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Counterfeit Transactions

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Chargebacks Associated with Counterfeit Transactions

Many chargebacks are the result of fraud. However, there are certain actions, or lack thereof, on the merchant’s part that can lead to disputes.

Counterfeit transaction chargebacks are usually a combination of these two factors. There is a strong probability that both the shopper and merchant are at fault.

What is a Counterfeit Transaction Chargeback?

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Unlike most chargebacks that result from card-not-present transactions, this form of dispute is the result of a face-to-face purchases made with a counterfeit card.

The two major credit card networks, Visa and Mastercard, have specific reason codes for counterfeit transactions chargebacks. Visa users will file such a chargeback using code 62, whereas Mastercard has assigned codes 4870 and 4871 to this type of situation.


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Reasons for Counterfeit Transactions Chargebacks

Counterfeit transaction chargebacks can occur for several reasons. Common causes include:

  • Merchants process cards without verifying that the first four embossed digits on the card match the pre-printed digits on the front of the card. If the digits do not match, the card has been tampered with and should not be used to make a transaction.
  • Magnetic stripe fraud, which occurs when a card’s magnetic stripe is altered and is not approved by the issuer.
  • Self-Checkout kiosks aren’t properly attended; employees don’t closely examine the security features of the card.
  • Employees received an authorization approval, but didn’t submit all the necessary data.
  • Cards aren’t processed properly and applicable acceptance procedures are not followed (for example, accepting an EMV card but processing it as a swipe).

What to Do About Counterfeit Transaction Chargebacks

Merchants who received a counterfeit transaction chargeback can either accept the chargeback or dispute it.

If both the transaction and the card were valid, the merchant can dispute the chargeback. The representment must provide documented evidence, such as a printed sales receipt.

Merchants should also dispute the chargeback if they have already provided a refund to the cardholder, because a chargeback is essentially another type of refund.

Merchants who receive chargebacks have fines and other penalties levied against them, so it’s in the business’s best interest to prevent chargebacks from happening in the first place.

How to Prevent Counterfeit Transaction Chargebacks

One of the best chargeback prevention tools is simply practicing good business etiquette and following clear-cut card acceptance policies for each transaction.

Employees who handle credit card transactions should be able to identify security features of credit cards and should check them on every transaction.

  • The first four digits of the account number should match the smaller four digits printed near the embossed numbers. If the numbers differ, the card is most likely fraudulent.
  • Avoid hassles with key-entered transactions by imprinting the card on the sales receipt. Get the cardholder’s signature to verify the card even though its magnetic stripe can’t be read. Keep all documents like this in an organized file.
  • Closely monitor self-checkout kiosks. Check each individual card and be on the lookout for suspicious behavior.
  • Train employees in Code 10 authorization procedures. If the card seems to be tampered with or the customer is acting suspiciously, it is appropriate to make a Code 10 call to verify that the transaction is, in fact, authorized by the cardholder. Employees should hold onto the card during the authorization process, during which they will be asked a series of yes and no questions to verify the card’s authenticity.

EMV and the Changing Face of Counterfeit Fraud

EMV, the new standard in credit card security, takes effect in the United States in October 2015. Commonly referred to as the new ‘chip card’, its aim is to eliminate the possibility of counterfeit fraud.

Named for Europay, Mastercard, Visa, the card schemes that developed the new system, EMV has been widely used in countries outside the United States for the last decade. Studying the results of EMV in those countries can give a good indication of the effect this new methodology will have on counterfeit fraud.

Eliminating Counterfeit Fraud

With traditional magnetic stripe cards, the sensitive information was embedded in such a way that it made it easy for criminals to produce counterfeit cards with the stolen information. Using card skimmers and other methods of stealing information, counterfeiters could easily duplicate the card and use it to process fraudulent transactions.

With the new EMV chip, each transaction generates its own unique, one-time code which is impossible to replicate. This new information storage and retrieval method virtually eliminates the possibility of creating a counterfeit EMV.

Shifting Liability

Once the new standards take effect, liability for counterfeit fraud will shift. Previously, liability for counterfeit fraud rested with the issuer, providing the merchant processed the transaction correctly.

The new standards appoint liability to the least secure entity. If a cardholder has not been provided with a new EMV card and the merchant has updated the POS system, the issuer is liable for the fraud. If the merchant has not updated to a new terminal and fraud is perpetrated, the merchant is liable for the loss.

Targeting Card-Not-Present Opportunities

As card issuers and merchants tighten security for card-present transactions, a larger problem is actually created for card-not-present merchants.

Globally, countries who have adopted the EMV technology have seen a dramatic decline in counterfeit fraud for card-present transactions. However, credit card fraudsters have not gone away. They have simply shifted their considerable focus to the card-not-present merchant and online fraud rates have skyrocketed.

This will present additional burdens on card-not-present merchants as they struggle to identify potentially fraudulent transactions. Fraud detection and prevention measures become even more valuable as online merchants brace for the onslaught.

Minimizing Fraud and Retaining Revenue

One of the most persistent chargeback myths is that transaction disputes are an inevitable part of doing business. While some chargebacks are difficult to manage, counterfeit transaction chargebacks can be avoided. With a properly trained staff and adherence to business best practices, merchants can avoid these unnecessary sources of revenue loss.

If you are struggling with chargebacks, from either card-not-present or card-present transactions, contact Chargebacks911®.


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