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6 Fraud Trends Spoiling Food & Beverage eCommerce

posted on: Wed Oct 11 2017

Although online food and beverage businesses have traditionally been perceived as less of a target for fraudsters, fraud losses are still substantial:

  • $765 million in fraud losses in the food and beverage industry—3.4% of total $22 billion in card-not-present (CNP) fraud losses
  • Fraud losses are equivalent to 1.5% of total food and beverage industry revenues

Order Pizza OnlineAnd fraud may be accelerating due to the surge in quick-service restaurants (QSRs), brick-and-mortar restaurant chains, and large grocery retailers entering the eCommerce world. Further, new innovations to make online ordering and payments easier—such as mobile payments—expose online food and beverage businesses to new vulnerabilities and new payment complexities.

  1. Card Testing. Fraudsters often purchase hundreds of stolen credit cards at a time on the Dark Web. To test them, they’ll make small-ticket test purchases on QSR or restaurant sites because small transaction amounts are typical and don’t arouse suspicion. Using special, automated fraud tools available on the Dark Web, fraudsters can rack up hundreds of testing chargebacks in just minutes and disrupt operations as kitchen and delivery teams work to fulfill the fraudulent orders.
  2. Payment Fraud. In addition to straightforward criminal payment fraud—in which a fraudster uses a stolen credit card to place fraudulent online orders—food and beverage operations are highly susceptible to friendly fraud. One trick that’s spreading on social media involves kids using their parent’s credit card to place a big order for a Friday night pizza party, then denying it. Not surprisingly, food and beverage merchants getting hit with high fraud rates have been clamping down on unusual or borderline orders. Unfortunately, the result is too many lost sales due to false positives.
  3. Mobile App Fraud. As mobile becomes an increasingly popular payment channel for online restaurants and food and beverage eCommerce operations, industry data reveals some daunting statistics. For example, 60% of overall fraud originates from a mobile device, according to RSA. For QSRs, restaurants, and grocery delivery eCommerce operations, this can lead to big mobile payment issues. For example, QSRs and restaurants are reporting high fraud rates of fraud with “buy online/pick-up in store” orders which processor ACI Worldwide says has a higher fraud-attempt rate.
  4. Account Takeover. When a fraudster takes control of a customer’s account, it not only creates huge customer service problems, but damages the brand in today’s world of viral social media. Account takeovers increased 61% and generated $2.3 billion in losses last year.
  5. eGift Cards. eGift cards from food and beverage businesses are a prime target for fraudsters because they’re easy to purchase, easy to convert to cash, and virtually untraceable. Secondary gift card resale marketplaces allow fraudsters to turn eGift cards that have been fraudulently obtained into thousands of dollars in cash in mere minutes. And it’s not just external fraud. One restaurant discovered they had been losing $10,000 a month due to the actions of a single employee.
  6. Mixed Merchant ID’s. Brick-and-mortar QSRs, restaurants, and grocery retailers launching online CNP payment options alongside their in-store POS payment systems can introduce new challenges. If the multiple transaction streams are not disaggregated, processors or issuers may generate incorrect chargeback rates, creating additional costs and higher fees.

While online businesses in other market segments have had time to deal with these issues as they’ve cropped up over the past 10 years, QSR, restaurant, grocery delivery, and food and beverage merchants new to eCommerce may find themselves getting pummeled by all of them at once, creating confusion about the true root causes of fraud and payment issues. This may lead to unnecessary implementation of multiple standalone or ad hoc fraud prevention tools that create significant IT integration challenges and costs.

A smarter, more cost-effective approach is an enterprise-class fraud platform that offers the integrated fraud prevention capabilities needed to fight today’s rapidly metastasizing online fraud attacks:

  • Integration of multiple, advanced fraud screening technologies
  • Real-time data orchestration hub
  • Advanced Artificial Intelligence (AI) & Machine Learning technology
  • Human intelligence with deep fraud fighting expertise
  • Integrated, omni-channel fraud prevention that employs multi-layer approach

Discover more about online payments and fraud in the QSR, restaurant, grocery, and food and beverage industries. Download the eBook "The Dish on Beating Online Fraud: How to Confidently Grow Sales in Food & Beverage" and learn how best practices can not only help cut fraud losses, but actually boost sales.

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