Visa Chargeback Reason Code 10.1: EMV Liability Shift Counterfeit Fraud

What is Visa Chargeback Reason Code 10.1?

The Visa chargeback reason code 10.1 is used in fraud-related chargebacks where the cardholder disputes a transaction as never authorized. It covers card-present transactions where the cardholder denies ever using their card for that purchase. This can be uncomfortable, especially if you run a physical merchant store where customers can walk in and pay for products.

The shortcode description “EMV Liability Shift Counterfeit Fraud” means that the original card was not present. Instead, a counterfeit card or clone was used. Fraudsters do this by copying a legitimate card's magnetic stripe data and creating a new one that contains the correct details.

You may be unaware when this counterfeit card is used, but that does not exclude you from chargebacks. It is prevalent on non-EMV-enabled payment terminals where a poor verification process exists. Also, Visa will transfer the liability to you, meaning you will be responsible for refunding the original card owner.

This liability shift was introduced to incentivize merchants to upgrade to EMV-enabled payment terminals. EMV chips are superior technology that deters fraudsters because of the unique token each transaction generates. Although expensive, it meant that fraudsters could no longer simply swipe a card’s details and use them elsewhere.

If a fraudulent transaction occurs and Visa discovers that your terminal is not EMV-enabled, you will be liable to pay the refund. The best way to avoid the chargeback would be to use EMV-enabled payment terminals.

We’ll show the possible causes of this chargeback and how you can fight them. Then, you’ll also see what you can do to prevent it in your merchant business.

Why Did It Happen?

This chargeback almost always involves counterfeit cards, and the cardholder denies ever using their card for a purchase. The cardholder’s dispute over the transaction with the issuer will result in this chargeback, but there is a caveat. If there was actual fraud and the card was counterfeit, you will be liable for the chargeback, not Visa.

The primary conditions that will cause this chargeback are as follows:

• You swiped or keyed a counterfeit card for a card-present or physical transaction
• The payment terminal is not EMV-enabled
• The card was a chip card
• You did not use a chip-reading device for the payment
• The transaction may have been chip-initiated with online authorization. However, your card processor did not send an authorization request with the complete chip data to Visa. That means complete verification of the cardholder did not occur.

We can take two things away from these conditions: the cardholder has a chip card, but the transaction did not occur at a chip terminal or was not chip-read.

Payment terminals with EMV chip terminals can detect counterfeit cards and deny the authorization request. Hence, their absence will likely lead to this chargeback, where you bear the cost.

We’ve established that actual fraud is the primary cause of this chargeback. You rightfully processed payment for a card without knowing it was fake. However, we wouldn’t rule out friendly fraud where a cardholder takes advantage of your non-EMV-enabled terminal.

Such a person may process a transaction with an original chip card and file chargeback claims later. This situation might be tricky to fight, but we will help you.

The EMV Liability Shift

Transactions that occur on non-EMV-enabled terminals qualify for an EMV liability shift. Hence, Visa will not pay the chargeback even if it involves a case of actual fraud, like in the case of a stolen or counterfeit card. You will bear the cost of the customer's refund.

Counterfeit or no counterfeit card, using a non-EMV-enabled terminal qualifies you for a liability shift. If you haven’t done so already, upgrade your terminals to EMV chips.

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How to Fight Visa Chargeback Reason Code 10.1: EMV Liability Shift Counterfeit Fraud

You can dispute chargebacks under this code and earn a refund. However, you have 30 days to file your dispute and present adequate evidence that clears you of responsibility.

We’ve identified three ways you can respond to fight the chargeback. They include the following:

• Your terminal is chip-enabled: You shouldn’t be liable for a charge if your terminal is chip-enabled. If the chargeback occurred under this reason code, provide documents to show that the transaction was chip-read. You can also add evidence of complete transmission of the chip data to the authorization request.
• Initial dispute resolved with a credit or refund: The cardholder may have contacted you to dispute the transaction, and you processed a refund after examining the evidence of fraud. However, you can still receive the chargeback if the cardholder files a claim with the issuer before receiving the refund. Provide proof of your refund, including the date and amount processed.
• The cardholder withdraws the dispute: The cardholder may have withdrawn the dispute with you but failed to do the same with the issuer. As such, you may still incur the chargeback. Submit documents (letters, emails, chats, etc.) that show the cardholder’s vivid withdrawal of the dispute.

We don’t wish for this chargeback to occur. However, errors on your end may cause it. The best you can do is accept the dispute and take preventive measures. A few simple implementations can save you from chargebacks and a possible entry into the Visa Fraud Monitoring Program (VFMP).

How to Prevent Visa Chargeback Reason Code 10.1: EMV Liability Shift Counterfeit Fraud

We’ve identified the use of non-EMV-compliant payment terminals as the primary cause of chargebacks under this code. Hence, the most significant step to prevent these chargebacks is to upgrade all your payment terminals to be EMV-compliant. That will also prevent a liability shift from Visa to you in counterfeit fraud-related cases.

Besides that, here are things you can do to prevent this chargeback:

• Obtain the appropriate Cardholder Verification Method (CVM) for all transactions. That could be a signature, PIN, etc.
• All card-present transactions should have an electronic or manual imprint. Obtain the imprints in all the transactions.
• Request the cardholder to use a different payment method if authorization fails.
• Do not swipe or enter a chip card manually.
• Train your staff on these protocols when processing payments at chip terminals.

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