QSR) industry, but this problem was not nearly as widespread when most restaurant transactions happened in person and any order issues could be resolved immediately. Most chargeback requests are still legitimate, such as when customers get the wrong orders from restaurants and decide to recoup their losses and cook instead.
Some individuals come up with elaborate excuses to avoid paying for their food, however, claiming their children accidentally placed orders via Amazon Alexa when in reality they are simply trying to score free pizza, for example. Most customers bypass restaurants entirely when trying to perpetrate chargeback fraud, with 76 percent of cardholders going directly to their payment card issuers. This gives QSRs no chance to weigh in on customers’ assertions and dispute any illegitimate claims.
Fake reviews are another growing threat, especially as more customers turn to Yelp, Tripadvisor and other restaurant review websites to determine where to place their next orders. Fifty-six percent of restaurant owners say reviews are better at driving traffic and revenue than traditional advertising, with more than one-third of diners refusing to order from a restaurant with a rating of less than four stars on online review sites. These websites can be chock-full of fake or misleading customer assessments, however, with as much as one-fifth of all Yelp reviews believed to be fraudulent. Such fake ratings are often the result of review farms, which restaurants can hire to bad-mouth competitors by paying individuals to write bad reviews en masse.
Yet another emerging threat to the restaurant industry includes schemes known as “pizza plugs,” named after the type of restaurant they typically target. These scams consist of fraudsters placing ads for discounted food on social media and asking consumers to pay them directly. The fraudsters then use stolen credit cards to place the orders from pizzerias, resulting in bad actors getting paid for next to no work and pizzerias getting ripped off when credit card owners spot illegitimate orders and notify the restaurants. The higher volume of online delivery orders experienced during the pandemic has made this scheme harder to spot and easier to execute than ever before.
Lessons For 2021 And Beyond
QSRs are working hard to mitigate the myriad threats that have surfaced during the past year, and many plan to apply the lessons they learned during the health crisis in the coming years. This is especially crucial because consumers are becoming more aware of fraud — and customers who have been defrauded when using QSRs’ apps are more willing than ever to abandon those restaurants. Sixty-four percent of American adults have previously been victims of data theft, and 62 percent are concerned about the possibility of fraud on these apps.
Restaurants will therefore have to step up their games when it comes to fraud detection and prevention. Using artificial intelligence (AI) in tandem with human analytics teams to examine individual transactions for fraud can be particularly effective in fighting these emerging schemes. Studies have suggested that these advanced technologies can improve fraud detection rates by as much as 50 percent and — just as importantly — reduce false positive rates by 60 percent.
Fraud is not the only factor that concerns customers. Inconvenience can be devastating as well, meaning QSRs will have their work cut out for them in the coming months and years as they attempt to balance these competing priorities. Recent vaccine announcements have heralded that the end of the pandemic is nigh, but many of the schemes that have developed or picked up steam during the past year will continue well into the future.