What merchants may not know about the EMV chip technology transition
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.
“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.
Wrong.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.