Changes to the U.S. Fraud Liability Shifts can affect your customers in ways they may not always fully comprehend. Those changes have left many merchants and payments processors wondering who is liable for what types of fraud problems.
However, due to changes implemented in October 2015, the liability switch could see some merchants wearing the risk instead of the issuer. It's important that your customers are accurately informed of the changes and how they can reduce their liability risk.
Who Is Responsible for Fraud Liability?
In the past, any counterfeit card fraud that merchants have experienced would have been passed off to the card issuer to handle any liability. The recent changes are expected to impact any transactions made using a counterfeit card that may have been created using the magnetic stripe on a chip card, as well as any transactions made using a lost or stolen card.
The EMV Liability Switch now means that the merchant with the least secure POS payment technology becomes responsible for any liability in the case of a chargeback. If the merchant is not using an EMV chip-enabled device to process payment transactions, the liability now shifts to the acquirer or merchant.
However, the merchant may not liable in the event that the merchant has replaced or upgraded their card processing systems to accept and use EMV chip-enabled devices to process card-present payment transactions. In this case, the card issuer may still hold the responsibility of liability.
What Cards or Transactions Are Affected By the EMV Liability Switch?
In order to determine how the liability shifts could potentially impact a merchant, it's important to establish the type of card used and the type of chip-enabled point-of-sale card payment acceptance device that was used to process the payment.
Counterfeit Fraud Liability Shift applies to the following payment networks:
- American Express
- China UnionPay
- NYCE Payments Network
- SHAZAM Network
- STAR Network
The counterfeit card liability shift does not apply to contactless transactions, so liability remains with the card issuer.
Lost or Stolen Fraud Liability Shift applies only to American Express, Discover and MasterCard. In the event that a PIN-preferring chip card has been stolen and used fraudulently at a magnetic stripe-only POS payment device that is not enabled for contact chip, the merchant may be liable for any chargeback that results from the fraud.
How Can Your Customers Reduce Their Liability Risk?
You should strongly encourage your customers to implement EMV chip technology at any POS payment processing systems they use within the organization. Card payment acceptance devices include in-person point-of-sale retail devices, kiosks and vending machines, mobile payment acceptance devices (MPOS), and unattended terminals.
Automated teller machines (ATMs) and automated fuel dispensers (AFDs) are impacted differently to other POS payment processing systems and should be addressed separately.
Your customers can learn more about how the EMV liability shift could affect them here. Alternatively, customers can be directed to download the official EMV Migration Forum whitepaper about Understanding the 2015 U.S. Fraud Liability Shifts here.