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Post-EMV Liability Shift, Chargebacks are a Big Issue

  • By Andrew Deichler
  • Published: 3/3/2016
lizgarnerBETHESDA, MD. – Liz Garner, vice president of the Merchant Advisory Group (MAG), provided members of AFP’s Treasury Advisory Group (TAG) with an overview of EMV. A major issue for retailers since the October 2015 liability shift has been a rise in chargebacks, and some of the dollar amounts have been huge.

Garner noted that the merchant community has seen chargebacks in the thousands and even hundreds of thousands of dollars over the past several months. Most of the retailers hit with these chargebacks are not EMV-ready—meaning that they are held responsible.

It is important to note that many of these retailers want to be EMV-ready; they’ve had the hardware installed for months, but they haven’t been able to be tested and certified through their acquirers, Garner explained. “So there’s really just a backlog in the marketplace. So despite their efforts to be ready by the October 2015 liability shift date, there are some retailers who have been unable to deploy EMV, and they’re seeing a significant shift in these chargeback fraud losses, which are moving over to the merchant side,” she said.

Treasury headaches

Even merchants who are EMV capable have run into issues with chargebacks. One retail treasurer at noted that even though his company’s locations are EMV-capable, they still obviously have to process many cards that are not chip-enabled. The merchant has been experiencing fraud-related chargebacks on those cards, and is being told it’s responsible.

However, a treasurer for a major restaurant chain countered that if the transaction is made with a mag-stripe card on an EMV terminal, the retailer should not be held accountable because the card issuer is the one that failed to provide the updated technology. “You should challenge it, and you’ll win it,” she said. “If they came in with a chip card, and your terminal doesn’t ‘dip’ the card because there’s no EMV capability—then there would be no recourse for a chargeback. But if it’s a mag-stripe card, the bank is liable.”

Another treasurer added that issuing banks have made the decision not to roll out chip cards all at one time; instead, they are rolling them out gradually as cards expire. Therefore, they are taking on that risk associated with mag-stripe cards.

Garner agreed, noting that the first retailer should be able to fight any chargeback that happens due to mag-stripe cards. She advised retailers to keep an eye out for whether they have seen a dramatic increase in chargebacks since the liability shift. If so, they should look at how many were EMV reason code chargebacks.

She explained that MAG is working with the acquiring community and is looking at what some of the card issuers’ practices are to see if there are issuers who have a very high number of EMV reason code chargebacks. “We think there is some suspicious activity by issuers impacting several different merchant verticals,” she said.

The restaurant treasurer noted that some retailers who are EMV-enabled and are using their chip terminals correctly are seeing chargebacks for chip cards that were swiped when they were clearly being dipped.

Garner responded that one card brand recognized that its cards had this problem and it had to go back and correct the issue. But that only happened because several large merchants recognized it and pointed it out to the brand. “Large merchants are noticing it, but I’m less convinced that small merchants notice,” she said.

Garner added that “everybody is working through the kinks” of chargebacks right now. “I’ve heard it from convenience stores, I’ve heard it from restaurants, I’ve heard it from general retail, I’ve heard it from people who have not gone EMV, and I’ve heard if from retailers who are full-EMV. So there’s definitely a problem with chargebacks right now,” she said.

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