An online voucher scam is targeting hospitality businesses using the point-of-sale platform Square in Sydney, leaving the city’s first Good Food Guide hatted Korean restaurant thousands of dollars out of pocket.

At Soul Dining, a family-owned restaurant in the CBD, 27 of the 38 digital vouchers redeemed since April have been reported as fraudulent, leaving owners Daero Lee and Illa Kim footing the bill for at least $2400 worth of meals – although the final sum will likely be greater.

Over the past four months, Kim noticed an increasing number of walk-in customers paying for meals with vouchers purchased on the restaurant’s website or the Give and Get Local platform, both of which are hosted by Square.

At the height of the trend, up to seven customers a day purchased meals with online vouchers, and clicks on their voucher site rose 600 per cent, but Kim says it didn’t raise any red flags until the charge disputes started rolling in. The scam involves customers claiming their credit card details were stolen to purchase vouchers worth up to $500, then requesting chargebacks from their financial institutions.

Before Kim realised what was happening, nine of those disputes were decided in the purchasers’ favour, and $2400 was automatically deducted from the Soul Dining business account. The remaining 19 vouchers are under investigation, a process that could take months.

“The pattern is always the same, they buy a voucher online, come into the restaurant the same or next day, and they’re a walk-in customer so we don’t have any record of them [to rely on during the dispute process],” Kim says.

“It’s really serious for us … Small businesses really rely on that money, and they’re the ones who are most vulnerable.”

The scam could be first-person credit card fraud – where vouchers are purchased by the card-holder, who later fraudulently reports the card stolen – or third-person, where another person uses a stolen credit card to make the purchase.

Both scams are common, regardless of the POS software, according to ABS data. ABS estimates Australians lost $2.2 billion to card fraud over the past year, and Visa research shows nine out of 10 businesses have experienced first-party fraud.

Kim has reported the scam to NSW police and refunded an additional $2000 worth of unused vouchers – a significant blow to the restaurant during an already challenging economic period for the hospitality industry, in which one in 13 businesses face closure over the next eight months.

But Soul Dining isn’t alone – other businesses attracted to Square for its lower transaction fees have been affected. In August, Lokha Viet Fusion in Alexandria was hit with a $145 chargeback for two digital vouchers.

Co-owner Kim Matada says she remembers the customers clearly: the couple showed up just before the restaurant’s 3pm closing time with a voucher, claimed to live locally and love fusion Vietnamese food, and ordered two bowls of soup, two banh mi and one taco.

When it came time to pay, the couple realised their first e-voucher wasn’t enough, and purchased another through the Give and Get Local website.

“I was thinking, it’s not normal, right? People come in and they pay us cash, or card, why e-gift card? But at the end of the day, it’s just money, so we accepted it,” Matada says.

“One week later, Square sent us an email saying they’d received two disputes regarding those two transactions … and straight away they took the money out of our linked bank account … we had zero control.”

At Darlinghurst sandwich shop Lenny Briskets, two suspicious online transactions amounting to $100 were caught by co-owner Deborah Wiseman last week.

“It just seemed strange to purchase a gift card, and then use that gift card to purchase an order,” Wiseman says.

When Wiseman cancelled the order and asked the customer to bring the voucher in-store to redeem it, they refused.

Lenny Briskets launched a new takeaway venture called Pastrami Burger this week to increase revenue during the cost-of-living crisis – everything is under $17.

“Times are tough [and] restaurants are falling by the wayside … Briskets pivoted for COVID, [and] he will now for the cost-of-living crisis,” Wiseman says.

At Soul Dining and Lokha Viet Fusion, online vouchers have been switched off – a difficult decision, says Kim, but better than checking the ID of voucher holders, which “takes away from the dining experience”.

A spokesperson for Square says, “Selling online helps restaurants expand their revenue, and it comes with a unique set of protocols to help keep their business safe.”

Businesses using Square can elect to turn on complementary 3DS technology to require buyers to verify they are authorised to use the card through a push notification with their bank or a text message.

“When a business turns on 3DS, the liability is shifted from the business to the card issuer, meaning that a business is less likely to be on the hook for any chargeback fraud,” the spokesperson said.