For the hospitality industry, the last 12 months have been more challenging than anyone could have predicted at the start of the pandemic. Walk down any high street, and the numerous ‘closed’ signs coupled with thin foot traffic help to illustrate the economic impact these businesses have endured. To make matters worse, as more food and drink establishments embrace online ordering and food delivery services, these businesses that are fortunate enough to remain open now face a new threat – chargeback fraud.

Increased CNP risk for restaurants

The previous year has altered behaviour in dramatic ways; both businesses and consumers have embraced online food ordering as a survival measure. Two-thirds of business leaders implemented or invested in app ordering systems in 2021, as well as on pay-by-app (54%), pay-by-phone (41%), and online booking systems (41%).[1] And consumers have embraced the food delivery market, with over a quarter of Brits ordering deliveries for the first time, or more often than usual, during the first lockdown last year. Recent results from Deliveroo confirm this; orders doubled in the first 3 months of this year, a YoY increase of 130%2.

All of these factors align for an increase in chargeback fraud.

Delivery and takeaway disputes

Sometimes true fraud occurs, and a stolen credit card is used to make an online purchase. In those cases, the business has no recourse except to return the funds if the customer disputes the transaction. The term ‘friendly fraud’ is applied when the customer claims to not recognize a transaction or to have a problem with the purchase, which they may not be able to prove. For restaurants, a customer may claim that they didn’t place the order, didn’t receive the part of or the whole order, or any number of reasons to be dissatisfied even though they’re actually happily fed. Customers who submit such a dispute are abusing the process by filing disputes with their issuer on legitimate transactions in order to get their money back. This practice is effectively delivery and takeaway dine-and-dash.

How restaurants can protect themselves from disputes

In many ways, restaurants face the same challenges when it comes to disputes as other businesses in the card-not-present space. As such, the same preventative measures can carry over to restaurants. For example, setting up fraud filters and authentication tools at pre-authorization can help stop fraudulent transactions. Specifically for restaurants, dispute management can mean taking pictures of all items in a takeaway order, so that evidence can be sent to customers who claim that all or part of their order is missing. Restaurants can also require the cardholder to pick up large orders in person and bring the transacting credit card. Doing so minimizes risk by turning a card-not-present transaction into a card-present one. Additionally, capturing as much customer information and purchasing behavior as possible can serve as compelling evidence when fighting unwarranted chargebacks.

There is also risk for delivery services, such as Uber Eats and Deliveroos. If a customer disputes a food delivery transaction – fraudulent or not – the burden of chargeback liability falls on the delivery service, not the restaurant.

Seeking help in managing disputes

Restaurants are typically smaller operations, and they’re not in the business of managing disputes, so they can’t be expected to have dedicated personnel or dispute expertise. Yet, both personnel and expertise are needed for an effective dispute management strategy. Fortunately, there are services that can assist.

Data-sharing solutions that allow issuing banks and businesses to collaborate on customer transactions can help deflect disputes. Sometimes the billing descriptor for a merchant is unclear on a customer’s bank statement. When a customer can’t recognize a transaction, they may file a dispute. If the business – the restaurant in this case – can share transaction details with the issuer through a data-sharing service, then the issuer can help the customer recognize their purchase and deflect a chargeback.

When chargebacks do get filed on legitimate purchases, small operations like restaurants can be impacted heavily when trying to fight such disputes. In these situations, restaurants should consider outsourcing this responsibility to a dispute representment service that has expert staff, which have the know-how and capacity to win these chargeback fights.

Protect the ability to transact on card networks

For restaurants at this time, every valid transaction can be the difference between staying open another day or closing permanently. Every bit of revenue must be protected. Chargebacks, however, pose another indirect danger by threatening the restaurant’s ability to transact on a card network.

Every card network, like Visa and Mastercard, sets a threshold for a merchant’s disputes relative to their number of transactions. Additionally, acquirers will charge merchants fees to process the chargeback. To put it plainly, if a business receives too many disputes – fraudulent or legitimate – then that merchant would be burdened with greater cost and loss of revenue, and they could lose the ability to accept credit card payments on respective card networks. To lose that ability would cripple a restaurant.

Under these circumstances, it’s sometimes best to refund the customer if it means avoiding a chargeback. Unfortunately, a recent study revealed that up to 51% of customers who filed a dispute due to an erroneous or fraudulent payment contacted their issuer first to resolve the issue.3 This means that merchants are not likely to have an opportunity to refund the customer before a chargeback is filed.

Fortunately, issuer-merchant collaboration tools exist to bridge this gap. When a customer decides to file a dispute with their issuing bank, the issuer can contact the merchant to find out if they would rather simply refund the money instead of incurring a chargeback. In effect, the merchant is resolving the dispute at the pre-dispute stage – before it has a chance to escalate to a formal chargeback. In this way, merchants can protect their dispute ratio and reduce costs related to chargebcks.

Moving forward with optimism

Disputes have always been part of the card-not-present (“CNP”) buying experience, so the hospitality industry should be no different. As restaurants depend more on takeaway and delivery services, they are experiencing the natural trend of increased disputes alongside increased CNP transactions. Fortunately, by being prepared with the right technology and business practices, disputes don’t have to be another disruption to an industry finding its way in the new normal.


1CGA and UK Hospitality, Future Shock, Issue Eight – Survival to Revival, December 2020.

2 The, 14 April 2021

3 Javelin – Optimizing Dispute Strategies, October 2020

By Brian