Mobile Ordering Fad Poses Payments Fraud Threat

Americans grew to love ordering snacks and meals via the well-known mobile apps, but restaurants didn't like the commissions charged. Problem is, the home-grown mobile ordering apps they put in place instead can trigger fraud issues, or even cost card issuers' business by causing rashes of false declines.

The rise of mobile ordering has become a convenience to consumers, having boomed during the pandemic. However, mobile ordering can occasionally bring challenges to banks and credit unions.

While these challenges can be costly, there are solutions.

New Fraud Risks Call for New Protections

Some quick-service restaurants that lack experience with fraud protections for card-not-present transactions can trigger a rash of false declines from time to time, resulting in negative consequences for your financial institution’s bottom line.

Ironically, this arises when the restaurants attempt save money themselves. With third-party food delivery services charging commissions, more quick service restaurants are opting to build their own mobile ordering apps in-house — a trend accelerated by the pandemic. Some launched new apps during Covid-19 lockdowns. Others enhanced their existing apps’ functionality, such as adding a curbside pickup feature.

While they boost consumer convenience, mobile ordering can also introduce new fraud risks for companies that have little experience with online services. The rise in transaction volume makes these apps prime targets for attackers. One study by Forter found that fraud in the restaurant industry rose 32% during the pandemic.

It’s understandable why many quick-service restaurants swiftly pivoted to mobile ordering. But companies accustomed to in-person transactions at a restaurant counter or drive-through window may not be equipped to handle the nuances of safeguarding against fraud in an app. Even before the pandemic boom, restaurant mobile ordering apps were targets of cyberattacks and had established security strategies to combat these threats.

Fortunately, food chains are taking further action to tighten up security and protect their customers from account takeover attacks and other risks. However, the biggest risk to financial institutions doesn’t come when fraud protections are lacking, but rather when they are overzealous.

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The Problem Of Being Too Secure

Financial institutions’ business suffers when a consumer’s card is falsely declined by a merchant due to poorly designed fraud protections.

A false decline is an extremely negative and sometimes relationship-breaking experience for a consumer. A study by Sapio Research indicates that 33% of consumers whose cards are falsely declined at a retailer will never shop there again. Aite Group estimates that false declines cost merchants 75 times more revenue than actual fraud.

But for banks and credit unions, it’s painful when the customer tries their transaction again — with a different card. With more transactions than ever taking place on mobile, being the top-of-wallet card a consumer has on file in a frequently used delivery app is enormously valuable.

Consumers Blame the Wrong Party:

When a card is declined in a mobile app, consumers may assume the problem is the financial institution’s card, not the merchant’s authentication or fraud mitigation process.

If they opt to swap in a different financial institution’s card, there goes the promise of steady revenue — and possibly your strong relationship if the consumer decides to remove the card entirely from their other wallets and apps.

And because you didn’t decline the card, you may never know why.

Collaboration and Communication Are Key

A food chain app accepting or declining a particular card is ultimately out of card issuers’ control — but that doesn’t mean they are powerless. Education is a powerful tool in the fight against false declines.

Make sure the merchants you work with are aware of the potential pitfalls of inaccurate fraud prevention methodologies, and the potential damage it can cause to their brands as well as yours.

By working with merchants, it may also be possible to identify issues that are causing false declines or other problems, and brainstorm creative solutions.

For example, Canadians buying gas in the U.S. struggled to pay with a credit card for some time. As a fraud prevention measure, gas pumps occasionally require a zip code for validation. But Canadian postal codes contain letters as well as numbers, which can’t be typed into a keypad. Issuers resolved this headache by creating a system where Canadians type in just the numbers in their postal code, plus two zeroes — which was sufficient to validate transactions. When it comes to validating users on an app, using other data points for validation beside zip code or card verification code may help improve fraud mitigation accuracy.

Even if you can’t control how food chains handle fraud, you can control your communication with customers. Design your user experience so it’s easy for them to understand when a decline originates with their financial institutions. This won’t clear up every instance of confusion, but it can help mitigate the impact of false declines.

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