Understanding the Fraud Liability Shift

Monday, March 28, 2016


For years there had been talk of the 'chipped' card and all of the added security it would bring.  Those cards are now being circulated and the 'Fraud Liability Shift' that accompanies them is the topic of our blog.

Why are EMV cards more secure?

The magnetic stripes on traditional credit and debit cards store contain unchanging data. Whoever accesses that data gains the sensitive card and cardholder information necessary to make purchases. That makes traditional cards prime targets for counterfeiters. Unlike magnetic-stripe cards, every time an EMV card is used for payment, the card chip creates a unique transaction code that cannot be used again. EMV technology will not prevent data breaches from occurring, but it will make it much harder for criminals to successfully profit from what they steal.

What is the liability shift?

As of October 1st 2015, when a merchant accepts a magnetic stripe card that was counterfeited with track data copied from an EMV chip card, and the card is subsequently swiped at a POS device/application that is not EMV chip-enabled, and the transaction is successfully processed, the acquirer/merchant may be liable for the chargeback resulting from the fraud.

As a business, am I required to change my processing equipment?

No- there is no MANDATE that requires any business to make a change to accept the EMV (chipped) cards.  However, businesses accepting credit cards in person who cannot accept the chipped cards, will put their businesses at risk for additional fraud related expenses.  Card not present merchants have always had a higher liability since it is nearly impossible to prove who is using the card.

If I choose not to upgrade equipment, will I still be able to accept credit cards?

Yes- all chipped cards will still carry the magnetic stripe and can be used with all of today's existing processing equipment.

What happened with a fraudulent transaction BEFORE the liability shift?

A customer used a magnetic-stripe card at your business to buy $200 worth of goods. Upon reconciling your receipts for the day, you are notified that the goods were purchased with a counterfeit card, resulting in a fraudulent purchase. Because it’s the issuer that backs up the creditworthiness of the card, the issuer of that account will reimburse you with the original purchase amount.

What happens with a fraudulent transaction AFTER the liability shift?

A customer uses a magnetic-stripe card at your business to buy $200 worth of goods. Upon reconciling your receipts for the day, you are notified that the goods were purchased with a counterfeit card, resulting in a fraudulent purchase. The issuer, acquirer and payment processor each have migrated to an EMV system, and your business is the only part of the chain that hasn’t migrated. Because of that, your older, non-EMV terminal didn’t catch the counterfeiter. Because your business is the weakest link in the payment chain, you’re responsible for assuming the $200 fraudulent cost.

What if I am a Card Not Present Business?

Card not present (CNP) businesses are not immediately impacted by the liability shift since they do not have the cards to process in person.  However, it is critically important that CNP businesses take extra precautions to insure that the anticipated increase in card not present fraud does not hurt their businesses.  By using the fraud prevention tools available for non face to face transactions, CNP businesses will be able to minimize fraudulent transactions.

Credit Card Fraud costs BILLIONS of dollars each year and it is silly to think it will just vanish by the use of EMV technology- it will not simply go away.  Being diligent in your business by.....

  • Paying attention to the purchasing habits of your customers
  • Upgrading your card acceptance equipment if it makes sense
  • Checking for signatures on the back of credit cards
  • Using the available fraud prevention tools

check_box Listening to that still, small voice when things do not seem quite right 

.....can help you insulate your business against the ever present fraud that the EMV migration is working to reduce. 

We are here to assist you in the transition so feel free to contact our team! 1-888-249-9919

Cheri Perry 3/28/2016

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