Demystifying EMV Chargebacks in Your Pharmacy

Co-authored by RMS Director of Training Services, Brandon Bieleski

Since the formal EMV liability shift in Oct 2015, some merchants have experienced an increase in fraudulent EMV related chargebacks. With RMS’ release of EMV certification on the Ingenico isc250 signature capture pad via Vantiv Integrated Payments, the question of the moment is whether the risk involved with being liable for EMV related chargebacks is high enough to justify the cost for new hardware, capable of processing EMV transactions. To answer that question, you’ll need a firm understanding of what chargebacks are, why they happen and what you can do about them.

Much more often than not, chargebacks are legitimate and can be easily explained by the verbiage associated with the chargeback code. In general, these are chargebacks that likely would have occurred in the past, but prior to the liability shift, were handled on the bank side. Now that that liability has formally moved to the merchant, it’s the merchant who is having to deal with them.

We have had reports of merchants receiving chargebacks that they feel might be prompted by the cardholder’s bank – chargebacks issued simply for accepting an EMV card at a mag-stripe terminal. This is an easy misconception often generated by the verbiage on the chargeback code. However, banks are unable to issue chargebacks of their own decision using these EMV liability shift codes. In all cases of chargebacks that we have investigated, they are either legitimate or instances of “friendly fraud.”

Friendly fraud is a term used to describe a cardholder completing a transaction using their own credit or debit card, and then illegitimately contacting their issuing bank to reverse the charges. The resulting chargeback takes place after the cardholder has received the goods/services, which results in a loss for the merchant.

In all of this, there is some good news for merchants not yet enabled to process EMV transactions.  Per this recent announcement from Visa, “Beginning July 22nd, 2016, chargebacks for counterfeit fraud for transactions under $25 will be blocked – meaning issuers will have the liability for this fraud.  This is a temporary change that will expire in April 2018.” Although this does help to mitigate some of the risk for merchants, you’ll still maintain liability for fraudulent transactions above that $25 limit. 

Now that the liability is on you, the merchant, it is your responsibility to protect yourself during a transaction. If you think you experience an illegitimate or fraudulent chargeback, contact your bank, processor or local law enforcement. If something seems fishy to you, investigate it. Here are some quick tips on preventing and researching chargebacks.

• Visual inspection of the card.  Fraudulent cards may not have the typical security measures pre-printed on them. The issuer logo might seem incorrect, they may be missing the verification digits (pre-printed digits below the first four embossed digits), the security hologram may not be present, or the entire card might be completely blank with no bank information at all. You should also verify that the last four digits printed on the card match those that appear on the receipt.  If a card is printed with one number, and swipes with another, it is a fraudulent card and should be reported as such.
• If manually entering a card number (card-not-present transaction), be sure to include the CVV and ZIP with your transaction information. Within the till, the clerk is able to add card information in addition to the actual account number when processing a card-not-present transaction. It is always best practice to do this whenever possible. (It might even save you on processing fees, depending on your merchant processor contract terms.)

• Investigate the code received during the chargeback. If you know the transaction to be otherwise legitimate, contact your bank, the issuer or the customer’s bank for additional information on that specific transaction.

• If you believe the transaction to be legitimate and the chargeback to the result of a false claim, dispute it. Contact your bank or the card issuer to begin the chargeback representment process. – https://usa.visa.com/dam/VCOM/download/merchants/visa-optimizes-dispute-rules-new-avenues-for-card-not-present-mechants.pdf

Ultimately the best way to protect your business from EMV chargebacks is to implement an EMV acceptance solution.  We’re happy to answer any questions you have about the solutions we have available today and what’s coming next.