The 7 Unpalatable Costs of CNP Fraud for Online Food & Beverage Businesses
Whether you are an established food and beverage eCommerce operation or a brick-and-mortar newly entering the online space, the incidence of card-not-present CNP fraud is increasing dramatically. The latest figures show CNP fraud soaring 40% in 2016, with projections of increasing CNP fraud in the coming years.
The chart below includes CNP fraud losses and estimations from FT Partners Research and shows an unsettling trend for any retailer conducting business online.
This dramatic acceleration is due to a convergence of a number of factors, including:
- EMV mandate. Also called Chip-and-Pin, the EMV initiative makes card-present fraud more costly and difficult—driving fraudsters to CNP fraud.
- Rapid growth of mobile commerce. Mobile transactions are more likely to be fraudulent, with 60% of all fraud originating on mobile.
- Proliferation of weaponized data. Thousands of data breaches and hundreds of millions of records compromised over the past five years provide the ammunition that fraudsters need.
This higher CNP fraud brings unwanted losses and costs to online food and beverage businesses, Quick Service Restaurants (QSRs) featuring mobile ordering, restaurants offering curbside service, etc.:
- Lost merchandise. Fraudulent orders for food and beverage products that are shipped, delivered, or picked up by fraudsters are 100% losses. In addition, QSRs and restaurants are often targets of card testing. Test orders that are placed with no intention of picking them up are also 100% losses.
- Chargeback fees and fines. Depending on chargeback volume, these costs can range from $15 to $100 per fraudulent order.
- Operational disruption. Card testers using automated fraud tools and bots can rack up hundreds of trial transactions in minutes. This surge in false orders can wreak havoc on delivery and kitchen staff due to the short prep times and perishability of food and beverage items.
- Manual reviews. When chargeback rates start to rise, a common response of food and beverage shippers with longer fulfillment windows (e.g., foodservice equipment/supplies, peanuts, coffee, wine, etc.) is to increase manual reviews. But manual reviews are the most costly and inefficient way to evaluate transactions.
In addition to visible costs that are obvious, there are hidden costs to food and beverage eCommerce operations to due to higher CNP fraud:
- Declined & cancelled orders. A natural reaction to higher chargebacks and fraud rates is to clamp down. However, this can lead to food and beverage online businesses declining orders that only look suspicious, but are actually legitimate. In fact, decline and cancellation rates in the online world are much higher than the actual incidence of fraud. This represents a huge revenue loss. A number of studies have shown that the loss of revenue and profits from overaggressive fraud screening actually exceeds the losses from fraud had suspect orders been approved.
- Wasted labor. The wasted time that results from fulfilling fraudulent food and beverage orders isn’t the only lost labor. The hours spent by fraud analysts, customer service representatives, and other administrative staff dealing with fraud issues like representments, customers complaints, transaction audits, etc. steals time from profitable activities.
- Higher transaction fees and escrow accounts. Payment Service Providers (PSPs) typically charge more for merchant accounts when they exhibit higher rates of fraud and chargebacks. This can result in higher processing fees, which hurts profitability. If chargebacks and fraud are particularly high, PSPs may even enforce escrow requirements, which harms cash flow.
Fortunately, there are simple and affordable ways for online food and beverage businesses to better protect themselves against the 7 costs of CNP fraud. Enterprise-class fraud prevention solutions like Kount Complete employ multi-layered capabilities and a low-cost Software as a Service (SaaS) delivery model to make best practices for fraud prevention easy and cost-effective:
- 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, comprehensive fraud prevention platform.
Come hear how fraud experts from Dunkin’ Brands and Wendy’s are fighting eCommerce fraud. Reserve your seat for our upcoming webinar "Fighting Holiday Fraud for Food & Beverage".