Preparing for the Shift in Credit Card Fraud Liability in 2015
By now, you’ve no doubt heard about the big change that will affect retailers and restaurant operators in October of 2015. As of that date, liability for credit card fraud will shift to merchants, unless they have replaced their existing technology with POS hardware that accommodates credit and debit cards manufactured under the Europay/MasterCard/Visa (EMV) standard. EMV is a smart chip technology wherein credit cards, debit cards, and mobile phones feature embedded microprocessor chips that store and protect cardholder data. Let’s take a look at some questions you may have about the credit card fraud liability shift and how to prepare for it.
1. What’s the reason for this fraud liability shift?
It’s all about the security of payments and payment card data. Magnetic stripe cards—the type of credit cards most Americans carry today—are easily forged. By contrast, EMV-enabled cards have the above mentioned microprocessor chips, which cannot be duplicated by thieves attempting to fabricate cards using stolen credit and debit card numbers.
Issuing such cards is a very expensive proposition for banks—and initiating the fraud liability shift is their way of inducing retailers to invest in the EMV-equipped POS hardware needed to accept them in-store.
2. Migrating to EMV-enabled POS hardware isn’t mandatory, but if I go with the fraud liability shift “flow,” will I still be able to accept magnetic stripe cards? What are the different types of EMV-enabled cards, and which should I accept?
Let’s start with the second question. In most cases, users must also enter a personal identification number, or PIN, to complete payments made with EMV-enabled cards. However, some POS terminals will instead accept a combination of chip and signature.
If your establishment caters to many visitors from abroad—and even if it doesn’t— consider that “chip-and-PIN” cards are more secure than “chip-and-signature” cards and, consequently, are in widespread use in most countries where EMV has been adopted. However, in the U.S., both Visa and MasterCard allow merchants and banks to decide if they want to implement EMV in chip-and-PIN or chip-and-signature form.
As for the first question: After the fraud liability shift occurs, banks will continue to issue magnetic stripe cards, as they don’t want merchants to lose the business of customers who don’t hold any other kind of card. However, the cards will also feature microprocessor chips and, in a majority of instances, PIN acceptance capability.
3. What is the expected cost to prepare for the fraud liability shift?
By most estimates, each EMV-enabled POS terminal will cost upwards of $1,000. However, in addition to enhanced security, there are benefits to be reaped by migrating to an EMV-enabled hardware model. EMV-enabled POS equipment uses near-field communications (NFC) technology to read the microprocessor chips we discussed in the answer to Question 1. NFC is also the “enabling technology” for some emerging, potentially very popular payment methods, most notably Apple’s new Apple Pay app.
It’s also important to think about the cost of opting out of accommodating the fraud liability shift. The financial fallout from data breaches and fraudulent activity around credit and debit cards can run into the millions—which could spell ruin for some businesses. Visa and MasterCard will exempt merchants from 100 percent of data compromise penalties only if 95 percent of transactions originating in their stores originate from EMV-compliant POS terminals. That 95 percent seems worth the equipment investment.
4. How do I know that I am selecting the right EMV-enabled POS hardware to suit my needs?
POS hardware vendors and their authorized resellers have been preparing for the fraud liability shift for several years. Tapping into their expertise will help you make an appropriate purchasing decision and ensure that your business is properly “future-proof.”
The concept of a fraud liability shift may appear daunting, but it really isn’t. Reviewing the answers to the above questions and taking the suggested steps will make for a hassle-free process.
