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Are Chargebacks Making a Comeback for U.S. Fuel Merchants?

Are Chargebacks Making a Comeback for US Fuel Merchants

With the planned EMV implementation date looming for U.S. fuel merchants, we’ll be spending some time ahead of the October 2020 deadline looking at the fraud issues affecting fuel merchants and how these might change through the final quarter of this year.

In this first blog post of the series, the sticky issue of chargebacks is our focus. If you’re a fuel or station operator thinking “not relevant, I don’t have a chargeback problem” then perhaps you should read on…

Have chargebacks been hiding?

As things currently stand, petroleum merchants in the U.S. only bear the liability for fraudulent transactions made using lost or stolen cards, and even then, only when those payments have been made in person and the relevant identity checks haven’t been made by the merchant. Otherwise, the liability – and therefore the cost – has been shouldered by the card issuers.

To date, many merchants selling gasoline have received limited chargebacks from card issuers, partly because of the liability rules, but also because even when the issuer is confident they have the right to charge back the transaction, the cost of submitting and processing a chargeback often outweighs the benefit of getting the money back.

As a result, many fuel merchants have the false impression that they don’t have a chargeback problem. Even for the chargebacks that a merchant does receive, the full extent and cost of those chargebacks are often not very well understood.

A costly chargeback surge is coming

From October 2020, card issuers will be able to charge back fraudulent transactions if the merchant is unable to accept EMV cards at the pump. This, along with non-EMV pumps being a concentrated target of fraudsters, will undoubtedly result in a surge in chargebacks.

In fact, issuers are likely to start charging back many more transactions with increased confidence they will be paid. Convenience store merchants will have already seen the impact on sales with the EMV liability shift in 2015, but fuel merchants may be in for a big shock if they aren’t EMV-ready by October. For instance, after the 2015 EMV deadline in other U.S. merchant sectors, many experienced 20 to 30 times more chargebacks in the six months following the deadline, compared to pre-EMV.

The result is not only a threat to a merchant’s reputation – and that of the merchant accounts used to do business – but can also result in serious financial loss. Consider that chargebacks don’t just mean a lost sale. The true cost of chargebacks is significantly higher, often two to three times the cost of the original transaction. There are chargeback fees, the costs of the lost fuel or products, restock costs, processing fees and dozens of other expenses along the way – and that’s just for one disputed charge!

Taking charge of your chargebacks

Naturally, implementing EMV at the pump will mitigate the incoming liability shift and protect fuel merchants from taking the hit. However, many are struggling to make the change and are unlikely to be ready for the October deadline.

As part of a fraud strategy, it’s valuable to have strong fraud intelligence and good visibility of the chargebacks that are coming in. This can help merchants manage risk exposure and costs. For instance, merchants that enroll in chargeback alert networks can reduce their chargeback issuance rate by about 40 percent. When a cardholder disputes a transaction, the merchant will receive an alert, enabling the merchant to refund the customer before a chargeback is raised. Not only does this approach help protect customer relationships, but these alerts help keep chargeback ratios low and avoid chargeback fees. Of course, the very nature of self-service fuel pumps means they are an obvious and frequent target for fraudsters. So, while it’s important to meet the EMV deadline as soon as possible, it’s also vital for fuel merchants to implement a robust fraud solution which helps stop fraud in the first place (more on that in my next post).

 

If you want to know more about enabling fast and secure payment experiences at the pump, visit our fueling and convenience page – and stay tuned for further blogs in this series.