Recognizing Authorization Fallback

MasterCard's chip card fallback entry mode is POS 80 when the chip card was unable to process, and the magnetic stripe read is the default.
Visa's chip card fallback is a POS 90 with a condition code to identify a magnetic stripe fallback authorization.

Risk Mitigation Steps

1. ATMs/ITMs

Chip and Contactless Authorizations: Only allow chip or contactless authorizations at your ATMs/ITMs. Configure them to permit only POS 05 (chip) and, if supporting contactless, POS 07 (contactless) with Merchant Category Code (MCC) 6011 for electronic cash disbursements. This setup prevents fallback magnetic stripe authorizations, ensuring declined attempts if a card is skimmed.

2. POS Device Authorizations

Monitor for Fallback Fraud: Ensure your current strategy minimizes POS fallback fraud. For example, limit POS fallback authorizations to a specific amount (e.g., $100) within a 24-hour period.
Dispute/Chargeback Rights: Recognize that unauthorized POS fallback fraud on your chip cards leaves you with the fraud liability.
Risk Assessment: Assess the balance between fallback fraud risk and customer service. Restricting to "chip on chip" or "contactless" authorizations reduces fallback fraud liability.
Monitoring and Reporting: Regularly review authorization reports to identify problematic merchants and terminals, and report them to the card association.

3. Collaboration With Service Providers

POS Terminals: Work with your card processor and authorization provider to prevent fallback authorizations on POS terminals.
ATM/ITMs: Collaborate with your ATM/ITM authorization provider to prevent fallback authorizations.

4. Cardholder Education

Promote Contactless Options: Encourage cardholders to use the contactless feature on their chip cards or mobile wallets if the chip fails at POS and ATMs/ITMs that have contactless enabled.

5. Addressing Skimming Attacks

Vendor Collaboration: Work with your ATM/ITM vendor to address skimming issues, ensuring only POS 05 (chip) and POS 07 (contactless) authorizations are allowed to prevent fallback to a magnetic stripe authorization (POS 90).

The adoption of chip technology has been a pivotal advancement in fraud prevention, significantly shifting the responsibility for fraud liability. As the bad actors increasingly exploit fallback mechanisms, it is imperative for financial institutions to adapt and strengthen their security measures. By practicing these recommended steps, such as preventing or limiting fallback authorizations to chip and contactless authorizations, and closely monitoring POS and ATM/ITM activities, institutions can effectively mitigate risks and protect themselves from potential fraud losses.

Instant Insights /

Fraud & Fallback: What You Need to Know About Skimming Attacks

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