What is a fallback in payments?

What is a fallback in payments?

A fallback transaction is when an EMV chip card cannot be read by the terminal due to a technical issue with the chip. When this occurs, technology “falls back” to a magnetic stripe transaction. This typically occurs in retail settings.

How do you identify a fallback transaction?

The issuer can use a combination of POS entry mode, card service code, and terminal entry capability issuer to understand if a transaction is fallback.

Why do fallback transactions occur?

Fallback transactions can occur when EMV hardware is deployed and the payment terminal software is not turned on. The merchant’s terminal could have the EMV chip technology without enabling the terminal software. If some EMV cards are working and others not, the terminal may not have the right AID’s (application identifiers) loaded on it.
There can also be cases where bad terminal software was deployed or faulty chip readers fail to read the EMV chip card properly. Finally, intermittent fallback transaction issues can occur due to merchant training issues.

How to prevent fallback situations

To fix fallbacks, merchants can download the right terminal software/configuration or replace the faulty reader. Faulty reads can occur after years of usage.
The best ways to prevent fallback are:

• Use EMV enabled technology (or upgrade if necessary)
• Always try chip transactions before swiping a card
• Consider a magnetic stripe transaction as a last result
• Reach out to the processor and see if they can block fallback transactions
• Adopt EMV for debit cards, credit cards, ATMs, and all POS sales

Benefits of EMV Fallback Transactions

The main advantage of EMV fallback is customer support. If the chip isn’t working, the customer can pay with that card by using an alternative credit card processing method.

It’s also faster for the cashier, customer, and those waiting in line if the card can just be swiped, as opposed to paying cash or using a different card.

If the merchant doesn’t have fallback payment methods and the customer might doesn’t have a backup payment method, the purchase would be lost.

Fallback fees

This depends on on the card and payment processor. Usually, a card that uses the chip or magswipe are charged the same processing fees. If the swipe processes the transaction, the cardholder may not get charged differently.

Keyed transactions, however, are usually processed with higher fees. Many EMV fallback transactions and keyed entries increase chances of becoming a high-risk merchant.

Some credit card processing companies charge non-compliance fees to processors for servicing merchants with an “excessive” amount of EMV fallback.

Processors will impose fines if they’re penalized by the card companies. They might even impose penalties in addition to fees.

EMV fallback fraud

The purpose of EMV cards and chip readers is providing enhanced security. This chip card technology has helped reduce in-store fraud for card-present transactions.

EMV cards and terminals don’t protect against lost or stolen credit cards. If a thief uses a stolen card on an EMV-compliant terminal, the card will process normally.

It is more challenging to duplicate a fake credit card with a working chip—this is what make chip card transactions safer than magnetic stripe transactions.

A fraudulent card might not work in the chip reader, but it could still be processed through one of the fallback methods (magstripe or keyed).

Important note: EMV fallback benefits the customer, but merchants are at risk for processing a fraudulent transaction.