Fallback transactions and fraud

| Fallback charges at POS terminals is a rare and sometimes fraudulent occurrence merchants should be aware.

Fallback transactions occur when a chipped payment card is not accepted at a chip-ready POS card processing terminal. The result is that the transaction must "fall back" to using the card's standard magnetic stripe for payment instead. Transactions that force fallbacks are rare but they do occur – either from a technical miscommunication between the card and card reader or fraud. Both instances pose inconveniences and there are things merchants can do to prevent them from occurring.

Malfunctions and card errors

"Hackers have found a way to criminally manipulate EMV terminals."

According to a U.S. Payments Forum white paper, fallback rates over 2 percent at one individual business or a chain of businesses reveal a problem. The issue could originate from a number of sources:

  • Incompatibility of payment processing software and payment terminal.
  • Employees or customers using a bypass on the terminal to allow only magnetic stripe payments.
  • Payment software incorrectly changes allowable payments and accepts only magnetic strip payments.
  • POS terminal is damaged or dirty.
  • Chip is damaged or dirty.

Fraudulent fallbacks

As is the case with every new technology, hackers have found a way to criminally manipulate EMV terminals and cause fallback charges. According to the Auriemma Consulting Group, fallback fraud made up 24 percent of total counterfeit fraud and 43 percent of lost-and-stolen during the second quarter of 2017.

According to a VISA document, this fraud aims to prevents chip reads at the point of insertion, causing the need for a magnetic strip payment that can then be exploited. Their methods of bypass include:

  • Chip in the card is blank.
  • Card has no matching application identifier in the chip.
  • Tape or clear coating covers the chip, preventing it from being read.
  • Card is purposefully inserted incorrectly.

However, there are a few ways merchants can prevent fallback fraud:

  • Monitor terminal performance and watch for high fallback charge rates.
  • Configure terminal settings to allow for two to three chip reading attempts before potentially using fallback payment.
  • Instructing cashiers to perform fallback charges themselves.
  • Asking cashiers to inspect the card and check for damaged chip, tape over the chip and verification that the card has not expired.

To learn more about effective card processing software, get in touch with Cloud 9 today.