Chargebacks Have Merchants Scared Straight (To EMV)

Merchants have a lot going on these days.

The EMV liability shift just hit the six-month mark, the force of mobile continues to strengthen, and industry players are shape-shifting their business models all while authenticating consumers just keeps getting more complex – and that’s the tip of the iceberg.

As Merchant Link CIO Scott Carcillo pointed out during a recent sit down with MPD CEO Karen Webster to discuss what’s happening in the world of merchants and how they’re overcoming the challenges they face, there’s a lot of moving parts and a lot of players in the mix.

One of the biggest (and hottest) topics for merchants across industries is EMV adoption, particularly the confusion (and frustration) the certification process have brought in the wake of the official liability shift on Oct. 1.

While many merchants may be touting payment terminals that are EMV-enabled, their customers can’t quite make the dip yet because the businesses are still waiting in a ever-growing line to be certified.

As Carcillo put it, though we may see payment devices sitting in stores, restaurants, hotels, etc., many can still only be used for swipe because although the merchant decided to get ready in advance hardware-wise, they still are technically clear to enable EMV payments.

The EMV certification process is a confusing one to say the least – with merchants having to decide between a myriad of choices and certification methods to figure out the type(s) of certification(s) needed to actually accept EMV-enabled chip cards and to then face the long lines of other merchants doing the same.

“I think that before Oct. 1, before chargebacks became an issue, the value proposition wasn’t clear on making a move to EMV and that muddied the waters even further,” Carcillo explained.

Chargebacks – the liability fees issued to merchants when transactions made with chip-enabled cards that are swiped are disputed – are a growing (and unexpected) problem that are sending many merchants running toward EMV adoption. Only to be stopped in their tracks by the line that awaits them to actually make it through the EMV certification process.

Even fully vetted transactions can result in chargebacks or “friendly fraud” when consumers with malicious intentions (and a goal of cheating the system) dispute purchases made with chip cards that are swiped in-store.

The entire issue of chargebacks was one that merchants, and the payments industry as a whole, really never saw coming. As Carcillo pointed out, “no one expected the chargebacks to show up.”

“It came out of nowhere and I think it’s largely a systems issue,” he added, while also noting that despite the recent uptick in chargebacks those merchants that have terminals equipped for EMV (even if they can’t officially accept it) are still in a less risky spot.

According to him, when a person looking to “game the system” approaches a terminal with a dip payment-enabled, they don’t know that the merchant may not actually handle EMV, making it a little more likely that they may go down the street to find someone who doesn’t have that hardware in place.

Another one of the benefits that can come as a byproduct of having EMV deployed even if the certification isn’t there yet is the opportunity for merchants to provide proactive training to employees. Having the terminals in place even before certification is set provides employees the chance to get familiar with the system and how to help guests with those systems as well, eliminating additional work that has to be done when the entire EMV experience is achieved.

Carcillo predicts the “mad rush” to EMV noted over the course of the last six months, fueled by rising chargebacks and increased chip card usage, will result in the U.S. reaching 70 percent adoption by the end of 2017.

While EMV remains a significant consideration for many merchants, it’s far from a silver bullet for security and definitely not the only thing influencing the ways in which they handle their businesses.

Since EMV’s current focus remains on authenticating consumers at the in-store point of sale, safeguarding the digital identities and data of consumers is still a major concern for merchants of all shapes and sizes, across all various industries.

Carcillo made the distinction that for quick-serve restaurants, where smaller transactions may lessen the severity of chargebacks, enabling the acceptance of EMV payments is less of a concern. For these merchants, having point-to-point encryption solutions are more significant than the chargeback risk posed by EMV, because there’s ROI to assess.

He stated that for many merchants whose top concerns are data breaches and credit card information being exposed, tokenization is the quickest path to resolution, with P2P encryption providing an even further step in safeguarding transactions while in transit.

“Now what we’re seeing is the next plateau, the next direction is what can we do in an eCommerce space or mobile space,” Carcillo said. He explained that fraud tends to take the path of least resistance, meaning that when card-present fraud gets buttoned up because of EMV, fraudsters will migrate to the card-not-present and/or mobile channels.

“And then there’s that tipping point, once EMV becomes mainstream for people then if you don’t have it you just look less secure and the perception affects your business.”

The implications of moving toward (or away from) EMV adoption are far reaching for U.S. merchants today, but it’s not the only thing they need to keep top of mind.

With advancing technologies and increased competition, Carcillo and Webster discussed that merchants have rethink innovation. Especially when it comes to their approach to significant topics such as capitalizing on mobile, boosting consumer engagement, integrating loyalty within payment solutions, and ensuring the introduction of new services and offerings are both relevant and convenient.

Carcillo explained that in order for things to catch on with consumers, whether it’s wearables, biometrics or even contactless payments, it’s the responsibility of the merchant to make sure there’s a compelling story behind it.

“That’s why you use tap-and-go payments – not because it’s cool but because you’re used to using your phone for things and now all of sudden you want that convenience of not having to pull out your wallet or card,” Carcillo said.

If merchants want new technologies and payment methods to stick with the consumer, they’re going to have to make sure it has a real purpose and is actually worth doing.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

Click to comment