Trip Down Memory Lane

Trip Down Memory Lane
Laura Townsend Chief Operating Officer Merchant Advisory Group
Mar 23, 2021
Guess what? Currently only about one quarter of Automated Fuel Dispenser (AFD) locations are chip active locations with about the same percentage of chip-on-chip transaction volumes at AFDs. And AFDs are subject to this same liability shift in April 2021. A Conexxus EMV Preparedness Study published in September 2020 states, “Retailers of all sizes still struggling.” The survey respondents including major oils, fuel distributors/wholesalers, and company owned/retail site operators “understand the risk of not upgrading to outdoor EMV, but financial and resource challenges, many of which have been compounded by COVID-19 challenges and uncertainties, still pose a threat to compliance.”  

What does that mean to your colleagues in the petroleum space? An incremental amount of significant losses in chargeback liability for fraud coming their way. As we all very well know, these are NOT losses that have historically been born by retailers – thus the “shift” in liability. To date the issuers have been assuming these losses in fraud which, frankly, are a result of a flawed payments technology called magnetic stripe, a technology the merchants did not develop.

To be clear, an estimated $450 million in fraud losses will be now shared among those petroleum retailers not ready with chip acceptance. This is on top of the financial challenges all retailers including petroleum and convenience have already experienced with COVID-19 uncertainties and hardships over the past year. Not to mention the significant investment that is required to upgrade outdoor pumps which run in the tens of thousands of dollars depending on the number of dispensers and other factors.

Yes, with MAG’s influence alongside our partners in crime (NACS and Conexxus), the networks delayed the AFD EMV liability shift six months from the original deadline of October 2020 due to supply chain issues exacerbated by the pandemic resulting in installations and certifications almost impossible in areas due to stay-at-home orders, lack of available technicians, and other factors. Preparedness for these fuel retailers was a challenge prior to the pandemic due to similar supply chain issues and still remains a challenge despite much effort to progress EMV implementations by the petroleum merchant community.    

Current surveys suggest maybe only half of AFD locations will be EMV enabled by the liability shift deadline of April 2021. Fraud losses of $450 million to be borne by the other half. The Conexxus preparedness study suggests the primary reasons for not being fully ready by April still involve supply chain issues (lack of hardware, software, testing and certification) along with the overall effort that this initiative requires.  

One major difference between the 2015 liability shift and this one is the fact that the number of EMV enabled cards issued is significantly higher at about 10 billion globally or 1 billion in the US which is approximately two-thirds of all U.S. cards issued (Source: EMVCo Worldwide EMV Deployment Statistics, 2019). At the time of the 2015 transition, estimates of the share of cards with EMV chips was about 10-15%. The result, the amount of fraud losses that could shift to the merchant was significantly less at the time of the 2015 liability shift since there were so few EMV chip cards issued at that time.

When you stitch the story all together, there is great pause for concern; yet, time will not stand still. April is just around the corner. So, what’s a pump to do? In conjunction with Conexxus and the National Association of Convenience Stores (NACS), MAG’s Petro Fraud Community of Practice (COP) since being established back in the summer of 2019 has published a few tools for reference. First, MAG has published a Petroleum Fraud Prevention Best Practices Guide for fuel merchants looking for best and recommended practices to minimize the impact prior and subsequent to the EMV liability shift. Also, MAG developed an infographic on the Road to EMV to emphasize the importance of migrating sooner versus later and the considerations along the way.  

The Petro Fraud COP has also been pushing networks to increase and align the AFD pre-authorization limits – a best practice that has been our MAG Network Best Practices Roadmap for quite some time. Visa recently implemented such AFD limits but for chip-on-chip transactions only. The recommendation from Visa is that once the AFD has been chip enabled, all magstripe read AFD transactions be referred inside for completion. This is a troublesome customer experience (in my personal opinion). Unfortunately, this also seems to require a significant level of technical development for most fuel merchants to implement at the pump given this requires logic based on point-of-sale entry mode for Visa chip transactions only. We understand Mastercard will be announcing some good news shortly on some pre-auth limit changes for both Mastercard chip-on-chip and magnetic stripe transactions. More to come on that!

Efforts for this COP will continue for several months after the April liability shift to address issues post liability shift that we hope should not occur this time around. For example, prior experience in 2015 included excessive oversight or misbehavior of issuers passing along chargebacks to merchants for EMV counterfeit fraud that were invalid. Since that time, networks should have implemented processes and tools to monitor these scenarios to adequately track issuers for quick resolution. In 2015, there were some networks that implemented limits on the number of counterfeit chargebacks that can occur on a single card number. Although MAG has suggested similar limits be implemented for the petroleum liability shift, networks have assured us that issuer monitoring will be heightened this time around limiting these scenarios.  

Some other discussions and efforts within the Petro Fraud COP include the following:

  • MAG, Conexxus, and NACS have pushed for transparent fraud loss reporting in order for fuel merchants to understand the financial risk ahead. If you are not getting adequate reporting, contact your acquirer first, then escalate to your network relationship manager(s), and finally escalate to MAG if the challenge persists. Networks have assured us that they will provide merchants with the necessary reporting they need to evaluate the scope of what is ahead in order to communicate appropriately within your fuel merchant organization.
  • MAG also advocated for networks allow all merchants require PIN at the dispenser to limit counterfeit fraud risk at those sites not EMV enabled – especially at high fraud locations. Visa has suggested Visa Transaction Advisor (VTA) implementation at reduced thresholds (and at a cost to the merchant) can enable the merchant to direct consumers inside for chip transaction processing but Visa rules otherwise do require PIN bypass on all devices at every fuel merchant location. This means you cannot direct the consumer inside for non-PIN Visa transactions without VTA. Mastercard does not have similar PIN bypass requirements at every device, so consumers without a PIN could be directed inside for chip processing.
  • Finally, the MAG COP has also requested that fraud prevention tools such as VTA be made available to merchants at no cost for a period of time to relieve the financial pressures and incent adoption. Unfortunately, that accommodation has not been granted and not all networks even offer such a tool. That said, our next Petro Fraud COP effort will likely be investment in time to evaluate fraud tools in petroleum/dispenser space that specifically focus on fraud scoring for purposes of fraud mitigation. This effort will be valuable in supporting continued education for our MAG fuel members and more broad fuel community accordingly.  

So, how do you get involved?

If you would like to join the Petro Fraud COP and help progress our efforts forward, access the MAG’s COP landing page and learn more about how you can get involved!

Crossing fingers déjà vu will be minimal this spring. A collective merchant voice is much louder and more influential and effective than a single merchant alone. Come join the effort.  

The Merchant Advisory Group

Driving positive change and innovation in the payments industry that serves the merchants interest through collaboration, education, and advocacy.