Mobile App Fraud Burns Restaurants – The 6 Top Schemes
Have you ordered lunch via a mobile app recently? Multiple restaurant types including quick service restaurants (QSRs), fast casual, as well as table service restaurants are engaging customers through mobile apps. In fact, QSRMagazine published the findings of a consumer study for mobile app usage of 2,500 diners. The results support the rapid growth of mobile apps and the industry’s continued adoption of mobile eCommerce. Specific consumer insights include:
- 63 percent have at least one quick-service app on their phones
- 73 percent have used mobile apps within QSRs
- 35 percent use mobile every time they visit a quick-service restaurant (or at least regularly)
Restaurants want to remain competitive and as a result, they are promoting brands through a digital presence.
With all its promise, mobile apps open the restaurant to a new type of fraud that few are equipped to handle – i.e. card not present (CNP) fraud. When restaurants experience fraud in their traditional card-present environment, the liability of loss is on the card issuer. When launching a mobile app to accept transactions in a card-not-present environment, the liability now shifts to the restaurant. This places the restaurant at risk of new fraud tactics, potential chargebacks and greater financial losses.
6 of the Top Mobile App Fraud Schemes Restaurants Face
- Account takeover: An identity can be purchased online for as little as $4 and be used to fraudulently login to an existing account. Once established, a fraudster will take advantage of the value of that account. This may include using the saved payment method or loyalty points to make purchases.
- Loyalty reward points: Because reward points work like cash, fraudsters will try to find weaknesses in the system and steal reward points to sell. This includes account takeover and brute-force hacking. Once the fraudster gains access, the subsequent fraud can be difficult to detect.
- eGift cards: Electronic gift cards are easily converted into cash, a key requirement for fraudsters. They are heavily targeted and considered “low hanging fruit” for fraudsters who can use stolen cards to quickly purchase thousands of dollars in gift cards and sell them at a discount to easily convert them into cash, with the franchisor responsible for the resulting chargebacks.
- Friendly fraud: In-app transactions present several additional scenarios for friendly fraud. One example is kids using a parent’s digital wallet to place a big order. Parents later find out and will dispute the order because they didn’t authorize it. This places the restaurant responsible for lost goods and operations to resolve the dispute, and potential chargeback fees.
- Promotion fraud (also known as extreme couponing): Launching a promotion will capture a fraudster’s attention because they are good at taking advantage of weak systems. With or without stolen credentials, they find ways to get around policies or offers and use them multiple times.
- Social media: Fraudsters use social media to ask someone to put $30 into their money transfer account, offering to provide $50 worth of food from a popular restaurant. They take the cash and don’t deliver the credit, resulting in negative social media posts and restaurant brand damage.
Restaurants that optimize the mobile app purchase process can maximize conversions and sales, reduce fraud, and minimize losses caused by fraud. By building a level of fraud prevention in their mobile apps, restaurant are empowering decision makers with data to make informed decisions, mitigating fraud before it impacts the businesses’ bottom line.
Learn more about Kount’s solutions for protecting restaurants with a digital presence, and why five of the top ten restaurants use us to prevent digital fraud in their mobile apps.
*Top ten restaurants as listed in the Mobile Order-Ahead Tracker report (May 2019)