Visa branded products account for 50% of overall card spend in the United States and a whopping 70% share in the debit card category.
A big contributor to Visa’s success has been small ticket purchases.
Small ticket and quick service merchants now widely accept payment cards because U.S. consumers are quickly opting out of cash, even for very small purchase amounts. What’s more, economic conditions and demographic trends have tilted volume away from credit and toward debit cards, which, by their nature, skew to a low average ticket.
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.
Next April, 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 mid-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.
In a few months’ time, 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 2018, 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. 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”.
So, it’s looking like April 2018 will be another EMV inflection point.
The combination of unsuppressed chargebacks, acquirer surcharges and a more rigid dispute process will hit some merchants very hard.
It’s a shame because avoiding this harm has never been easier.
EMV need not be a huge expense or a technology hassle. Merchants should be able to preserve their point-of-sale operations and implement Quick Chip and Apple Pay in just a few days. If you agree, check out RevChip.