EMV Chips & Chargebacks: What Merchants Need to Know

Scott StoneIndustry Trends6 Comments

emv_basics_and_preventing_emv_chargebacks
With counterfeit card losses nearing $8 billion in 2015, EMV aims to protect card-present merchants.

According to the Nilson Report, counterfeit card fraud cost the U.S. $7.86 billion in 2015. Moreover, merchants lost $2.95 billion while card issuers lost $4.91 billion to counterfeit card fraud in 2014.

Just recently the U.S. followed its European and Latin American counterparts and adopted the global standard for credit and debit card payments—chip technology.

EMV Basics - What does EMV Mean to Merchants?

Also referred to as EMV, this new to us but not new at all technology (it first started in France in 1992) was finally deployed in the U.S. due to fraud growth. Currently 69% of Visa fraud is counterfeit card present, and this type of fraud has been growing 20% a year for the last few years. It’s the biggest fraud problem Visa sees. This unwanted growing trend finally motivated the U.S. to begin transitioning to chip technology to increase security, including reducing card present fraud.

Merchant Need-to-Knows

As a merchant, you should be somewhat familiar with EMV technology since you had to comply with it by October 1, 2015, thanks to the EMV liability shift. And you’ve probably noticed the upside after making the switch. There’s now an added layer of protection with EMV transactions at the point-of-sale terminal for businesses accepting card present transactions.

Additionally, the implementation of EMV technology will help reduce the risk of mass retail data hacks, which your customers will be grateful for.

New Reason Codes

There has also been a downside; one you might have noticed. With this rollout, any sale amount—from $1.00 to thousands of dollars—can query at a banking processor and then you can receive a chargeback. And many U.S. merchants have been seeing large increases in chargebacks with Visa’s liability shift code, Reason Code 62 (4870 or 4871 for MasterCard).

But what you really need to know is that what’s happening isn’t actually a rise in chargebacks. Visa’s Reason Code 62, MasterCard’s Reason Code 4870/4871 are new and only related to EMV, so before EMV was deployed, merchants would have never seen these before. These chargebacks aren’t growing; they just weren’t there in the first place.

Moreover, this shift could have a negative impact on eCommerce in that it will increase online fraud. EMV technology only works in person, with the card present, so those making purchases online will still enter in credit card information the same way, sometimes leading to potential fraud. So, even though EMV is helping reducing the growing fraud in the U.S., it is not the solution to end all fraud, especially online.

Issuers can only submit a chargeback on one of the above mentioned reason code if the account is closed and placed on the Visa exception file. It’s highly unlikely an issuer would “self-chargeback” an EMV transaction. Visa’s reporting validates the account associated with the card is closed and doesn’t see many of these.

EMV Fraud Liability Shift Impact

What does EMV liability shift mean? Before the EMV liability shift, if a cardholder reported a card present counterfeit transaction, the issuer just ate it and didn’t submit a chargeback because it was their liability. Now with the liability shift, issuers are sending in chargebacks. So Visa sees the liability shift working—the fraud is just moving from the issuer to the merchant. And they are also seeing it move to merchants lagging in terminalization. This way they can encourage merchants that haven’t made the switch to EMV chip readers to do so quickly, otherwise they are liable.

Furthermore, this liability shift only affects EMV cards and potential counterfeit fraud tied to it. Data breaches, both small and large, and customer data stolen prior to October 1st, 2015 does not apply.

Tips on How Avoid EMV Chargebacks

As a merchant, it’s important to first try and process transactions correctly so EMV chargebacks do not arise. If a card is not working properly, ask for another form of payment — do not have them swipe the card or key in the card with chip technology. And never override the payment. Also, be sure to get a signature and verify that it is the cardholder using the card.

Customers should always insert their card when prompted and follow the instructions on the screen.

Below are additional tips to keep in mind in order to prevent chargeback fraud in general:

  • Invest in good customer service business practices. Be accessible to the customer and make the resources known to them, so they can call when a problem, complaint or question about a product or service arises. This also helps your chances of a customer calling you first about the issue before calling their card services.
  • Along with customer service accessibility, make sure your return policy is clear and flexible for the customer. As the merchant, you need to clearly state to your customer the exact return policy and how they can return merchandise. And when you have a more flexible return policy, customers will work with you rather than turning to a chargeback to try and get their money back.

Learn more about chargeback fraud here.

Looking Ahead

All of this shouldn’t come as a surprise, though. What we are currently seeing is a short-term effect on merchants as well as issuers. When big changes are made, like an entire country migrating to EMV chips, it takes time for things to get rolling and performing as they should be. In the near future, this technology will reduce counterfeit fraud.

Chargebacks are an unwanted hassle and negatively affect your bottom line. If you want to reduce your now EMV chargebacks (and you should), be proactive in preventing chargebacks. Improve communication with your customers and establish terms and conditions that your customers actually accept to help you better avoid chargebacks all together.

You can also look into our merchant chargeback solutions and learn how our software helps you better recover your lost revenue from chargebacks.

Looking for additional help with EMV technology and EMV chargebacks in general? From lowering the dispute ratio to saving you time and eliminating frustration, see how Chargeback’s automated dispute management platform can help your business today. Click here to learn more and stop potential chargebacks from happening in the first place.

