EMV Chip Card Liability Shift

Merchant adoption of EMV technology to process chip cards is in full swing. Since the fraud liability shift was implemented in the U.S. beginning October 2015, merchants have begun converting their payment terminals to EMV compliant versions capable of securely processing chip cards with EMV technology. Visa reported in January 2017, that chip card transactions accounted for 46 percent of the company’s in-store payment volume, with the 800 million chip transactions representing a 359 percent year-over-year increase.
The steady increase in merchant adoption of EMV is directly related to the date the liability shifted in October, 2015. So, what is the liability shift, and how does it impact your business? Read along to learn more.

Prior to October, 2015, merchants were not routinely held responsible for fraudulent transactions that occurred through no fault of their own. Card issuers covered the financial cost of that fraud. After the liability shift however, assigning “fault” became a lot more complicated.

The basic underlying rule about the shift in liability is:“Card-present counterfeit fraud liability shifts to the party – either the issuing institution or the merchant – that has not invested in chip technology.

Card-present counterfeit fraud liability shifts to the party—either the issuing institution or the merchant—that has not invested in chip technology.

Either the card issuer or the merchant will be found at fault. So, which one is it? It depends on a lot of factors—primarily which party neglected to implement EMV.

With a card-present, counterfeit instance of fraud, the card issuer will be liable if the card was not a chip card, since it’s the issuer’s responsibility to issue chip cards. If it was in fact a chip card and the merchant didn’t process it with an EMV-capable terminal, then the liability shifts to the merchant. If both the merchant and the issuer have implemented EMV, the liability remains with the issuer.

Though this is perhaps the most common scenario, there are many various applications of the EMV liability rules that may cause confusion. Using a basic chip terminal protects merchants from liability when the type of fraud in play is use of a counterfeit or cloned card. In the case of a lost or stolen card, the liability can change depending on the card brand, the card type, and the method of processing. Visa did not implement a liability shift in the case of lost/stolen card fraud, leaving liability with the issuer. Mastercard, Discover and American Express however, did implement a shift for lost/stolen card fraud, depending on the type of card (chip and signature, chip and PIN) and the type of terminal used to process it (non-chip terminal, EMV chip terminal, with or without PIN pad).But if you’re processing a chip and PIN Mastercard, Discover or American Express chip card with a chip card terminal that does not have a PIN pad, the liability changes.

And of course, failing to process a chip card with a chip terminal, regardless of whether it’s counterfeit or lost/stolen fraud, and with or without a PIN pad, will result in the merchant having liability for the chargeback. Unless it’s a Visa card and the fraud method was lost/stolen. The liability has not changed for lost/stolen Visa chip cards.

-Credit to www.vantiv.com