By: Mary Anne Colucci, LSC Director Fraud & Risk
A fallback transaction occurs when a chip card is used at a chip terminal, but the transaction does not result in a full EMV transaction, and is completed as either a magnetic-stripe read or key-entered transaction. Issuers are liable for counterfeit fraud resulting from fallback transactions.
There are three pieces of data you need to evaluate to determine if the transaction is being done in Fallback:
If the card is an EMV card, the Service code will start with a 2 or 6. If the card is a mag stripe card, the Service Code will start with a 1.
The Terminal Capability tells the highest level acceptance possible at the terminal. For EMV the Terminal Entry Capability will be a 5. For a mag stripe transaction the Terminal Capability Entry will be a 2. If the terminal also accepts contactless transactions it will be an 8.
POS Entry Mode
A transaction that has a POS Entry Mode of 05 means the cryptogram was generated from the chip in the card. Fallback transactions do not create the cryptogram because the chip is unable to be read. Fallback transactions will have a POS Entry Mode of 90 for magnetic stripe read transactions or 01 for key entered transactions.
These three pieces of information together, indicate whether the transaction was done in Fallback. Not all Fallback transactions are fraud, there are times when the chip may have been damaged or the terminal set-up is not programed correctly. When the chip is damaged you will see all transactions going to Fallback. For these reasons it is not recommended to decline all Fallback transactions.
Although we have seen an overall decline in chip fallback transactions, fraud associated with fallback transactions is on the rise. Fraudsters are devising ways to force fallback transactions, usually associated with counterfeit cards.
The fraudsters’ methods target the card or the card insert process with the terminal which are programed to bypass a chip read and force a magnetic stripe read on a chip capable card at a chip capable terminal. These methods include:
Card containing a blank chip – No chip read possible
Card containing a chip with no matching AID for the terminal to process – No chip read possible
Card contains clear tape or coating over the chip – No chip read possible
Card inserted upside down or backwards into the terminal – No chip read possible
Issuers should consider adopting authorization strategies for fallback transactions, especially as the number of acquirers and merchants deploying EMV increases and programing error are being resolved.
Most processors have daily limits that can be added to your credit or debit card programs to limit the dollar amount and/or the number of Fallback transactions that can be done on a card daily.
Fraud strategies can be added depending on the type and level of fraud program you participate in for your programs.
EMV has helped reduce counterfeit fraud by 66% compared to June 2015. Adding limits for Fallback and monitoring Fallback transactions and reports will help to further reduce potentially high risk activity.