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DIRECT RESPONSE MARKETING
Legal Review: EMV ‘Winter’ Coming for Direct Response Marketers
1 Sep, 2015By: Jeffrey D. Knowles, Venable LLP’s Advertising, Ellen T. Berge
“Winter is coming” is the portentous catch phrase of the popular HBO series Game of Thrones. During the past few years, just about everyone connected with point-of-sale payments has muttered, “EMV is coming” in equally ominous tones.
Direct response merchants have, in general, paid little attention to the October 2015 deployment of EMV technology (named after Europay, MasterCard and Visa, the three companies that created it) in the U.S. That is likely because the shift in liability for data breaches and the use of stolen or counterfeit cards that comes with the EMV deployment does not apply to card-not-present (or CNP) transactions — the types of transactions direct response marketers process.
While that sounds like one less thing for these merchants to worry about, there is bad news. Merchants processing CNP transactions, especially those in so-called high-risk categories such as continuity and dietary supplements, should be very concerned about EMV, but not for the reasons you may think.
What Is EMV, Anyway?
EMV is an international security standard designed to protect in-store card swipes (“card-present” transactions) from replication and counterfeiting. The technology uses a chip embedded in the credit or debit card, along with technology built into card acceptance terminals, to create unique identifiers for each transaction, making it virtually impossible to counterfeit credit cards while also making the resulting transaction data useless if hackers breach a retailer’s systems.
Previous EMV implementations in Australia, Canada, and the U.K. all slashed card-present fraud dramatically. However, those gains were followed by sharp upticks in CNP fraud. While some believe the increases in CNP fraud were the result of bad guys shifting to softer targets, others believe the increase in fraud was not caused by the EMV deployment but rather indicative of the rapid growth of CNP transactions as a percentage of the payments stream.
For CNP merchants, the source of the chargebacks is not as important as the volume of chargebacks. Even for honest merchants operating businesses in compliance with current consumer protection laws and regulatory policies regarding adequate disclosures and consumer consent, it can be a tough battle to stay beneath chargeback thresholds.
If past is prologue, CNP merchants will likely incur significant costs dealing with the coming wave of fraud and the resulting chargebacks. They could also find themselves placed in remediation programs administered by the card associations. And, because chargeback ratios are now a primary factor reviewed by consumer protection regulators as an indicator of potential harm to consumer caused by the merchant, parsing through chargeback reasons to defend your conduct could be a tedious, expensive, and uncertain process.
Payment companies are working to educate their CNP merchants on the potential effects of EMV deployment, but there is a growing sense that many marketers are not prepared for the impact. Merchants should expect little, if any, leeway from card associations and government regulators.
What to Do?
Most measures being implemented to combat the coming rise in CNP fraud are happening at the card issuer level, with many deploying authentication strategies and other tools to help identify fraud before a charge goes through. In addition, experts recommend fighting online fraud with a tiered strategy that becomes more robust for higher-risk transactions.
Merchants can do several things to mitigate the impact of increased fraud and chargebacks. One strategy is to reduce the overall number of chargebacks by proactively combatting “friendly fraud” — sometimes compared to online shoplifting — where consumers make a legitimate purchase but believe it is easier to get their money back by submitting a chargeback to their credit card company than to contact the merchant directly. Tactics such as sending confirmation e-mails before shipping products can pay big dividends with little effort.
Maintaining the ability to process credit and debit cards is essential to DR marketers’ ability to conduct business. Merchants who have not yet addressed the EMV issue need to start the conversation now. It is time to talk with your payment processor and payment consultants about available mitigation and remediation strategies to develop the right EMV response plan for your business.
ABOUT THE AUTHOR: JEFFREY D. KNOWLES
About Jeffrey D. Knowles
Articles by Jeffrey D. Knowles
[Jeffrey D. Knowles]
ABOUT THE AUTHOR: ELLEN T. BERGE
About Ellen T. Berge
Articles by Ellen T. Berge
[Jeffrey D. Knowles]
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DR MARKET RESEARCH