We have known that the EMV, (Europay, MasterCard and Visa), contactless credit and debit card standard was coming to the U.S. for some time. Europe has been using the standard for years in the form of a credit/debit card with a chip inside paired with a consumer entered pin number, in order to increase security. Unlike the rest of the world, the U.S. has still been using the magstripe technology (developed in 1960 by IBM). But you may have noticed that your credit and debit card providers sent you new cards with the chip, and major retailers like Target, Wal-Mart, etc. are requiring that you insert your card rather than swipe.
In fact, this October was considered the real EMV milestone for the U.S. The credit card processors have now switched liability for fraudulent credit and debit charges from themselves to banks and merchants if they do not offer EMV cards and card readers, respectively. That could include vending operators who do not have an EMV compliant card reader on their vending machine. In the simplest terms, when a fraudulent card is used, whoever didn’t comply the most with the new EMV standard eats the charge. The person to “eat the charge” may be different based on a number of factors.
However, right now there is a huge and unforeseen problem for vending operators who do not have EMV compliant readers. The real issue is chargebacks.
What is a Chargeback?
I recently talked with a payment industry contact to fully understand the chargeback issue as it relates to EMV and vending. He explained that when an EMV credit card used at a vending machine is later reported stolen, operators have to eat the transaction cost, which we knew. (This applies if the machine does not support the chip which virtually none do in the U.S.)
However, operators also get charged a “chargeback” fee by the cashless processor. The fee is per transaction, not per card or customer. So if a college student buys 30 $1.50 items from a vending machine and then reports the card as stolen, that results in the operator paying not just the $1.50 for all those transactions, but also $25 per transaction for the chargeback, or roughly $45 in product costs and $750 in chargeback fees. It’s a huge issue and just as real for micro market operators who do not have EMV compliant card readers on their kiosks.
Now, if the credit and debit cards used by the consumer don’t support EMV, then the liability and fees would go to the bank, not the operator, but as more magstripe cards are replaced with chip cards, there will be a greater liability cost to the operator. Visa, MasterCard, Amex and the banks are working on this chargeback issue as it’s very significant. I know of one vending operator who received $11,000 in chargebacks in one month and the liability shift that led to these fees only happened in October. We’ve barely scratched the surface of this issue.
The future
Right now the best thing to do is to work with your equipment supplier on an upgrade path for taking EMV/Chip cards. And if you have machines at colleges or other places where fraud may occur, maybe think about pulling non EMV/Chip compliant readers. The stolen goods at $1.50 per transaction will not ruin you financially, but the chargeback fees will.
Editor's Note: Stay tuned for more about chargeback fees as they relate to non-EMV readers in the vending industry as we gather further information and speak with additional industry experts.
