The Green Sheet Online Edition

February 27, 2023 • Issue 23:02:02

Help card-present merchants fight chargeback scams

By Allen Kopelman
Nationwide Payment Systems Inc.

While most stories you read about friendly fraud pertain to ecommerce and card-not-present transactions, there is a real issue happening at card-present businesses. Merchants deal with these scams on a daily basis, and they are desperate to get help with this.

It's shocking to discover that card issuers are the top purveyors of chargeback fraud, taking advantage of the good faith of merchants who process credit card transactions and produce billions in legitimate payment card revenue. Here are some examples:

• Duplicate charges: Merchants are being charged multiple times for the same transaction. One customer reportedly had two or more charges for a single sale.
• Excessive tip chargebacks: Merchants who batch out transactions with tips over 20 percent are getting charged back. For example, if a restaurant or bar tab was $100 and the customer left a $40 tip, $20 would be charged back to the merchant.
• Point of interaction: Merchants may receive claims that a credit card was charged the wrong amount or that a customer paid with a different payment method. These claims can be disproven but it takes time and effort for a merchant to respond to every retrieval request.
• Incorrect amount: Merchants must provide a sales ticket showing a correct amount was billed.
• Goods or services not as expected: Seriously, how can a restaurant patron claim that a cocktail or meal was not delivered as intended? Transactions are done face-to-face with an EMV chip reader; there is no delivery happening. How can a cardholder dispute that goods and services were not provided after a bartender clears away empty glasses or a server removes empty plates?

Prove it

In all cases, payment card issuers that dispute or inquire about transactions are asking for "proof" that the card was present by showing that the card was processed correctly and not key entered. This is frequently a bogus request, particularly when the issuer can plainly see a transaction was processed correctly as an EMV or smartcard chip transaction.

And claims that the cardholder or customer was expecting a delivery are also nonsense when a customer was clearly present at the business and physically inserting an EMV card.

Issuers may ask for a bill and or invoice to prove a transaction was processed correctly and was not billed after the regulatory time limit had expired or processed using an incorrect transaction currency code. The trouble with these disputes and inquiries is they are time-consuming energy zappers that create extra work for busy retail and hospitality merchants who must respond with physical proof within a very narrow time frame.

We discussed this issue on episode 99 of B2B Vault: The Payment Technology Podcast, titled "Small Business & Credit Card Chargebacks." The episode is available on all major streaming platforms and Spotify at spotifyanchor-web.app.link/e/m242tvVslwb.

Excessive tip chargebacks

In previous articles, I've also described how hospitality businesses, restaurants, bars and nightclubs are losing money when customers tip over 20 percent. Many of the card issuers charge back the transaction instead of simply asking the customer to authorize the additional over 20 percent.

A few of my credit cards will send a text and ask me if I meant to leave this tip and give me the option of texting 1 for yes and 2 for no. In today's day and age, you would think more card issuers would have the technology to handle such a simple function.

We explored this issue further in episode 115 of B2B Vault: The Payment Technology Podcast on Oct 11, 2022, after I had read about this issue in quite a few social media posts. The episode is available at spotifyanchor-web.app.link/e/ZP9ypskslwb. My recent article in the Dec. 26, 2022 issue of The Green Sheet, www.greensheet.com/emagazine.php?article_id=7141, takes a deeper dive into high tips and how merchants can protect themselves from losing money.

Addressing pain points

While the card brand rules do not stipulate the need for itemized receipts, card issuers request them anyway. Clearly, tipping should reward, not punish, merchants and sales associates for a job well done. Here are some recommendations for addressing these pain points:

• Issuers: To stop the rising tide of chargebacks, card issuers need to be more open minded and not immediately side with cardholders, especially when it comes to chip cards. When banks see an EMV chip card transaction, they can send a retrieval request. And if a cardholder leaves a big tip, send a text message to the cardholder to confirm the tip was intentional.
• Merchants: To stop unnecessary chargebacks, merchants need to pay more attention to chargeback letters and act promptly to specifically address all the claims in the letter and provide an itemized receipt. Small retail stores and restaurants frequently lose chargebacks because they are not able to retrieve receipts within the very short window in which they need to respond.

Here are a few examples of costs to business owners:

• Retrieval requests: These simple inquiries cost $10 to $15 each, plus valuable time spent looking up transactions and sending in paperwork.
• Chargebacks: These disputes cost $25 to $35 each, plus lost sales revenue and the time involved in putting all the paperwork together.
• Overage on tips: These are crazy. The merchant loses a chargeback for $40 tip—the tip money has already been paid to the staff—the chargeback fee is $25 to $35. That equates to a $70 loss, plus time for an employee to send in the paperwork.

Sadly, business owners lose the majority of chargebacks, according to recent reports. Some are $50, $100 or go into thousands of dollars, even though the card used in the transaction was an EMV contact or contactless chip card in a card-present and proper face-to-face sale.

Merchants are only winning 30 to 40 percent of these scams. Friendly fraud at card-present merchants is out of control. It's high time for the card brands to treat merchants.

Allen Kopelman, a serial entrepreneur is co-founder and CEO of Nationwide Payment Systems Inc. and host of B2B Vault: The Payment Technology podcast. Email him at allen@npsbank.com and connect on LinkedIn https://www.linkedin.com/in/allenkopelman/ and Twitter @AllenKopelman.

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