EMV Chargeback Best Practices
Publication Date: April 2017
Fraud impacts all stakeholders. When counterfeit or lost and stolen fraud does occur, a cardholder may lose trust in their card product, in their bank and in the merchant where the fraud occurred; the issuer will typically close the account and may risk losing the cardholder when doing so; and a merchant will lose revenue associated with the fraudulent purchase. EMV is being implemented in the United States, as it has in other countries, with the goal of reducing card-present fraud. In particular, counterfeit card-present fraud represents a significant percentage of the overall payment card fraud in the U.S. and EMV has been shown to be an effective tool in reducing this fraud, once the number of chip-enabled cards and chip-supporting payment acceptance devices reaches a critical mass.
Changes in payment network rules that took effect starting in October 2015 seek to support the migration to EMV by placing liability for fraud – counterfeit, and in the case of most networks, also lost and stolen – with the party to the transaction that has not successfully transitioned to EMV chip technology. In connection with the migration to EMV in the U.S. and the implementation of payment network counterfeit and lost/stolen fraud liability shifts, chargeback reason codes were established for (1) counterfeit, and (2) lost/stolen EMV chip card transactions covered by those chip liability shifts.
These new chargeback reason codes are a result of the fact that the U.S. is not 100 percent chip enabled in terms of cards and acceptance terminals. Chip liability shift chargebacks are expected to gradually decrease as merchants and issuers successfully migrate closer to 100 percent use of EMV technology. It is important to recognize that, for the most part, these chargebacks are resulting from fraud that was already in the system but not visible to many stakeholders as issuers historically absorbed this fraud in the face-to-face environment. Liability shifts have been implemented in all countries that migrated to EMV; thus the chip liability shift aligns the U.S. market with all other chip markets. However, with these new types of chargebacks, U.S. issuers, acquirers and merchants alike are appropriately concerned that they fully understand the chargebacks and that all such new chargebacks are validly issued.
In order to help ensure that purported chip liability chargebacks are valid, there are network requirements that issuers must meet and networks should monitor chargeback activity for validity. There are a number of other steps that issuers, acquirers and merchants can take, including steps to help ensure the quality of the data and the integrity of related processes. Taking these steps will in turn help to minimize the number of chargebacks opened.
This white paper focuses on the appropriate treatment and mitigation of both counterfeit and lost/stolen chip liability shift chargebacks occurring after the liability shift dates for contact chip cards used in attended transactions, and discusses:
- Issuer best practices for authorization and managing disputes
- Merchant best practices for obtaining an authorization response and avoiding chargebacks – both for merchants who are chip-enabled and those who are not yet chip-enabled
- Merchant and acquirer best practices for disputing and mitigating chargebacks
- Challenges surrounding data quality relating to authorization and chargebacks
About the U.S. Payments Forum Forum
The U.S. Payments Forum, formerly the EMV Migration Forum, is a cross-industry body focused on supporting the introduction and implementation of EMV chip and other new and emerging technologies that protect the security of, and enhance opportunities for payment transactions within the United States. The Forum is the only non-profit organization whose membership includes the entire payments ecosystem, ensuring that all stakeholders have the opportunity to coordinate, cooperate on, and have a voice in the future of the U.S. payments industry. Additional information can be found at https://www.uspaymentsforum.org.