Manage AFD Chargebacks by Eliminating Fraud Threat Sources
Customers tend to assume that gas station operators take in money hand-over-fist. After all, looking at the price at the pump — how could they not be raking it in?
Of course, the reality is that operators of automated fuel dispensers (AFDs) generally have very thin margins. Even under good circumstances, many operators generate as little as 2% in profit from a gallon of gas. Most operators rely on the gas pumps to bring in customers, then generate their actual profits from ancillary purchases like snacks and drinks.
That’s a problem, however, as AFDs are hot targets for fraud and resulting chargebacks. AFD chargebacks could end up siphoning off a lot of the revenue generated by the actually profitable side of the business.
Why is that the case? More importantly, if you’re an AFD operator, what can you do to protect your bottom line?
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Why Do AFD Chargebacks Happen?
An automated fuel dispenser (AFD) chargeback or gas pump chargeback happens when a customer fills up their vehicle at the pump, pays for their gas at the station’s payment terminal, and then disputes the charge with their issuing bank after the transaction settles.
A big reason why AFD chargebacks happen is because gas stations, unless you’re in New Jersey, are entirely self-service.
These pumps are outside, unattended, and cannot be supervised at all times. As a result, they are an obvious target for someone looking to tamper with a machine for card skimming purchases.
AFD operators — those using merchant category code 5542 (automated fuel dispensers) or 5541 (service station) — were exempted from EMV liability rules for several years. The reason for this is that each AFD is a complex machine with a built-in card terminal.
Things finally changed as of the final April 2021 deadline, though. Any remaining non-compliant merchants now face harsher penalties the longer they hold out.
Criminal third-party fraud isn’t the only reason why chargebacks happen, though. Sometimes, customers-turned-fraudsters may simply want to fill up their tank for free.
Other times, customers file chargebacks simply out of confusion. For example, buyers may think that they’re being overcharged after seeing an authorization hold for a purchase at the pump. What they don’t realize, though, is that the part of the authorization amount will be reversed after the final transaction price is determined.
Signage at the pump that details the payment authorization process in brief may help gas station operators combat customer confusion. We discuss authorization limits in greater detail in the following sections.
AFD Retailers & Authorization Limits
Issuers are liable for transactions up to the status check limit set by card networks. They can therefore initiate disputes using chargeback reason code 11.3 (no authorization) for the difference between any final transactions that exceed these limits.
As of 2022, all Visa transactions are subject to a “status check” (or hold) on the credit card of up to $175. This limit is increased to up to $350 for fleet cards. These authorization limits apply to transactions that are both:
Chip-on-chip
Partial authorization pending
According to Visa, issuers will continue to be liable for transactions up to these limits, and can therefore initiate disputes under chargeback reason code 11.3 (no authorization) for the difference between any final transactions that exceed these limits.
Visa advises the following authorization best practices:
Of course, it’s always a good idea to keep excellent records of every transaction hiccup, especially those initiated by a customer’s issuing bank. Frankly, these issues tend to lead to disputes and chargebacks fairly regularly, and good record keeping can make all the difference if you decide to fight back.
Red Flags That Signal Trouble at the Pump
Although AFD chargebacks occur after the customer pays at the pump, there are warning signs that show up both before and during the transaction. As an operator, you should keep your eyes peeled for:
Unusual Authorization & Transaction Patterns
While a customer hitting the pre-authorization limit isn’t automatically an indicator of fraud, a pattern of transactions hitting the exact authorization ceiling is a major red flag.
For example, seeing consecutive transactions for exactly $125 (the Visa pre-authorization limit for non-fleet vehicles) can be a sign of fraud. The reason is because criminals using stolen cards want to maximize their take before the card is shut down.
Real customers, on the other hand, have different tank sizes and fuel needs; they rarely pump the exact pre-authorized amount and seldom fill up to round numbers.
Rapid-Fire Declines at a Single Pump
A legitimate customer might have a card declined once and try it again. A fraudster with a pocketful of stolen cards, though, may attempt multiple cards in rapid succession at the same terminal until one is approved.
If your system flags dozens of declined transactions from different cards at one pump in a very short time frame, it could be a sign that bad actors are testing stolen cards at your pump.
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Sudden Spikes in Overnight Transactions
Nearly every gas station has different traffic patterns, with some hours being busier or quieter than others.
Barring major events or weather incidents, an unexpected deviation from this baseline, like a sudden surge of transactions after midnight on a weekday, could suggest coordinated fraudulent activity.
Pay particular attention to suspicious activity during slow times. Criminals prefer to operate when staffing is minimal, since they are less likely to be caught.
An Unusually Popular Pump
If one specific pump suddenly shows a dramatic increase in transaction velocity compared to all the others, it could be that scammers have compromised that pump.
Fraudsters who install a skimmer (or “shimmer”) on a gas pump may often return to that specific terminal to test and use stolen card data. As a result, fraudulent activity often clusters around a single pump at one location.
To stop fraudsters from co-opting your hardware for harm, carefully examine transaction counts for every pump. If one payment terminal appears anomalously “popular,” you should immediately see if it has been tampered with.
Mismatched ZIP Codes and Geographies
Address Verification System (AVS) mismatches, where the customer enters a ZIP code that doesn’t match the card’s billing address, could be an indicator of fraud.
When it comes to gas pump chargebacks, context clues should make red flags even more compelling. Let’s say you encounter a transaction at 3:00 AM that involves a card with an out-of-state billing address, an AVS mismatch, and a maxed-out fuel authorization.
