Chargebacks: More than a Minor Headache Since the EMV Liability Shift

Five months after the 10/1/15 EMV liability shift of counterfeit and lost/stolen fraud from issuing banks to merchants, there is a growing concern throughout the payments industry regarding the high number of chargebacks being issued to merchants. While many merchants budgeted for an incremental increase, many merchants are seeing actual chargebacks volumes increase at an unprecedented rate:  anywhere from two to eight times higher than their estimates. So, why are chargebacks being issued at such an increased rate?
Are fraudsters truly increasing the rate at which they target retail locations still lacking EMV enablement? Maybe…
Are there potential data integrity issues with how authorizations and settlement transactions are submitted and approved/declined by issuing banks? Probably…
Are issuing banks being aggressive with the issuance of chargebacks categorized as EMV counterfeit or lost/stolen fraud? Probably…
 
In reality, it is a combination of all three factors.  The payments industry – including merchants, payment networks, and issuing banks – still have a significant amount to learn and operationalize regarding EMV. The bigger takeaway is that there is a universal lack of clarity in determining the true root cause of these chargeback increases for all parties involved. It will take some time to understand what the issue(s) are that are causing the increased chargebacks and how to work together to fix this growing problem. This is not something that will happen quickly or easily.
 
In the meantime, we suggest the following guiding principles to help ensure you limit the exposure of chargebacks:
For all merchants

  1. Analyze, Analyze, Analyze EVERY chargeback received
  2. Use what you’ve got: Compare sales data from your POS systems to Chargeback data received from your acquirer to identify any trends and patterns. Additionally, review and analyze chargebacks at the BIN level to see if the problem is localized to certain banks.
  3. Trust but Verify: Ensure that every chargeback received is valid:
    • Ensure that you are not receiving multiple chargebacks for the same transaction: One attributed to EMV and one not
    • Ensure chargebacks are not categorized CNP for Retail transactions
  4. Don’t be afraid to fight: Merchants are seeing success in fighting chargebacks. It is essential to have the data available from your payment systems to identify transaction attributes to include in representment to fight the chargeback

 
For EMV Enabled Merchants

  1. Trust but Verify: Ensure that every chargeback received is valid:
    • Ensure EMV chargebacks are not for chip on chip transactions
  2. Perform a self-check: Assess data integrity across your authorization and settlement transactions. Ensure that EMV data does not change between authorization and settlement which could cause suspicion to an issuing bank

 
The EMV Journey is far from over: as we continue down the path of EMV acceptance, we will continue to encounter unforeseen risks and challenges. Following these guiding principles throughout should help while we continue on this journey together.
For further information, contact Clint at ccady@wcapra.com

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