EMV Liability Shift: What are the Chargeback Trends?

25th June 2021
Contributor:
Joshua Pynn
Joshua Pynn

After multiple delays, the EMV liability shift finally came and went in April of 2021. With this shift, petroleum merchants are now liable for all fraud that occurs when transactions are not processed using EMV chip technology at the point of sale.

Because of the high capital expenditure involved in integrating EMV technology into AFD terminals, many fuel merchants are not fully compliant, leading to a spike in chargebacks across the industry. CMSPI is tracking the changes to fraud and chargebacks and the trends speak for themselves: chargebacks have tripled since January.

Chargebacks Have Grown in the Aggregate

With the EMV liability shift, issuers can now pass through all chargebacks that arise for transactions where a card is presented via magnetic stripe. Understandably, fuel merchants have seen more chargebacks as a result. Looking at January as an index, chargebacks had grown by nearly 200% by the month of May. As Figure 1 shows, this growth is almost entirely driven by new EMV chargebacks, with all other chargebacks staying relatively steady month to month. Figure 1 represents merchants with a wide range of EMV compliance levels, amongst which the average growth in chargebacks is 200%.

Figure 1. Chargeback $ Value Growth, 2021 (Source: CMSPI Estimates and Analysis)

More Chargebacks, Larger Chargebacks

It’s clear that the growth in chargebacks has coincided with the liability shift, but there are further intricacies to explore. While the volume of chargebacks has increased tremendously, the value of chargebacks has increased as well. Between March and May of 2021, average chargeback transaction value increased from $50 to $70 across the industry. The reasons for this are likely twofold: firstly, gas prices saw some significant increases in the U.S. in April and May, which likely contributed to the overall value of transactions and therefore chargebacks. Secondly, as the EMV liability shift included transactions at the pump, chargebacks became more concentrated on gas purchases, which are typically of higher value than in-store convenience purchases. Combined, the two trends led to a doubling of fraud losses as a percentage of total revenue from January to May (see Figure 2).

Figure 2. Chargeback Overview (Source: CMSPI Estimates and Analysis)

EMV Chargebacks are the Main Culprit for Growth

As hinted at in Figure 1, our data suggests that the increase in chargebacks this year is largely a result of new EMV chargebacks post liability shift. Interestingly, the trends are consistent for a wide range of fuel merchants with different geographical profiles and compliance levels. Between January and May of 2021, the percentage of total chargebacks associated with the EMV liability shift grew from a range of 2%-14% in January to between 56% and 67% in May, according to CMSPI estimates (see Figure 1). This suggests that the majority of all chargebacks in the industry can be attributed to the liability shift, cementing their prominence in the fuel industry until compliance becomes commonplace.

Figure 3. EMV as a % of Total Chargebacks (Source: CMSPI Estimates and Analysis)

What Can Merchants Do?

In today’s environment , the fuel industry is faced with a difficult balancing act between the capital expenditure required to become compliant and the increased losses from fraud as a result of the liability shift. The most important aspect of any decisions made surrounding this trade-off is knowing exactly how the shift has affected your business, and therefore whether the business case for reaching compliance stacks up. Please contact Joshua Pynn, Strategic Insights Consultant, at CMSPI for further information regarding the shift and its affect on your business.

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How will the EMV liability shift impact you?