Given that the cardholder needs to be physically present at your pump to transact, there is no reason a legitimate transaction would throw off these warning signs. If this happens, it should raise an immediate red flag.
What Evidence Can You Use to Respond to AFD Chargebacks?
Having comprehensive documentation is your strongest defense against chargebacks at the pump.
Modern payment systems capture substantial data that can prove a transaction was legitimate. Collecting and organizing this evidence immediately after receiving a chargeback notification significantly increases your chances of a successful dispute resolution.
Below, I’ve put together a checklist for essential evidence that can help you win an AFD dispute:
Transaction Authorization Records
- Authorization approval code and timestamp
- Authorization request and response logs
- Card verification method used (chip, swipe, contactless)
- EMV/chip authentication data (cryptogram, AID, terminal verification results)
Payment & Card Data
- Full transaction receipt showing date, time, amount, and pump number
- Card type and last four digits of card number
- AVS (Address Verification System) response
- CVV/CVC verification result (if card-not-present scenario applies)
- Cardholder ZIP code entered at pump (if applicable)
Dispenser Transaction Logs
- Fuel grade selected and price per gallon
- Total gallons dispensed
- Pump number and transaction sequence number
- Pre-authorization hold amount vs. final settled amount
- Transaction start and completion timestamps
Video Surveillance Evidence
- Camera footage showing vehicle at pump during transaction time
- Video of cardholder inserting card into payment terminal
- License plate capture (if available)
- Timestamp on footage matching transaction time
- Wide-angle shot showing no suspicious activity or card skimming devices
Geographic & Device Data
- Terminal ID and location information
- IP address (for mobile payment app transactions)
- GPS coordinates (if mobile payment used)
- Device fingerprint data (for app-based payments)
Historical Transaction Patterns
- Previous successful transactions from same card at your location
- Pattern of regular fueling at your station
- Consistency in fuel amounts and times
- Cardholder's typical transaction behavior
Additional Supporting Documentation
- Terms and conditions displayed at pump
- Cardholder agreement to terms (if captured digitally)
- Equipment maintenance logs (proving readers were functioning properly)
- Skimming device inspection records (showing no tampering)
- Employee incident reports (if card was handed to attendant)
Communication Records
- Any customer service interactions with the cardholder
- Records of cardholder acknowledging the purchase
- Email receipts sent to customer (if provided)
Top 5 Tips for AFD Chargeback Prevention
If a customer files a chargeback, the merchant stands to lose the funds from the original transaction and pay additional fees and costs.
For example, let’s assume an individual buys $75 worth of gas, then the cardholder files a chargeback. In this case, the merchant loses the $75, plus the fuel, and pays a nonrefundable fee (as determined by the acquirer). This also doesn’t account for the cost of overhead from processing and trying to fight the chargeback if it was filed in error.
Considering the kinds of margins with which AFD operators work, it may take hundreds of sales to recoup losses from just one AFD chargeback. Fighting the rising tide of chargebacks at the pump isn’t going to be easy, though.
That said, there are some basic practices merchants can put in place to help prevent disputes.
While these are all important practices to help prevent criminal attacks and merchant error, that still leaves the problem of friendly fraud. While this is mainly an online phenomenon, there’s still a decent risk posed by first-party attacks at the pump.
Friendly Fraud Has Only One Solution
The chargeback process used to be an obscure payments industry procedure. More and more cardholders are aware of it now, though, and they’re using it as a tool to commit friendly fraud.
This is not always deliberate. Sometimes, a buyer may simply not recall completing the purchase and assume it’s fraudulent. Other times, however, the user might abuse the chargeback process deliberately to try and get something for free.
Friendly fraud is post-transactional in nature. It doesn’t appear as fraud until the moment the customer files a dispute, so pre-transactional tactics won’t really work. The key to friendly fraud is first eliminating the possibility of merchant error or criminal activity. Once these threats are managed, merchants can engage in chargeback representment to fight back against friendly fraud.
Representment is the only reliable method of recovering revenue lost to friendly fraud. That said, it’s a complicated and time-consuming process involving multiple parties, extensive recordkeeping, and lots of back-and-forth communication between different parties. Most merchants simply don’t have the time or resources to fight and win disputes.
Chargebacks911® offers the industry’s only full-service chargeback solution. We provide end-to-end protection to fight chargebacks and ensure long-term chargeback reduction, all backed by a 100% ROI guarantee. Thriving in this market is tough. Let Chargebacks911 lend you a hand.
FAQs
What is an AFD?
AFD stands for “automated fuel dispenser.” Commonly referred to as a gas pump, AFD are self-service machines seen at convenience stores and other locations that offer fueling services.
Are AFDs vulnerable to fraud or chargebacks?
Yes. The unattended self-service nature of the AFD business increases is at the core of its vulnerability to fraud and chargebacks. AFD merchants had been reluctant to accept the costs associated with equipment and hardware upgrades mandated by the EMV Liability Shift of 2015. However, after the April 2021 deadline, several things have changed and non-compliant merchants face increasingly harsh penalties the longer they hold out.
How to tell if a gas pump has a skimmer on it?
To see if a gas pump has a skimmer attached, look for signs of tampering, like broken security seals, hidden cameras, mismatched colors, or loose card readers and keypads.
What are Visa’s authorization limits for AFDs?
As of 2022, Visa increased AFD status check authorization limits to $175 for non-fleet cards, and $350 for fleet cards. The new authorization limits apply to transactions that are both “chip-on-chip” and “partial authorization pending” transactions.
