chargebacks

“I don’t have any chargebacks right now, why should I spend the money to add EMV processing?”

Anyone selling an EMV solution has undoubtedly heard a similar sentiment from merchants. While EMV chargebacks are certainly happening to merchants in every industry, businesses with average transactions of around $25.00 are benefiting from a protection that Visa® put in place in July 2016 with American Express® following suit in August 2016. However these same protections are set to expire in April 2018 and there will no longer be a safety net in place for these merchants.

Below is an excerpt from the Visa announcement of the policy updates – note the bold.

Visa is modifying its policies to limit the number of fraudulent transactions that issuers can charge back to merchants (and their acquirers). Effective July 22, 2016, Visa will block all U.S. counterfeit fraud chargebacks under $25. These smaller chargebacks generate a great deal of work and expense for merchants and acquirers, with limited financial impact for issuing banks. In addition, effective October 2016, issuers will also be limited to charging back 10 fraudulent counterfeit transactions per account, and will assume liability for all fraudulent transactions on the account thereafter. This reinforces the responsibility issuers already have to detect and act on counterfeit fraud quickly. These blocks will stay in effect until April 2018.


These two changes together will significantly reduce the number chargebacks that merchants are seeing. Following these changes, merchants can expect to see 40 percent fewer counterfeit chargebacks, and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.

Below is an excerpt from the American Express announcement of their policy updates – again, note the bold.

By the end of August 2016, merchants will not be held liable for chargebacks for counterfeit fraud when a transaction is under $25. In addition, by the end of 2016 American Express also plans to limit the number of counterfeit fraud chargebacks to a total of 10 per card account. The card issuer - not the merchant - will bear the financial liability for any additional counterfeit fraud transaction that is disputed on a card account after 10 chargebacks. This limit does not prevent a Card Member from disputing additional fraudulent transactions.


The changes announced today by American Express will remain in effect until April 2018. The changes are expected to help reduce counterfeit fraud costs for merchants who have not yet upgraded their payment terminals to accept EMV chip cards. An analysis by American Express found that more than 40% of its counterfeit fraud chargebacks in the U.S. are for transactions under $25.

While it’s not clear if “April 2018” means April 1, 2018 or April 30, 2018, it’s clear that these protections will be in place after May 1st.

Considering that Visa cards are used in ~52.8% of purchases in the US and American Express in 21% (according to Forbes 9/7/2017 - Click for source article) for a combined total of 73.8%, it’s inevitable that ending this policy will leave an impact felt by merchants that have yet to adopt EMV.

If the policy decreased chargebacks significantly, what does the repeal of that policy mean?

It’s noteworthy that Visa and American Express expected this change to reduce counterfeit chargebacks by 40%. If both brands thought the protections reduced chargebacks by that much – what happens when they end those protections?

The increase will likely be more than the expected decrease in part because friendly fraud on transactions under $25.00 had no or minimal impact to merchants – so the “pain” was only felt by the banks issuing the cards. A large bank is less likely to notice a few chargebacks. Since these chargebacks do go unnoticed by the merchant (and possibly by the bank), it’s likely to embolden fraudsters to commit more fraud.

The fact that this policy is so unknown by merchants and salespeople alike means the intent of giving low ticket merchants time to get EMV compliant wasn’t known and therefore wasn’t acted on. That means many merchants who believed they weren’t susceptible to EMV chargebacks are in for a rude awakening come May 2018.

The true cost of Chargebacks

Any merchant can tell you that chargebacks can hurt a business - especially for businesses with smaller average tickets. It's important to keep in mind that the cost of a chargeback is much more than just the lost sale itself. Additional costs of a chargeback include the chargeback fee from the processor, the opportunity cost and the other miscellaneous costs that went into preparing the goods or service. A chargeback for a $10 sale could easily cost a merchant upwards of $40. Considering that card present EMV Chargebacks are 100% preventable, this type of expense can put unneeded pressures on a business. As other expenses increase (like minimum wage), controlling chargebacks becomes even more important in keeping relative margins positive.

Long story short: If you don’t have an EMV solution yet, time is ticking.

Payment Logistics offers a variety of EMV solutions for various POS systems and standalone devices – including our Paygistix® EMV Solution for Micros® , pcAmerica®, and many others.

For more information on this article or other electronic payment questions, feel free to contact Matt Bruno at This email address is being protected from spambots. You need JavaScript enabled to view it. or 858.200.9631.

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