EMV Driving More Chargebacks Than Anticipated

Wednesday, January 06, 2016

Since the EMV liability shift, many small business owners are getting more chargebacks than they expected. Heartland and the National Restaurant Association recently hosted a webinar to help merchants understand the chargeback process and learn how to protect their business. Here’s what you missed.

Chargeback Management 101

Unfortunately, retrievals and chargebacks are a standard part of running a business. Understanding the difference, and what goes on behind the scenes, is key.

Retrievals: Innocent until proven guilty

When a customer issues a retrieval, it’s generally a request for information about an unidentifiable charge. At this point, funds are not removed from the merchant’s bank account, but the merchant must respond with the requested documentation or face a possible chargeback.

Chargebacks: Guilty until proven innocent

The customer has initiated a dispute. Depending on the reason for the dispute—fraud, processing errors or authorization problems—the issuing bank will debit the transaction amount. The debit can be reversed, however, if the dispute is found to be invalid.

Notification and Response

Both retrievals and chargebacks require an immediate response. It’s important to know how your processor will notify you: electronic (email or online), fax or letter. We recommend dedicating a set time each week to review notifications. You should also diligently adhere to card brand dispute times (shown below) to minimize the risk of dispute losses.

Card Brand Chargeback Response Times



Card Brand Retrieval Response Times



Best Practices to Avoid Chargebacks

The best way to avoid chargebacks is prevention—preferably at the time of the transaction. Here are some tips:


  • Always process chip cards as chip transactions

  • Swipe non-chip cards through the terminal

  • If a card is declined, ask for another form of payment—do not re-swipe or override

  • Match the last four numbers on the slip

  • Request/verify the signature

  • For keyed/manual entry transactions, check the expiration date and make an imprint

While it’s rare, cards can be inactive. Your processor can check with the issuer to determine if a card has been closed. Your processor also should be validating if disputes are, in fact, fraud. Here is a deeper dive into more ways you can avoid card disputes.


EMV Liability Shift—Chip Cards and Chargebacks

Since October 2015, merchants without an EMV-compatible terminal or POS system are responsible for chargebacks and fraudulent card acceptance. It’s important to note this only applies when an EMV card is presented at the POS. Although the shift happened months ago, you may still be wondering about a few things—the reason for the liability shift or how fraud is still occurring if EMV is so secure. It’s nearly impossible for a fraudster to copy the EMV chip, but easy for them to copy the information from the magnetic stripe that still exists on all cards—new and old.

The problem? If a merchant doesn’t have an EMV terminal, there’s no way to detect if they’re accepting what should be an EMV card. EMV-enabled terminals will signal that the card should be dipped instead of swiped. At that point, if the card doesn’t have a chip, it’s considered fraudulent.

This is an important side note because smart criminals will avoid businesses with upgraded equipment. Merchants still using the old magnetic stripe terminals are at higher risk for chargebacks. For more information on the EMV liability shift, visit our EMV resource page.

Here are some ways to decrease your chance of fraud:

  • To avoid chargebacks on chip cards, upgrade to an EMV-enabled terminal

  • When processing a chip card, follow the instructions on the terminal

  • Remember that you’re not protected if a chip card is swiped or keyed in

  • If you haven’t upgraded to EMV, check out these best practices

Chargebacks associated with EMV can be very confusing. To understand the new rules in greater depth and to learn how to read a chargeback statement, watch Heartland’s next webinar here.