Deep Dive: How QSRs Can Leverage Digital ID To Help Combat Mobile Fraud Trends

The global health crisis has devastated the restaurant industry, and approximately 15 percent of all U.S. eateries and bars had closed permanently as of fall 2020. Quick-service restaurants (QSRs) are still attempting to find their financial footing, funneling resources into the mobile channels growing increasingly popular with diners to enhance engagement and loyalty. Mobile ordering has skyrocketed since the start of the pandemic, and recent PYMNTS data shows that almost 56 percent of QSRs with mobile order-ahead users have experienced increased revenues.

QSRs must also contend with the reality that the rising popularity of mobile order-ahead apps has spotlighted the channel for fraudsters to follow, however. Account takeover (ATO) attempts, chargebacks and friendly fraud efforts have all increased over the past year as bad actors migrate to low-dollar transactions increased by 68 percent month-over-month between February 2020 and April 2020, for example. Such fraud can be difficult for QSRs to pin down as chargebacks can originate from legitimate customers just as easily as malicious fraudsters. This means overly complicated tools can end up frustrating the customers these eateries are trying to attract. Adopting fraud protection measures that can easily differentiate between bad actors and legitimate customers on mobile is becoming more essential for QSRs looking to thrive in a saturated market. Verifying consumers’ digital identities has thus become paramount to eateries’ fraud prevention strategies.

The following Deep Dive analyzes how the pandemic has changed the restaurant industry in the year after it began and details how this has affected fraud trends and mobile ordering. It also examines why QSRs must make digital identification the cornerstone of their fraud-protection strategies to succeed in capturing consumers’ loyalty.

Fraud In A Mobile-First Dining World

Mobile ordering’s recent usage climb has made it essential to quickly verify and onboard legitimate customers. The pandemic has accelerated this, with recent PYMNTS data showing that only 16 percent of restaurant enthusiasts — those who order from eateries at least twice weekly — are ordering inside the locations. Mobile appears to be the channel of choice for orders by far: One recent study found that 57 percent of U.S. consumers now use their smartphones for half of their purchases when ordering from restaurants or from elsewhere, including from retailers, and that 16 percent of these users tap mobile for all of their purchases. Another report uncovered that 86 percent of consumers are using third-party delivery apps on a monthly basis.

Fraudsters have proven just as enthusiastic about this mobile shift. They are structuring their scams on these platforms to take advantage of the relative anonymity these apps offer as well as the speeds at which payments are processed. Fraud on mobile P2P payment apps grew by 733 percent in just four years between 2016 and 2019 as fraudsters discovered how easily payments are finalized on these apps and how difficult it can be to have funds returned. Fraud schemes that involve impersonating legitimate customers or creating synthetic identities based on stolen information were already on the rise prior to the pandemic as one study found that ATO fraud rose by 72 percent in 2019 and accounted for $17 billion in losses for businesses and QSRs.

These scams are thriving on mobile because they use the data and account details of legitimate consumers to fool QSRs or other businesses into believing these payments are coming from real customers. Differentiating between fraudsters and new customers creating their accounts can be particularly difficult as targeted businesses lack order histories or logs of payment behaviors to examine if orders are really coming from legitimate users. The consequences of this type of fraud can also be harmful to QSRs because of the perishable nature of their products, making it difficult to recoup losses in the same way other businesses may be able to with their own inventories.

Distinguishing fraudsters from genuine mobile diners is critical, and digital identification tools can come into greater play. It is crucial for QSRs to approach their digital ID measures in a way that is specifically tailored for mobile devices.

Fighting Mobile Fraudsters With Mobile Devices

Fraudsters have meticulously designed their attacks and takeover attempts to fit a mobile environment, and QSRs should be adjusting their own fraud-prevention strategies in the same vein. One way that eateries could bring digital verification into mobile channels is by tapping the device itself as a security point by using the consumers’ smartphone to determine the risk of fraud instantly once orders are placed. Analyzing data invisible to diners from the back end, such as geolocation, typing speed or order histories, can help formulate a robust and detailed profile of individual diners without adding friction to the ordering experience when diners open their apps to select their evening meals.

Leveraging these devices can help QSRs break their reliance on security measures that are quickly proving outdated and ill-suited to a mobile environment, such as passwords or email verification, which can be easily swiped by fraudsters. This can help QSRs make digital identity the core of their fraud protection approach. Reconstructing the concept of digital identity in this manner to remove user frictions and increase fraud protection can allow eateries to maintain the crucial mobile engagement they need without letting fraudsters through the gates.