Photo courtesy of By Alex Fiore
Photo courtesy of By Alex Fiore

Beginning October 1, 2015, a shift in credit card security and in-store fraud liability could place unwary merchants and business owners at risk.

EMV, which stands for Europay, MasterCard, and Visa, is a relatively new form of credit card (in the United States) that utilizes computer chip technology intended to help prevent transactional data breaches and credit card fraud.  In the U.S., most EMV credit cards contain the computer chips as well as the traditional magnetic stripe.  If a merchant does not have a payment processing system that accepts the computer chip, payments may be processed via the magnetic stripe as usual.  However, after October 1, 2015, those businesses that have not upgraded their in-store technology and processing systems to accept the computer chip portion of the card will be at risk.

Prior to the October deadline, depending on the card’s terms and conditions, the payment processor or issuer would typically be liable for consumer losses related to fraudulent transactions.  After the deadline, Visa, MasterCard, Discover, and American Express have announced that the liability for chargeback related costs of fraudulent transactions will shift to party who has not adopted the chip technology.

Generally, the EMV liability shift will have the following impact:

  • If the business has upgraded its processing systems, the issuer will continue to bear the responsibility of counterfeit or fraudulent activity.
  • If the business has not upgraded its systems and a consumer presents an EMV card, the payment will be processed via the magnetic stripe only, as it had been in the past. Here, the credit card issuer will be relieved of liability and the business will be now held responsible for consumer loss.
  • Liability for automated fuel dispensers will remain unaffected until 2017.

EMV use is already widespread in Europe.  Following suit, millions of EMV cards have already been issued to consumers in the United States, with millions more on the way.  It appears that the U.S. will eventually phase out the old magnetic stripes and smart card technology will be the wave of the foreseeable future.  Business owners may be hesitant to shoulder the costs of upgrading their current payment processing systems, but they should be aware that an upgrade now could mitigate exposure connected to EMV non-compliance in the future.

In an era of increasing consumer fraud and data theft, will your business be prepared for the EMV liability shift?