Nearly half a year since the EMV liability shift in the US, consumers have been through several statement cycles, and the acquiring industry should be able to get an early read on the increased chargeback volume due to the liability shift.
Some 70% – 80% of active general purpose credit cards and 25% to 35% of active general purpose debit
cards were chip-enabled by the end of 2015, according to recent First Annapolis estimates – writes Marc Abbey, Managing Partner and Janinne Dall’Orto, Senior Manager, both specialize in Merchant Acquiring at First Annapolis.
In January 2016, Visa reported only 750,000 merchant locations were EMV enabled, suggesting that US acquirers are broadly exposed, at least in theory, to chargebacks triggered by counterfeit fraud and in some cases, lost and stolen fraud. Increased exposure in theory, but are acquirers experiencing elevated chargebacks in practice? In conversations with a broad cross section of acquirers, there appears to be great variation in acquirer outcomes so far.
Several acquirers, in fact, reported increased chargeback levels:
- “We have seen an increase. For the most part, the merchants experiencing an increase are the expected industries – furniture, clothing, pharmacy. But we have been a little surprised to see fast food restaurants with an increase.” – Top ten acquirer
- “Our … December chargebacks increased 3.8 times normal, all from non-EMV merchants. And it was in areas you would not normally see chargebacks — $8 ticket at a deli; $25 ticket at a grocery store.” – Top twenty non-bank acquirer
- “Our chargebacks are up 15% [from EMV-related chargebacks]. We are beginning to look deeper to make sure the issuers are not sending incorrect chargebacks.” – Top twenty bank acquirer
- “Our largest uptick in chargebacks has been within branches with cash advance transactions. Even with very defined policies of viewing drivers licenses, etc., there have been fraud losses on those transactions due to EMV capabilities – 6 times higher [than historical averages] over the past 90 days.” – Bank acquirer
However, many other acquirers have seen little-to-no impact from the liability shift:
- “We have not seen a spike yet.” – Top 40 bank acquirer
- “Yes, some retail merchants experienced some EMV-related chargebacks, but it is certainly not anything out of control.” – High growth non-bank acquirer
- “We have not seen any increasing trends in chargebacks or losses related to EMV post the October 1 shift.” – Bank/Non-bank joint venture
- “We really have seen no difference. Our chargeback numbers are the same or actually less.” – Bank acquirer
- “Up some, but not that much.” – Top ten acquirer
Even the acquirers who have experienced elevated chargebacks, however, have not incurred higher loss levels as of yet.
- “We have not experienced any losses to date as the merchants have been able to fund the chargebacks.” –Top 20 bank acquirer
- “We have experienced an uptick in chargebacks – 7% — but no increase in losses.” – Top ten acquirer
The picture that emerges from these wide ranging discussions is one of increased chargeback exposure, but an increase that is far from uniform. On occasion, the increased exposure has been relatively isolated in certain merchant industries. In some cases, these industries have been predictable, and in other cases, not so intuitive.
Certainly, chargeback exposure related to the EMV liability shift in the U.S. is a temporary, transitional issue. However, based on the rate of change at the point of sale, it is a transitional issue that will be with the U.S. acquiring industry for some time, albeit with much variation in how it impacts individual acquirers.