BOSTON – Retailers in the first half of 2016 saw a 25% spike in bank chargebacks in the wake of EMV migration in the United States, according to a new study.
Boston-based Aite Group estimated that retailers will experience $5.8 billion in chargeback volume this year, although it represents only 0.02% of total payment volume. Of those chargebacks, 60% to 70% are the result of fraud, with the balance being service and support disputes.
Despite the increase in chargebacks (or when banks or card issuers place the responsibility of fraudulent credit- and debit-card purchases back on the retailer), the recently released report said those volumes will “gradually ease” as more merchants upgrade to EMV-capable terminals.
In the meantime, the report cited how several grocery stores banded together in a class-action lawsuit against the card brands, as well as a number of large issuers, alleging that bottlenecks in the certification process prevented them from upgrading to EMV by the Oct. 1, 2015, deadline. As a result, the stores are now absorbing 20 times more chargeback expenses than they were prior to the liability shift, the report said.
The report also outlined a six-step process by which issuers charge fraudulent EMV (Europay MasterCard Visa) purchases back to retailers. Here are those steps ...
Step 2: Issuer decides action
Step 6: Option to arbitrate
If the merchant disagrees with the issuer’s decision, then it has the option to take the chargeback to arbitration by the payment networks.
The high-level process holds for both debit and credit transactions, although the time frames are somewhat different. Credit-card customers have 120 days from the transaction date to dispute a transaction, while the time frame for disputing personal identification number (PIN) debit transactions can be as short as 60 days. PIN debit also leaves a portion of the liability with the consumer, although in fraud cases the issuer will often choose to absorb the loss in order to preserve the customer relationship. As a result, debit transactions see lower chargeback rates, averaging around 1 basis point vs. an average of 3 basis points for credit-card transactions.