Ecommerce Fraud Cooks Up Trouble in Food Delivery

Whether you’re a mom-and-pop cafe, a restaurant franchise or a grocery chain, it’s likely that more and more of your business will take place online. According to Statista, ecommerce in food delivery alone is has a projected compound annual growth rate (CAGR) of 23.8% between now and 2022. That’s not counting the 11.8% CAGR expected from other areas such as grocery sales.

As retailers adapt their business models for ecommerce and mobile shopping, scammers have followed suit, developing methods ranging from simple promo abuse to sophisticated account takeovers. Since the food industry more than most others is under constant pressure to deliver high levels of service with speed and accuracy, it is especially vulnerable to fraudsters.

While other industries seek to finesse same-day delivery, grocers often have to have their orders completed and shipped in an hour, while restaurants get even less time (unless you enjoy cold pizza). Merchants thus have to make instant decisions about the legitimacy of a purchase or they risk upsetting their customers, a task made more difficult if their fraud prevention system is inefficient.

This could not only lead to falsely declining good orders, but also subject legitimate customers to cumbersome verification processes, causing them to abandon their purchase in frustration. Since profits in the food industry hang on razor-thin margins, merchants can ill afford such losses or delays in service.

The prevalence of loyalty programs and customer accounts in the food and beverage industry also makes retailers susceptible to account takeovers. A particularly hard to detect kind of fraud, account takeovers result in losses of over $2.3 billion per year, according to Javelin Strategy & Research. Fraudsters use a number of tactics to gain access to a customer’s account to place orders.

Because they cloak themselves in the guise of a legitimate customer, account takeovers can result in a lot of damage before being detected. Merchants also lose credibility when customers realize the fraudsters accessed their account and even used their stored payment method. The damage to their reputation, combined with substantial financial losses, can be deadly.

On top of this, fraudsters often use food delivery from online orders to test the validity of stolen credit card details purchased on the dark web. These practices are a headache for consumers who have to constantly dispute unexpected credit card charges.

It also has serious consequences for merchants. According to a recent consumer survey we conducted, over 20% of shoppers blame the merchant who accepted the payment from the stolen card. Take upset potential customers and combine that with chargeback fees, and even a $3 box of nuggets ordered with a stolen card becomes an exponentially bigger loss.

So, what can merchants do about fraudsters? First of all, they shouldn’t shy away from taking advantage of online growth – the opportunities are too big to ignore. However, merchants need to find a solution that not only stops fraudsters with little disruption to a customer’s shopping experience, but also tracks how fraud evolves. Advances in technology have created new angles for scammers every single day, and it’s crucial that merchants pay attention to how these tactics shift.

Whatever solution merchants land on, taking a long view of the work of fraud management in this hectic ecosystem is vital. When it comes to fraud, it’s worth a serious investment to avoid wasted labor and time, lost goods and a damaged reputation. The challenges of being a merchant doing food delivery have never been greater, but neither have the opportunities.

Eyal Raab is Vice President of Business Development for Riskified

[type='submit']
[type='submit']