For years, Visa has accounted for 50% of overall card spend in the United States and a whopping 70% share in the debit card category.
These percentages, when applied in an increasingly digital world, translate into an overriding importance for Visa in small ticket environments. Here’s why:
As a general matter, U.S. consumers are opting out of cash, even for very small purchase amounts. It’s just a fact of modern life. Convenience stores and quick service restaurants, which historically worked off of pocket money, have adapted and now widely accept payment cards.
What’s more, economic conditions and demographic trends have tilted payment volume away from credit and toward debit products. Debit cards, which are limited to funds actually on deposit, skew to lower transaction amounts than cards tied to credit lines.
The combined effect of these phenomena is that cards, and Visa cards in particular, are used for a massive number of small value purchases in the United States.
It’s a situation that is about to bite some merchants.
On April 13, Visa will lift its temporary block on small dollar chargebacks that originate from counterfeit cards.
Counterfeit cards are made by encoding hacked information on to the magnetic stripe of a legitimate-looking card. Fraud ensues when a merchant allows the counterfeit card to be swiped instead of inserted into an EMV chip reader.
Visa announced the block on counterfeit chargebacks below $25 in 2016 after an outcry from small merchants who claimed that they were left defenseless against the EMV liability shift.
The pause on chargebacks until April 2018 was meant to provide merchants with more time to upgrade their card readers and POS systems. American Express announced a similar block, but MasterCard chose not to do so.
Soon, the blocks will expire, counterfeit chargebacks will flow, and unprepared merchants will incur fraud losses.
That’s not the whole picture, though. Two other factors will magnify the losses.
First, merchant processors commonly apply a $20-$50 per item fee to each incoming chargeback. This can mean, for instance, that a $10 lunch served to a fraudster at a roadside diner might end up as a $60 merchant loss!
Second, and also occurring in April, is the introduction of Visa’s new dispute process called Visa Claims Resolution, or “VCR”.
VCR employs automation to replace some of the manual back-and-forth that now occurs between merchant and bank.
Under the VCR program, the authorization message indicators and timestamps of a disputed charge will be programmatically evaluated by Visa systems to determine the liable party. Unlike the current process, human factors will be removed and reversing the liability decision will be difficult.
Other changes come along with VCR, too. Among them is a reduction in the time period within which merchants can fight chargebacks by presenting “compelling evidence”.
All of this means that April 2018 might well become another inflection point for card fraud in the United States.
The combination of unsuppressed chargebacks, acquirer surcharges and a more rigid dispute process could hit unprotected merchants very hard.
RevChip is the most comprehensive and affordable EMV and Apple Pay software built for the U.S. market. It connects to major processors without a transaction fee and runs equally on Verifone and Ingenico devices. Using RevChip, merchants eliminate card data from their systems and shrink the burdens of PCI. The RevChip SDK provides POS developers with a quick and thorough integration without the hassles of middleware.
To learn more about how RevChip solves for EMV and Apple Pay, download our POS Developer Guide or reach us at (800)560-0415.