In 2015, Visa and American Express initiated chargeback policies designed to decrease fraud liability for merchants and acquirers during the EMV chip migration. The policy (which blocked all counterfeit fraud chargebacks of less than $25 and limited issuers to 10 chargebacks per account) was enacted in July 2016. The primary goal of the policy was to protect merchants who were waiting for their newly-installed EMV chip-readers to be certified.

Merchants and acquirers will lose this protection on April 18, 2018 and become responsible for all applicable counterfeit fraud associated with EMV chip transactions. The chargeback amount will be collected from either the merchant or the acquirer, depending on who was most responsible for the lack of EMV compliance at the time the fraud was committed.

For example, if a business’s point of sale system is EMV compliant, but the merchant allows a counterfeit chip card to be swiped through a magnetic stripe reader rather than inserted into an EMV chip reader, the merchant will be held liable. If fraud occurs because an acquirer fails to provide a merchant with EMV-compliant equipment, the acquirer will  be responsible for any fraud-related chargebacks.

When is the merchant responsible for a chargeback?
Following April 18, chargeback liability will most likely fall on the merchant, but not always. The situation, card brand, and equipment involved can all play a part. The merchant is responsible in the following cases:

  • A pin-based American Express, Discover, or Mastercard chip card is stolen and swiped at a store that isn’t EMV-ready.
  • A chip card is swiped at a non-EMV compliant merchant, the magnetic stripe (mag stripe) data is stolen, and fraud occurs.
  • Stolen mag stripe data from a chip card is used to create a counterfeit chip card. The fake card is swiped at a non-EMV compliant merchant.

There are other scenarios that affect liability, but if your store has the proper EMV equipment and certification, you can protect your business from chargebacks by ensuring that customers insert their chip cards instead of swiping them.

What if Customers Complain?
Some customers may grumble about the extra time chip readers add to a transaction. They may even try to swipe their chip cards and say they’re doing it because they’re in a hurry. Merchants may want to politely explain that the extra time chip readers take is worth it because it protects merchants and customers alike from fraud. Most customers will understand. Alternatively, a customer pretending to be in a hurry in order to commit fraud won’t be as understanding. Don’t be surprised if that customer suddenly switches to another payment method or decides not to complete the purchase.

At National Merchants Association, part of our mission is helping merchants understand the latest developments in payment policies and regulations. We’re also a leader in merchant services, offering a proprietary chargeback control platform that helps enrolled MIDs stay open up to 70% longer. To learn more, contact NMA today or call (866) 509-7199.