June 19, 2018
In order to meet customer demand, quick service restaurants (QSRs) and fast casual restaurants are jumping into the mobile and card-not-present (CNP) environment.
With this leap to support CNP transactions, QSRs are exposing themselves to increased risk, fraud and chargebacks. Traditionally, QSRs are point of sale businesses. This type of sale puts the liability for losses due to fraud on the card issuer instead of the merchant. Therefore, when QSRs launch mobile apps or other online checkout methods and the liability shifts to the merchant, they likely are unfamiliar with the risks and strategies behind CNP fraud. They must now address fraudulent tactics that target e-commerce sites, as well as the impending risks and fees that are associated with CNP fraud.
Concerns at the top of the list for many QSRs are chargebacks and the strain they place on the relationship between franchisor and franchisees. Chargeback programs represent a financial obligation between the QSR and the various card networks (e.g. Visa or Mastercard) to ensure that disputes (aka chargebacks) and fraud are kept at acceptable levels. If these exceed the thresholds dictated by each card network, QSRs are placed into a chargeback monitoring program. Once in a chargeback program, QSR organizations are in a vulnerable position and can incur monthly fines and additional fees until the dispute or fraud levels have been reduced. Because CNP transactions and mobile payments are often driven as a corporate initiative, franchisees are typically picking up the bill when chargeback fees occur associated with CNP fraud.
Citing the findings from Kount’s 2018 State of Chargebacks Report, QSRs are not alone in the battle against chargebacks. Of the more than one thousand respondents, 82 percent of merchants are actively disputing chargebacks, 10 percent are in excessive chargeback programs and almost one in four (24 percent) state they have no clue what their actual win rate is when it comes to these disputes.
As QSRs rush to support mobile and capitalize on the growth that is available, they are learning the importance of striking a balance between loose policies that result in additional charges and a comprehensive fraud strategy that inhibits growth.
Kount’s recently released 2018 Mobile Payments and Fraud Report surveyed nearly 600 merchants and identified mobile-related areas that are sure to impact the QSR market’s rush to adopt mobile payments. Highlights of the survey include:
- Just 17 percent of merchants definitively state they have separate risk management strategies for mobile versus desktop e-commerce channels.
- Just 2-3 percent of merchants earned more than half of their total revenue in the mobile channel between 2013 and 2015, compared to 17 percent of merchants earning much of their revenue in the mobile channel today.
- One-in-three merchants surveyed use identity authentication in the mobile channel, while about one-in-four are currently using velocity checks, device identification, and a rules engine.
Mobile apps present greenfield opportunities for fraudsters as they look to exploit weakness in a merchant’s technology and/or policies. As QSRs jump into the mobile app market, it is essential that they do so with a clear understanding of the benefits versus the risk.
- 2018 Mobile Payments and Fraud Report
- 2018 State of Chargebacks Report
- CNP Fraud
- eCommerce Fraud
- Kount 2018 Mobile Payments and Fraud Report
- Kount 2018 State of Chargebacks Report
- mobile app fraud
- mobile app point of sale
- mobile apps
- Mobile Commerce
- mobile fraud
- mobile payment fraud
- online checkout
- point of sale businesses
- quick service restaurants