New credit card processing regulations have officially taken place in the United States. Known as the “EMV liability shift,” merchants are now responsible for any fraudulent card activities carried out in their place of business. Before October 1, 2015, if a person’s credit or debit card was used by somebody else, the issuing bank was liable; businesses where these purchases were made were usually not required to refund the card owner. The EMV liability shift moved accountability away from issuing banks and onto retailers.
Although the October 1st deadline has come and gone, merchants probably still have a lot of questions and concerns about the changes that transpired.
Here are a few key aspects about the EMV liability shift that merchants should know.
1. EMV helps prevent fraud
EMV (which refers to Europay, MasterCard, Visa) was developed by EMVCo and makes counterfeit card fraud more difficult to accomplish. EMV-enabled debit and credit cards have an embedded microchip, which holds encrypted information. Each time a card is used, the microchip produces a different code, as opposed to a traditional card with static cardholder data stored on a magnetic stripe, which is more vulnerable to data theft. Historically, when a fraudulent card-present card transaction occurred, the issuing bank was liable, but now merchants are.
2. The magnetic stripe is not gone for good…for now
Although EMV-enabled cards have the microchip, they still have a magnetic stripe on the back of them. This guarantees that no matter where a consumer makes a purchase, the card can still be used even if a business has not adopted the new standard. So, even in situations in which older terminals are in place, customers can still use their EMV-enabled cards by swiping them the traditional way.
3. It’s not a requirement
If a business owner chooses not to make the switch to EMV technology, there are no direct consequences. No immediate fines. No legal troubles. But rest assured that as consumers become more accustomed to using EMV-chip cards and acquire information about the security benefits to them, they will increasingly demand it of their retail merchants. Additionally, an issue may arise if a fraudulent transaction occurs. Retailers who opt to keep traditional terminals force consumers who have EMV-enabled cards to use the magnetic stripe rather than the microchip, as just mentioned, which increases the chances of the card’s information being stolen.
4. Merchants won’t always be liable
Merchants who decide to move forward with EMV technology protect themselves from accountability, even if counterfeit card fraud occurs. However, the new liability shift only applies to merchants who do not invest in EMV-enabled terminals. In a situation where a business is using EMV terminals and a fraudulent transaction occurs with a non-EMV card, the issuing bank would be liable, not the merchant. Responsibility does not just pertain to retailers, but with more people obtaining EMV credit or debit cards, businesses appear to be at a heightened risk compared to issuing banks.
It is important for retailers to know what the EMV liability shift is and how it affects their business. The merchant services industry changed drastically as a result of the EMV deadline. Not only did it change the way liability for counterfeit card fraud is applied, but also how merchants accept card-present payment methods. Learn more about EMV terminals and how it effects your business. Talk to their merchant services provider or find a merchant services company that can help navigate them through these new regulations.