Chargebacks continue to be a topic for any business accepting credit card payments. Restaurants particularly have a higher rate of chareback claims compared to other industries. Some restaurateurs experience more chargebacks than others depending on their concept. Concepts with alcohol are more like to have customers with payment disputes compared to fine dining or casual service environments. Restaurants that do experience chargebacks typically have them categorized into three different major categories: criminal fraud, merchant error, and friendly fraud. Let’s examine how each happens and how to avoid these chargebacks
What Is a Chargeback?
According to Redbridge, a chargeback is defined as, “the process in which a cardholder disputes a debit or credit card transaction with their issuing bank, instead of the merchant, in order to claim a refund or recover potential fraudulent charges.” Chargebacks become a more important process as EMV payment methods become implemented across all major card bands. Failing to follow EMV & PCI standards pushes a restaurant into being liable for paying a chargeback if issued by customer.
Simply put, chargebacks occur when a customer can dispute a payment made from their credit card. Restaurants are now liable for that if they are not taking EMV chip cards, following EMV standards, and adhering to PCI compliance rules. Not all chargebacks are the same, though. Merchant negligence and fraud fall under two separate characterizations and can affect how you dispute a chargeback. Take, for instance, criminal fraud.
Criminal fraud chargebacks occur when an identity thief or scammer performs an unauthorized transaction on another person’s credit card. An example of this would be a person picking up another person’s credit card and using it for a spending spree. Restaurants can protect themselves from criminal fraud chargebacks by utilizing pre or post-authorization strategies. Staff at a restaurant can ask for proof of ID with the form of payment before opening a tab or performing a transaction.
Merchant error chargebacks happen when a merchant makes a mistake before or after the transaction is made. A server may accidentally charge an additional item onto payment or deliver the wrong bill. Customers can then dispute the transaction despite their agreement to perform it. Merchant errors are easier to handle as we recommend for the merchant to discuss the mistake directly with the client.
It may say ‘friendly’, but it’s not! Friendly fraud refers to when a customer abuses the procedure of a transaction in order to receive a refund. This can be done out of intent or negligence. Bar owners may understand friendly fraud chargebacks best, especially if they’re in college towns. Believe it or not, this is the most common form of chargeback and comprises 60% – 80% of total payment disputes.
Protect Yourself From Chargebacks
SpotOn POS can assist with protecting a restaurant from payment disputes in several ways:
- No longer allow customers to hand over card payments to a server. Have all transactions be performed on an EMV handheld. Doing this ensures that payment never leaves the customer’s possession and shifts liability away from your business.
- Accept Mobile Wallet payments. Mobile Wallet payments like Google and Apple Pay require users to enter their phone password twice before performing the transaction. This gives more restaurants protection against criminal fraud.
- Require ID with each credit card payment. Corroborate the names on the person’s credit card and government issued ID before accepting any payment methods.
- Become EMV compliant. Switch to SpotOn and receive EMV readers on all your terminals. Being EMV compliant is one of the best ways to protect your restaurant from chargebacks, regardless of categorization.