Chip and pin fraud increases merchant fees

There has been a recent spate of news reports involving banks and chip and pin fraud. The standard bank position for a while has been that if somebody has some money stolen via chip and pin fraud, then it must mean that the customer was at fault by not protecting their card and pin number. However, the cracks are starting to appear.

This weeks Santander refused to refund several thousand pounds stolen from a customers account. They only gave the money back once a Santander employee was arrested for fraud. The banks are employing highly dodgy practices by denying so many refunds.

Recent changes to consumer law change all this. The new Payment Services Regulations clearly state that the bank must not refuse a refund for a fraud because a genuine pin number and payment card were used. The banks will have to prove that the customer was at fault.

What does this mean for a retailer? Bad news I'm afraid. If the banks see a dramatic increase in the number of fraudulent transactions that they are forced to refund, they have to pay for it somehow. The only way they are going to pay for it is to increase the merchant fees for chip and pin transactions.

The retailer looses both ways. They had to pay out vast sums to invest in chip and pin technology several years ago to protect them from charge backs for fraud. Now they'll have to pay increase merchant fees to cover the banks having to cough up for refunds on fraud chip and pin transactions. The banks should have invented a better technology in the first place.

As merchant fees increase, net margins fall. Retailers will have to pass these costs on to the consumer some how - by increasing prices or by reducing services.