EMV Chargeback Fraud: How To Detect And Avoid It

Since the Oct. 1, 2015, liability shift, retailers are financially on the hook for some fraudulent transactions conducted on POS terminals that don’t comply with the new Europay, MasterCard, Visa card security standard. Since that time, some merchants have noticed an increase in chargebacks, some of which may have been initiated as an attempt to commit fraud.

Chargeback fraud occurs when a customer completes a transaction at the POS or on a merchant website but later contacts the bank to dispute the charge and get a refund. Because some merchants are now liable for fraudulent charges because they have not upgraded to EMV-compliant technology, they are facing more chargebacks — and as a result, chargeback fraud. In addition to chargebacks on transactions in-store, e-commerce businesses may be at an even higher risk for this type of fraud.

So what can you do to protect yourself from EMV chargeback fraud and avoid having them affect your business?

Upgrade to an EMV Terminal

Do the math: Chargebacks also have a fee associated with them. You are paying a fee for each chargeback as well as losing money from your account based on the transaction amount (it’s deducted as soon as a chargeback is issued, and if found invalid, will be returned to you). Weigh this against the cost of upgrading to EMV-compliant technology. You may find it’s worth it to avoid dealing with an increased number of chargebacks.

Dip, Don’t Swipe EMV Cards

Make sure you are preventing chargebacks by processing EMV cards using the chip, not the magnetic stripe. If you process EMV chip transactions correctly, you will be notified if there is a problem with the account and the transaction will not go through. In those instances, do not swipe the card to use the magnetic stripe for the transaction — you could be setting the stage for a chargeback. Ask for another form of payment.

Also, make sure your employees are educated on how to use your new EMV-compliant system and when to deny a card. They should also be vigilant in always using verification procedures your business has established, such as checking signatures.

Respond to Chargebacks Immediately

There are set limits for how long you have to respond to a chargeback or a retrieval (a request for information that doesn’t immediately result in funds removed from your account). Don’t let your time allowance lapse and lose your chance to respond.

For orders, be suspicious of customers who are shipping to a freight company. They may have a valid reason for doing so but oftentimes this is a warning sign of a potential fraudulent chargeback.

Educate yourself on how to avoid falling victim to EMV chargeback fraud. Be ready to dispute chargebacks when they occur but having the right technology and educating your staff on how to prevent fraudulent charges is key to protecting your business.