Why chargeback rates have surged—and why friendly fraud, not criminal activity, is the primary driver
The seven dispute categories restaurants encounter most, and what's really behind each reason code
Why contesting chargebacks matters—and what compelling evidence looks like in practice
If you've noticed more chargebacks hitting your restaurant's account over the past few years, you're not imagining it. Across the industry, operators are watching dispute rates climb to levels that were once considered worst-case scenarios—and what's driving the surge may surprise you.
While criminal fraud using stolen credit cards is still a threat, fraud often results from mistakes, customer dissatisfaction, or automated processes—meaning there are simple strategies you can implement to minimize its impact.
The digital payments market is on track to reach $790 billion by 2035 —and chargeback activity is scaling right alongside it. Losses from payment card fraud are forecast to exceed $41 billion by 2030.
For restaurants specifically, the numbers are even more striking. Industry chargeback rates—once considered manageable at 0.5–1.0%—have now climbed to between 2.5% and 4.1% for many operators. That's a fourfold increase, representing losses on every statement cycle.
And it's not slowing down: in 2024, 72% of merchants recorded a year-over-year increase in chargeback incidents.
When most people think of payment fraud, they picture stolen card numbers and criminal rings. In actuality, this accounts for only 10–20% of chargebacks in the food service industry. The far bigger driver—responsible for 60–80% of disputes—is what the payments industry calls "first-party misuse," or friendly fraud.
Friendly fraud occurs when a legitimate guest places an order, receives it, and then disputes the charge with their bank. The reasons vary: some guests claim the food never arrived, others say it was unacceptable, and some simply don't recognize the charge on their statement. But the outcome is the same—the merchant absorbs the loss, plus chargeback fees.
Check out the payments playbook for restaurants
Friendly fraud has exploded in part because disputing a charge has never been easier. Mobile banking apps now let guests initiate a "one-click" dispute in seconds, often without ever contacting the merchant. For a frustrated diner, it's simply faster to tap a button than to call the restaurant.
Several other factors compound the problem:
Disputes are filed under reason codes that fall into seven main categories. Understanding what's behind each one helps operators build a stronger response:
There's a common assumption that a chargeback is a final verdict. It isn't.
Regardless of your payment processor, you have the right to contest these claims—and there are strong reasons to do so consistently.
Winning a dispute requires what the industry calls "compelling evidence"—digital breadcrumbs that prove the order was authorized, fulfilled, and received. The strongest responses are tailored to the specific reason code and include:
You can also reach out to the guest directly with proof of fulfillment. Many disputes—especially those triggered automatically by bulk bank reviews—go unnoticed by the guest. A simple message with the order confirmation often prompts them to withdraw the claim before it progresses.
Generic payment processors handle billions of transactions across countless industries—and that scale comes with a tradeoff. Their dispute workflows are designed for the broadest possible use case, not the specific realities of food service. So when a chargeback hits, the burden of building and submitting a response typically falls entirely on the restaurant: pulling timestamps from a separate POS, tracking down delivery logs, formatting evidence to the processor's requirements, and meeting tight response windows—all while running a kitchen.
There's also the question of context. A generic processor has no visibility into the nuances of a restaurant order—whether a guest abandoned a pickup or a courier completed a delivery. That context matters when building a defense, and it's simply not available to a processor that isn't integrated into restaurant operations.
Olo Pay includes dispute response as a built-in feature , automatically managing the defense process on behalf of restaurants. Because it's natively connected to the order management layer, the evidence needed to contest a dispute—order timelines, fulfillment data, guest notifications—is already there, with no secondary workflow for operators to manage. The results speak for themselves: Olo Pay maintains a chargeback rate of just 0.04% and a fraud rate of 0.02%, and has saved restaurants more than $15 million in chargeback fees. Pivoting to Olo Pay reduced fraudulent orders and chargeback costs for honeygrow by close to 83%.
The chargeback landscape has fundamentally changed. What was once a minor line-item concern is now a significant operational challenge affecting the majority of restaurants, with industry rates up to four times higher than the historical norm.
The good news is that these disputes are contestable, and the evidence most restaurants already collect—order timestamps, delivery logs, guest notifications—is exactly what's needed to build a winning case. The key is having a consistent process to deploy it.
But whether you use Olo Pay or not, building internal practices around evidence collection and chargeback response is one of the most cost-effective investments a restaurant operation can make right now.
To learn more about the benefits of a restaurant-specific payment processor, request a demo .
Transform your guest experience today.