AFD Merchants Benefit, But Issuers, Consumers, & e-Retailers Suffer
When card networks announced the EMV liability shift in the U.S. would take place on October 1, 2015, they initially specified that automated fuel dispensers and ATMs would be exempted until 2017.
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However, recent industry developments reveal a complete transition won’t be achieved for several more years.
This announcement was welcomed by many. Upon closer inspection, however, the implications are more far-reaching than most have anticipated.
Those Who Will Benefit: AFD Merchants
As was discovered during the initial phase of the EMV liability shift in 2015, the process of transitioning to new technology is incredibly expensive and time-consuming. Moreover, a lack of compliant vendors has slowed the process more than experts initially anticipated.
With more than 120,000 gas stations in the U.S., transitioning the country’s gas pumps to newer, EMV-compliant models will be a phenomenal effort. Businesses would almost certainly have failed to convert the majority of gas pumps in time for the planned liability shift on October 1, 2017.
Not only does the new deadline provide an allowance for the labor-intensive transition, it also enables businesses to absorb the additional costs over a greater span of time.
Another contributing factor in the card networks’ decision to delay timelines was that the ATM transition was originally slated for the same date as gas pumps. With many of the country’s 425,000 ATMs located at gas stations, forcing retailers to update their automated fuel dispensers and their ATMs by October would have made an already unmanageable situation worse.
Card networks recognize that EMV is the most effective technique for preventing card-present fraud. However, they claim that currently available fraud detection tools, like Mastercard’s new artificial intelligence and Visa's Transaction Advisor, should sufficiently mitigate fraud exposure until the new 2020 deadline.
Ultimately, merchants operating automated fuel dispensers will be able to transition more efficiently than retailers did in 2015.
Those Who Could Suffer: Consumers, Issuers, and Online Merchants
Unfortunately, while pushing back the EMV deadline to October 2020 will benefit AFD merchants, the policy change will negatively impact other parties.
Delaying the implementation of EMV technology at the gas pump means fraud exposure remains high for consumers.
Because gas pumps are outside, exposed, and unattended, it’s easy for criminals to attach card skimming devices and unobtrusively collect cardholder data.
For many cardholders, purchases made at gas pumps are among their most frequent payment card transactions. Greater transactional activity on vulnerable processing equipment increases the likelihood that consumers will be victimized.
Postponing the use of more secure EMV technology will allow fraudsters to continue victimizing consumers. In fact, fraud attacks at the pump will likely increase. Once ATMs are chip-compliant, gas pumps will be the last remaining outlet to gather cardholder data.
The delayed deadline for EMV technology integration means issuers will retain liability for a greater period of time.
Not only will issuers continue to lose money because of fraud perpetrated at AFDs, they’ll also face greater customer service issues. Banks will have to contend with angry, confused cardholders who have been victimized by fraudsters, despite their supposedly safer cards.
Fraud protection is already unfairly skewed in favor of card-present merchants.
For example, a Florida grocery chain filed a lawsuit against the card networks and several banks in March 2016, alleging that the EMV liability shift caused their chargeback losses to increase from $89 annually to $10,000 in just over four months. While these losses are no doubt significant for the merchant in question, they are preposterously low compared to the revenue loss sustained by the average card-not-present merchant in a single month. Because of friendly fraud, online merchants lose more than $30 billion each year.
As card-present transactions become safer and more impervious to fraud attacks, the danger for the online environment continues to increase. Since the first phase of the EMV liability shift in 2015, online fraud attempts have increased significantly. Between Q1 2015 and Q1 2016, online fraud attacks increased by 215%.
Unfortunately, the AFD delay makes this discrepancy even greater. As long as criminals have the opportunity to skim cardholder information at the gas pumps and use the data online, there will be no easing of card-not-present fraud.
Online merchants are forced to confront these increasing fraud attacks with little to no assistance from the industry at large.
A Coordinated Response is Necessary
Issuers and card-not-present merchants need to take decisive action now.
Issuers need to address chargeback compliance for card-not-present transactions. Because banks will retain liability for an extended period of time in the card-present realm, they need to make a conscious effort to reduce revenue loss associated with online transactions.
An insufficient amount of due diligence could mean issuers inadvertently facilitate friendly fraud—which merchants can dispute with a time-consuming and expensive process that increases revenue loss for banks.
Profit margins will remain narrow until 2020, so issuers need to be especially attentive to compliance issues that will lead to additional costs and needless revenue loss.
eCommerce merchants need to create a multilayer fraud management strategy that addresses these emerging threats. Merchants must anticipate and prevent fraud, as well as respond to the resulting chargebacks.
Studies show merchants spend 78% of their fraud management budget on order review staff and internally-developed solutions, but they only spend 22% of their budget on third-party services. The limited amount of funds that merchants devote to professional assistance usually goes to fraud prevention—not revenue recovery.
Comprehensive solutions aren’t limited to pre-transaction fraud detection. An all-inclusive approach—one that provides the greatest profitability and reduced liability—includes layers after the sale as well.
When fraud and risk levels spike, processing abilities are likely to be revoked. Therefore, chargeback mitigation becomes one of the most important elements of any fraud management plan.
The industry’s apparent lack of interest regarding online fraud exposure means eCommerce merchants are still being left behind. That doesn’t mean merchants are expected to fight this battle alone though—Chargebacks911® is ready and willing to do what’s necessary to establish a profitable environment for everyone involved with online transactions.
If you’d like to learn more about how Chargebacks911 can help you establish sustainable success—despite constantly emerging setbacks like EMV—contact one of our risk mitigation experts today.