What merchants may not know about the EMV chip technology transition

David Pollino
Posted by David Pollino

I heard some merchants at a conference recently saying they will go slow upgrading their businesses to handle EMV chip cards because they have low fraud rates.

Transaction at food truck: Male vendor with afro is serving up food for bearded man with sunglasses on a warm day.“How do you know that?” I asked.

“Because we have low chargebacks,” one of them said.

Merchants who believe their fraud rates have been low may be in for a rude awaking in October, when liability for in-person fraudulent card transactions shifts from card issuers to merchants who have mag-stripe readers or terminals. Let me explain why.

What EMV chip technology does

EMV chip cards make it difficult to create counterfeit cards or conduct fraudulent transactions because they include a microprocessor that securely stores information and performs encrypted processing during transactions.

Gearing up for EMV chip cards may be costly for merchants who must replace the standard card-swipe devices we see today with devices that can read information off the EMV chip embedded in new cards. Large retailers seem to be on track to handle EMV chip cards by October. They have the resources to upgrade their technology and the incentive, given the volume of potentially fraudulent transactions they face day-in and day-out.

What about the local bike shop, or pizza parlor with two or three locations? As they consider the costs of EMV conversion, they may be asking, “How much fraud do I really experience?”

Many smaller merchants look to the processor of their payments (known as the merchant-acquiring bank), or the card companies, such as MasterCard, Visa, American Express, to tell them their chargeback rates. And if they haven’t had chargebacks, then they may assume they didn’t have any fraud.


A misperception among merchants?

I talked about this the other day with Bank of the West Card Fraud Manager Doug Kinsel. “Chargebacks for counterfeit fraud are not a proxy for how much fraud actually happens at a business,” he explained.

Why? Because card issuers have carried the liability of counterfeit fraud for years. Issuers generally don’t have chargeback rights when it comes to counterfeit card transactions, so they have not attempted chargebacks to merchants. This situation has fueled the misperception among many merchants that they are not experiencing fraud because they are not seeing chargebacks.

Doug says that some businesses may be surprised in the fall when they begin to see the true magnitude of the chargebacks for which they could be liable.

Beginning in October, issuers will be required to report fraud to MasterCard, VISA, and American Express. Merchants should also be able to get data on fraud activity at their business from their acquiring bank.

Recognizing the risks now may help you make decisions on EMV implementation and be able to weigh the cost of the technology versus the potential fraud liability.

For more information on the EMV transition and technology, watch this short video.

Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

  • Anonymous says:

    In order for this to work, all the customers must be using chip cards in October as well—otherwise, transactions will still run via the magnetic strips. As a consumer, I’ve heard nothing about being issued new cards from any of my credit card companies (Bank of the West, Citibank, Chase, MBNA.) So…..???

    Reply | 5 years ago
  • Anonymous says:

    Dave, I’d like to hear your thoughts on the two topics below.

    – Will banks still have to pay the chargeback fee MC/ Visa charge on each disputed transaction? If the fraud transaction is $15 and the fee is $50, what’s the point of disputing it? And on that note, the process for smaller banks to file that claim, is arduous, is MC/ Visa doing anything about it?

    – What are the implications of the later mandatory Merchant EMV compliant terminals? Gas stations, the number one place for stolen cardholder information, won’t have to be compliant until 2017.

    Thank you,

    Reply | 5 years ago
    • David Pollino says:

      Thanks for your comment, Jeffrey. Granted some smaller transactions may not be worth disputing, but fraud comes in all sizes, including very large transactions. And if chargeback rights exist, some issuers may be inclined to approve larger transactions, which may lead to larger losses for merchants. I can’t speak to MasterCard and Visa’s processes.

      You are correct, gas pumps will remain a weak point in the system both for compromise and fraudulent transactions; however, the dollar amounts of transactions are normally lower at gas pumps, which may help to limit risk.

      Reply | 5 years ago
  • Anonymous says:

    Will there be any change in liability for keyed entries (or does this impact card present transactions only)?

    Reply | 5 years ago
  • Anonymous says:

    I’m a victim of identity theft/fraud and have spent the last 8 months trying to repair the damage it’s done to my life. I must say it has felt like the biggest betrayal to have the bank (Bank of the West) I’ve been a loyal customer of for 10 years to shut the door on that relationship because the Card Operations department that processed an affidavit I submitted contesting 2 fraudulent debit card transactions sided with the merchant after reviewing their Dispute Response. How is it that I don’t have the right to dispute their documentation? They are a Tech Support Company that has been reported to the police and FTC for scamming innocent people out of $$. And why is it that no one can give me a straight answer on how the Merchant states the transactions were Mastercard 3D Secure Coded when I NEVER registered for the service?! Please advise.

    Reply | 3 years ago
    • Editor says:

      Thanks for reaching out. We’d like to look into the details of your situation and try to help. Social media isn’t a safe place to discuss account details, but we invite you to email your phone number and a convenient time to reach you to (social@bankofthewest.com). Please do not include your account number in your message.

      Reply | 3 years ago

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