We’ve been watching the EMV transition and its impact on chargebacks for quite some time now. We even addressed the most important aspects for merchants in a blog post back in April. So, it’s no surprise that we were especially intrigued by a post on PYMNTS.com yesterday. The post ‘Visa’s Take On The EMV Chargeback Debate’ provided unique insight into the credit card companies’ perspective on the impact of EMV chips on chargebacks.
PYMNTS.com spoke to Visa’s VP of Global Risk Products Stephanie Ericksen, who outlined the complexities of the U.S. payment ecosystem and what Visa is seeing in regards to chargebacks. First, Ericksen gives a brief history lesson about the need to shift to EMV and underscores that merchants had plenty of time since 2011 to make the necessary changes to their terminals.
This timeline is exactly what some merchants are taking issue with. These merchants claim that “they invested in terminals in time for the liability shift but couldn’t get them certified, so ended up being caught now in a chargeback quagmire.” If you’re a smaller merchant with one or two terminals, the certification process should have been relatively painless. However, if you’re a larger merchant with multiple terminals and home-grown technologies, certification isn’t so simple.
We need to dig more into this and merchants need to know more. Our team has requests out to issuers and merchants on the backlog. We’ll update you as soon as we have insight into why some merchants are having a hard time getting certified than others.
But, It’s Not MORE Chargebacks
Merchants are also taking issue with the liability shift. Since merchants didn’t have liability for counterfeit fraud previously, chargebacks from this type of fraud never made it past the issuer (the bank).
But like we’ve said before, what’s happening isn’t actually a rise in chargebacks. Visa’s Reason Code 62 and MasterCard’s Reason Code 4870/4871 are new and only related to EMV. Thus, before EMV was deployed, merchants would have never seen these before. The chargebacks aren’t growing; they just never made it into the view of the merchant. They were dealt with and absorbed through the issuing bank. Now, merchants know just how much the issuers were eating in terms of this fraud.
There’s also the aspect of how seriously card issuers take the submission of a counterfeit chargeback due to operational costs and customer friction. Whenever Visa submits a counterfeit chargeback they’re required to close the account and reissue the card.
We’re Not At The ‘Tipping Point’ Yet
The U.S. is late to the EMV adoption party, which gives us a good sense of what to expect by examining other countries who have recently made the switch. After a liability shift, counterfeit fraud continues to grow until it reaches a “critical mass of chip-on-chip domestic payment volume,” says Ericksen. So, until the volume of chip card users and merchants using chip card readers gets large enough, there’s going to be a growth in counterfeit fraud.
(Remember how easy it is to forge a counterfeit card? If not, check out the video below.)
Right now, fraudsters can go to merchant without a chip reader and use a fraudulent card. It’s not difficult for them to determine what merchants have and don’t have EMV chip readers in-use. What Ericksen is indicating is that once the shift to chip readers is widespread enough, the fraudster won’t be able to simply go to a merchant without a chip reader.
Problem solved, right? We wish.
Fraudsters are smart and it doesn’t take long to realize that the same fraudulent card data can still be used online. While the tipping point foreshadows a decrease in counterfeit fraud for brick-and-mortar retailers, it spells increased counterfeit fraud occurrences to online merchants.
Chip Vs. Mag Stripe Approvals
PYMNTS.com also asked Ericksen about what changes, if any, Visa has seen in approval rates on chip cards used at mag stripe terminals and vis-a-versa. Ericksen reported that there has not been any evidence of increased approval rates of chip cards used at mag stripe terminals. In fact, chip cards used at mag stripe terminals are approved slightly less often than chip cards used at chip terminals.
That aspect should instill a healthy amount of fear in merchants. How many of those declined chip cards at mag stripe terminals were valid purchases? How much revenue was lost due to that error in non-acceptance? Even if the purchase blocked was fraudulent, allowing those transactions to pass through, then addressing them with chargeback responses would still mean more revenue recovered for your business.
Not accepting cards adds up quick. If you attended CNP Expo, you heard from CyberSource and NoFraud on this topic. A follow-up article about the scope of revenue lost is in the works here by the Chargeback team.
Visa’s Take On The Road Ahead
While we’re still a ‘long way from the tipping point,’ the number of merchant locations, number of cards, and percentage of cards being issued are all trending in a positive direction. Ericksen pressed that, like in almost all things related to payments, the balance between convenience and security is paramount. Merchants need to accept the cardholders making legitimate transactions, while spotting and stopping fraud.
Read PYMNTS.com full post here.
Header image source: Aranami/Flickr