U.S. Fuel Merchants May Have to Start Watching Chargebacks

Even with the pandemic, it looks like the October 2020 deadline for EMV implementation by U.S. fuel merchants is still on schedule. This is especially important for fuel merchants, because while they have not been the victim of too many chargebacks in the past, it does mean they will have the potential to be hit with so many more. (SO many more!)

Right now, fuel merchants don’t have too many problems with chargebacks, because they’re typically only responsible for fraudulent transactions made with lost or stolen cards, and even then, only when the payment was made in person and the required identity checks weren’t properly made.

Other than that, any liability and costs for fraud have been borne by the issuing banks, and no one else. But that’s about to change.

Gas pump with credit card reader. U.S. fuel merchants don't usually face chargebacks, but that could change.

Once the deadline hits, any fuel merchants who have not installed EMV machines (chip card readers) on the gas pumps will be liable for all fraud-related chargebacks. Merchants that have installed the readers will still be protected.

As Visa says on their own website, chip technology has been proven to prevent counterfeit fraud, which is the most common type of fraud that results from the massive data breaches that have become regular news headlines in the past 10 years.

EMV readers are designed to protect consumers from fraud because they follow the basic formula of SCA (Strong Customer Authentication), which was born out of Europe’s PSD2 requirements. With SCA, each credit card or debit card transaction requires two of these three items:

  1. Something the customer has (smartphone, smart card, chip card, wearable device).
  2. Something the customer knows (password or PIN).
  3. Something the customer is (fingerprint, facial recognition, voice recognition).

What do chargebacks entail?

A chargeback is more than just a refund that retailers have to give their customers. In fact, when compared to the additional fees on chargebacks, giving a refund of $30 of fuel is easy compared to the hassle of a chargeback.

In a normal refund, in addition to paying the full refund, you’ll have to pay the transaction fee of 2.75% – 4%. On a $30 transaction, you’ll refund the $30, even though you’ll be out the $1.20. So a refund costs you $31.20.

With a chargeback, you have to pay the refund costs, plus any chargeback fees as well. Those can be as much as 40% of the original total, which means that on a $30 fuel sale, you’re paying another $12 for the transaction fees.

In the end, the chargeback on a $30 purchase can be as much as $43.20.

And that’s on the low-end. The total costs of some chargebacks — including the amount you paid for raw materials, any overhead and operational costs, as well as marketing costs — can be two or three times the original transaction amount. So a $30 purchase could end up costing as much as $90 in profits and costs.

Convenience store owners have already been dealing with chargebacks since 2015, but U.S. fuel merchants will undoubtedly see a surge in chargebacks after the October 2020 deadline.

How big can that be? In 2015, when other U.S. merchants had their own EMV deadlines, they saw 20 to 30 times (not percent) more chargebacks than they had in the past.

How can fuel merchants avoid them?

The best way to avoid these chargebacks is, of course, to install EMV readers at all your gas pumps. If you have the EMV readers installed, you are not liable for any fraud in those instances: The issuing bank will be required to pay the various fees and even the refund.

However, it’s also important that you implement a few practices of your own to fight any chargebacks that actually are levied against you.

  1. Respond to all refund and chargeback requests. Giving a refund may hurt, but at least you’re not being hit with the 40% chargeback fee. Also, “respond” does not always mean to automatically issue a refund. You may need to fight it, so don’t be afraid to do that. Be prepared and make sure that you. . . .
  2. Keep all receipts and paperwork for each transaction. If you dispute a chargeback, you’ll need every piece of documentation related to the purchase, showing that the customer was who they said they were, and that you followed all the necessary steps to establish their identity.
  3. Don’t miss the chargeback response window. Every chargeback has roughly a 5-day window for you to respond. If you miss it, it’s like accepting the chargeback and the penalties without a fight.

Chargebacks are not a cost of doing business at all. Many times they’re a problem with fraud or merchant error. CB-ALERT can help you fight them and protect your bottom line. For more information, please visit the CB Alert website.

Photo credit: 127driver (Wikimedia Commons, Creative Commons 4.0)

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