With counterfeit card losses nearing $8 billion in 2015, EMV aims to protect card-present merchants.

According to the Nilson Report, counterfeit card fraud cost the U.S. $7.86 billion in 2015. Moreover, merchants lost $2.95 billion while card issuers lost $4.91 billion to counterfeit card fraud in 2014.

Just recently the U.S. followed its European and Latin American counterparts and adopted the global standard for credit and debit card payments—chip technology.

EMV Basics - What does EMV Mean to Merchants?

Also referred to as EMV, this new to us but not new at all technology (it first started in France in 1992) was finally deployed in the U.S. due to fraud growth. Currently 69% of Visa fraud is counterfeit card present, and this type of fraud has been growing 20% a year for the last few years. It’s the biggest fraud problem Visa sees. This unwanted growing trend finally motivated the U.S. to begin transitioning to chip technology to increase security, including reducing card present fraud.

Merchant Need-to-Knows

As a merchant, you should be somewhat familiar with EMV technology since you had to comply with it by October 1, 2015, thanks to the EMV liability shift. And you’ve probably noticed the upside after making the switch. There’s now an added layer of protection with EMV transactions at the point-of-sale terminal for businesses accepting card present transactions.

Additionally, the implementation of EMV technology will help reduce the risk of mass retail data hacks, which your customers will be grateful for.

New Reason Codes

There has also been a downside; one you might have noticed. With this rollout, any sale amount—from $1.00 to thousands of dollars—can query at a banking processor and then you can receive a chargeback. And many U.S. merchants have been seeing large increases in chargebacks with Visa’s liability shift code, Reason Code 62 (4870 or 4871 for MasterCard).

But what you really need to know is that what’s happening isn’t actually a rise in chargebacks. Visa’s Reason Code 62, MasterCard’s Reason Code 4870/4871 are new and only related to EMV, so before EMV was deployed, merchants would have never seen these before. These chargebacks aren’t growing; they just weren’t there in the first place.

Moreover, this shift could have a negative impact on eCommerce in that it will increase online fraud. EMV technology only works in person, with the card present, so those making purchases online will still enter in credit card information the same way, sometimes leading to potential fraud. So, even though EMV is helping reducing the growing fraud in the U.S., it is not the solution to end all fraud, especially online.

Issuers can only submit a chargeback on one of the above mentioned reason code if the account is closed and placed on the Visa exception file. It’s highly unlikely an issuer would “self-chargeback” an EMV transaction. Visa’s reporting validates the account associated with the card is closed and doesn’t see many of these.

EMV Fraud Liability Shift Impact

What does EMV liability shift mean? Before the EMV liability shift, if a cardholder reported a card present counterfeit transaction, the issuer just ate it and didn’t submit a chargeback because it was their liability. Now with the liability shift, issuers are sending in chargebacks. So Visa sees the liability shift working—the fraud is just moving from the issuer to the merchant. And they are also seeing it move to merchants lagging in terminalization. This way they can encourage merchants that haven’t made the switch to EMV chip readers to do so quickly, otherwise they are liable.

Furthermore, this liability shift only affects EMV cards and potential counterfeit fraud tied to it. Data breaches, both small and large, and customer data stolen prior to October 1st, 2015 does not apply.

Tips on How Avoid EMV Chargebacks

As a merchant, it’s important to first try and process transactions correctly so EMV chargebacks do not arise. If a card is not working properly, ask for another form of payment — do not have them swipe the card or key in the card with chip technology. And never override the payment. Also, be sure to get a signature and verify that it is the cardholder using the card.

Customers should always insert their card when prompted and follow the instructions on the screen.

Below are additional tips to keep in mind in order to prevent chargeback fraud in general:

  • Invest in good customer service business practices. Be accessible to the customer and make the resources known to them, so they can call when a problem, complaint or question about a product or service arises. This also helps your chances of a customer calling you first about the issue before calling their card services.
  • Along with customer service accessibility, make sure your return policy is clear and flexible for the customer. As the merchant, you need to clearly state to your customer the exact return policy and how they can return merchandise. And when you have a more flexible return policy, customers will work with you rather than turning to a chargeback to try and get their money back.

Learn more about chargeback fraud here.

Looking Ahead

All of this shouldn’t come as a surprise, though. What we are currently seeing is a short-term effect on merchants as well as issuers. When big changes are made, like an entire country migrating to EMV chips, it takes time for things to get rolling and performing as they should be. In the near future, this technology will reduce counterfeit fraud.

Chargebacks are an unwanted hassle and negatively affect your bottom line. If you want to reduce your now EMV chargebacks (and you should), be proactive in preventing chargebacks. Improve communication with your customers and establish terms and conditions that your customers actually accept to help you better avoid chargebacks all together.

You can also look into our merchant chargeback solutions and learn how our software helps you better recover your lost revenue from chargebacks.

Looking for additional help with EMV technology and EMV chargebacks in general? From lowering the dispute ratio to saving you time and eliminating frustration, see how Chargeback’s automated dispute management platform can help your business today. Click here to learn more and stop potential chargebacks from happening in the first place.

6 Comments on “EMV Chips & Chargebacks: What Merchants Need to Know”

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