Another week, another hurdle in the road to EMV technology adoption. Last week, we talked about the continued struggles experienced by merchants in terminal certification. While the card networks announced chargeback policy adjustments to help ease merchant pain, the real issue in certification remained unaddressed.
Merchants have had enough. Two separate sets of lawsuits have been filed against credit card companies and issuing banks by merchants, both large and small. The lawsuits will be heard in federal court, as they allege violation of the Sherman Antitrust Act and the Clayton Antitrust Act.
Large Retailers Want PINs
The first lawsuit includes large retailers like Walmart, Home Depot, and Kroger suing credit card companies and issuing banks. Credit card companies determined that merchants could no longer require the use of PINs, but instead needed to require signatures for chip-enabled cards. These large retailers biggest issue lies in the credit card companies and issuing banks not letting them require PINs for payment cards, which until now was the standard.
EMV cards don’t use the PIN network, instead using a new authentication network run by Visa and MasterCard. In addition to the complications inherent with abandoning a standard system, processing signatures is more expensive than the PIN processing costs.
Small Merchants Stuck in a Chargeback Trap
The class action lawsuit filed on behalf of a number of plaintiffs also focuses on PINs, but on terminal certification and chargebacks as well. These merchants claim the credit card companies were unfairly forcing chargebacks upon them with the arduous terminal certification process. Just as with large retailers, merchants were not able to insist on PIN use for chip-enabled cards.
Thus resulting in the merchant being held responsible for fraudulent transactions instead of the issuing bank. As a result, merchants saw a large increase in chargebacks relating to EMV technology. Visa, MasterCard, and American Express each made chargeback policy adjustments in an attempt to help band-aid the losses merchants suddenly had to face from chargebacks.
In Defense of the Defendants
In an article published on Eweek, it’s suggested that the credit card companies and banks have shown little interest in helping merchants. This isn’t entirely true, as evident by the policy changes we just referenced.
Visa’s chargeback policy changes that will remain in effect until April 2018:
- All U.S. counterfeit fraud chargebacks under $25 are blocked. (Effective 7/22/16)
- Issuers must limit merchants to 10 fraudulent counterfeit transactions per account and assume all liability for subsequent fraudulent transaction. (Effective 10/1/16)
MasterCard’s temporary policy changes aren’t as specific as Visa’s changes, but attempt to address chargebacks nonetheless:
- Checks and blocks are in place to ensure that chargebacks follow liability shift guidelines.
- Policies are now in place that limit merchant exposure to excessive chargebacks on fraudulent accounts.
The chargeback policy changes made by American Express were on the level of Visa’s specificity and also remain in effect until April 2018:
- Merchants are not liable for counterfeit fraud chargebacks under $25. (Effective 8/31/16)
- The number of counterfeit fraud chargebacks to 10 per card account. (Effective 12/31/16)
When Visa announced these policy changes, they assured that they would “significantly reduce the number chargebacks that merchants are seeing. Following these changes, merchants can expect to see 40 percent fewer counterfeit chargebacks, and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.” Unfortunately, it doesn’t appear to be doing enough for merchants, if these lawsuits are any indication.