An article relating to this blog post on Finextra:
Canadian merchants should get chipped to avoid chargebacks - Moneris
With only six weeks until the holiday season, Canadian merchants would be wise to get chipped.
Two news items came out this week that caught my attention and got me thinking. The first was a report from LexisNexis - the
2009 LexisNexis True Cost of Fraud Study. The shocking headline figure in this report was that US merchants are paying $100 billion in fraud losses due to unauthorized transactions
and fees/interest associated with chargebacks, nearly ten times the cost incurred by banks.
The second item was new
findings announced by Moneris Solutions, Canada's largest payment processor, that revealed that merchants who processed greater than 40 per cent of total transactions using chip and PIN technology experience on average, up to four times fewer chargebacks
than those who processed less than 40 per cent of total transactions using chip technology. Retailers reported 2.9 times fewer chargebacks while restaurants reported 1.8 times fewer chargebacks.
How much could US Merchants’ save in chargeback costs if they gained the same benefits by using chip card technology? Well, if chargebacks could be reduced by something between that achieved by retailers and restaurants in Canada, say 2 times, the saving
would be $50 billion. That’s a big number, and surely would go a long way to justify the costs of switching POS systems over to using chip cards - a barrier that is often cited as the principle reason why the US is unwilling to change. The problem though
is that banks also need an incentive to change. While they are able to charge back fraud costs to merchants and keep their own card fraud costs to a much lower figure ($10 billion) they are far less motivated to move.
What however is impossible to know about the fraud reduction seen in countries where chip-and-PIN has been introduced is how much of the reduction may have been possible simply by moving to using PINs for POS transactions – without issuing chip cards at
all. The widespread introduction of PIN debit and an equivalent for credit transactions may well have an equally significant impact on reducing US Merchant’s card fraud costs.