The switch to chip-enabled credit cards last year came with a serious deadline: New rules went into effect in October making merchants more liable for fraud.
As is obvious to everyone who’s swiped when they should have inserted their card at a checkout line, the changeover hasn’t gone as smoothly as hoped. So, quietly, the credit card associations have taken steps to roll back the rules surrounding the changeover. The steps should be welcomed both by merchants, who will see their liability for fraudulent charges reduced, and consumers, who will soon see more chip-card machines as a result.
The new EMV credit cards were designed to take a bite out of credit card fraud. But in some cases, they’ve taken a bite out of merchant profits instead.
As of October of last year, merchants hit with fraud who weren’t using chip cards were declared responsible for counterfeit fraud by credit card associations Visa and MasterCard. The rule was intended to be the ultimate motivator to shift to EMV, encouraging stores to spend the $1,000 or so to upgrade their point-of-sale terminals.
Hundreds of millions of EMV chip cards have been put in the hands of consumers in the past year, and many are working as advertised at 1 million-plus merchants. But some stores have been slow to turn on chip card readers – they blame banks for a backlog in certifying the machines — which has led to huge fraud bills. One lawsuit alleged that some merchants have seen fraud rates rise 20-fold while they are waiting for new chip readers they purchased to get the green light from bank partners.
Other reporting by Credit.com found that in March, four out of five chip card readers weren’t turned on. (Again, a backlog in certification was blamed.) Perhaps in response, Visa announced in June that it was placing limits on the amount of fraud that non-EMV merchants could face. They also said they were working to streamline certification.
Effective July 22, Visa said it would temporarily prevent banks from forcing merchants to pay for counterfeit card frauds less than $25. Starting in October, banks will be limited to 10 counterfeit chargebacks per merchant account.
“These two changes together will significantly reduce the number [of] chargebacks that merchants are seeing,” Visa said in its statement. “Following these changes, merchants can expect to see 40% fewer counterfeit chargebacks, and a 15% reduction in U.S. counterfeit fraud dollars being charged back.”
The blocks will remain in effect until April 2018, when, theoretically, the kinks in the EMV conversion will be fixed. Visa also promised to give banks greater discretion in certifying EMV terminals, which should help merchants turn on all those chip readers.
“Visa recognizes the importance of having the industry help merchants get their chip terminal solutions up and running quickly so that everyone, especially consumers, can benefit from the powerful security protection of chip technology,” said Oliver Jenkyn, Group Executive North America, Visa Inc. “We’ve taken steps to simplify the process as much as possible and help reduce any challenges so merchants can move forward with chip adoption quickly.”
Fraud analyst Avivah Litan from consultancy Gartner Group applauded the move. “This is really meaningful,” she said. “The merchants must be getting totally slammed with every chargeback on the books.”
Also in June, MasterCard announced a similar program to speed up point-of-sale certification. In a statement, the association said it “continuously evaluates thresholds” relating to chargebacks.
“The whole industry wins when action is taken against counterfeit card fraud. Reducing terminal certification-testing time to a couple of hours from as long as a couple of weeks is one positive step we can take in a more mature market,” said Chiro Aikat, senior vice president of product delivery, EMV, for MasterCard.
Remember, EMV chip cards can help reduce fraud, but they’re not a fail-safe. In fact, the chip doesn’t protect your payment information when you’re shopping online, so it’s still a good idea to stick to trusted websites and monitor statements regularly for unauthorized charges. And, if you ever have reason to believe your personal information was compromised alongside your payment cards, it’s a good idea to monitor your credit for signs your identity has been stolen. You can do so by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores for free each month on Credit.com.