EPA considers relaxing chargeback rules amid coronavirus

Written by Ruby Hinchliffe
8th April 2020

The Emerging Payments Association (EPA) says it will work with card schemes “to consider relaxing the thresholds and policies in relation to chargebacks and fraud levels”, to help businesses struggling with the volume of refunds during the coronavirus.

The EPA says the rule relaxation is necessary as merchants undergo a period of higher chargebacks than usual

The UK-based commercial payments organisation published a whitepaper this week laying out the actions it will take within the payments industry to help people and businesses worst affected by changes in payments behaviour due to the virus.

Over the last two weeks, the paper highlights one EPA member who had seen a spike of 14% in chargebacks with merchants in the UK and across wider Europe, and 16% amongst US merchants.

Acknowledging that chargeback and fraud schemes “have been recently tightened”, the EPA says it will ask the cards schemes “to perhaps relax collateral requirements”.

Calling the current climate one of “exceptional circumstances”, the association believes the rule relaxation is necessary as merchants undergo a period of higher chargebacks than usual.

It will ask the card schemes to work with payment companies to put in place bank bonds or trust agreements to mitigate additional cash collateral.

For many companies, excessive chargebacks can ruin a business’ bottom line. Especially when sales in certain sectors, such as restaurants and hotels and for recreation, culture, and travel, have “virtually collapsed”.

In 2018, these categories made up more than 30% of Europe’s household expenditures, and an even higher percentage of Point of Sale (POS) transactions. The EPA “expect[s] a long time to recover” for these sectors.

Other actions laid out by the EPA include setting up an ‘EPA Recovery Hub’ via its website. The new hub will promote digital payments and make training accessible on the topic.

The hub will list technology available during the crisis, and offer access to ‘best practices’ on challenges such as company liquidity, dealing with overflowing chargebacks, and tackling cyber risks and fraud.

According to LINK, the UK has seen the use of ‘dirty’ cash halve

In addition to assisting businesses, the EPA also wants to help individuals who are financially vulnerable across the UK. The industry association is creating “an inclusion fund”, which major companies such as Mastercard, Visa, and FIS would eventually contribute to in order to fund subsidies for financially excluded people.

According to LINK, the UK has seen the use of ‘dirty’ cash halve, hitting some of the poorest areas of the country the hardest where cash is still widely used on a daily basis.

Other larger EPA members such as NatWest, Barclays and Lloyds, will also be approached to see what they can do to facilitate the provision of payment accounts “to all eligible individuals”.

As for regulation, the EPA’s line is clear: do not put it off. “Businesses may see the current crisis as an excuse not to meet the current – and already extended – deadline,” referring to the extended deadline of the Second Payment Services Directive (PSD2) Strong Customer Authentication.

The EPA calls on the Financial Conduct Authority to create “a joint taskforce with the industry” to ensure regulatory compliance is not put on hold

“With the increase in remote banking and many more services offered digitally, fraud prevention mechanisms become even more paramount and we ask our members not to procrastinate.”

The same goes for PSD2 Secure Communications. The EPA recognises third party providers (TPPs), many of whom still cannot access payment accounts, are being stifled by Account Servicing Payment Service Providers ASPSPs which “are still not delivering working interfaces”.

The EPA calls on the Financial Conduct Authority to create “a joint taskforce with the industry” to ensure regulatory compliance is not put on hold or neglected, “so as not to hinder open banking and stifle innovation”.

Director general of the EPA Tony Craddock admits “it’s not going to be plain sailing”.

“We have to weather this storm as an industry,” he concludes. “This paper identifies how we can do so, and then what needs to happen to ensure people can continue to pay and get paid, as we move into the recovery phase.”