The EMV Liability Shift - What Is It?

May 20, 2015

Initial implementation of new EMV systems is voluntary to businesses; however, after October 2015 these businesses will be responsible for the “liability shift.” The fraudulent charges banks and credit card companies had previously absorbed will now also be distributed to businesses. Your business might be responsible for some of these if you fail to update your terminal technology. Protect yourself and make the switch to EMV now before your business hits the liability shift date.

What Is the Liability Shift?

EMV cards offer great protection against fraudulent charges. The U.S. is behind in implementing this technology and major card companies have set a deadline for switching to EMV terminals. This doesn’t mean that after October your business will suddenly not be able to process transactions, but there are financial implications if you don’t.

Again, businesses won’t be required to update, but your business will be responsible for any rejected card purchases made with an issued chip card number. To put it more simply, if a business is still using swipe technology and the customer uses a smartcard, your business is on the hook for the purchase. If your business has updated its terminals but the bank hasn’t updated its cards, thereby neglecting to give their patrons a Chip and PIN card, then the bank is held responsible. If your business and the bank has updated their technology and there is still a fraudulent purchase, then, just as in the past, the credit card company is liable. The best way to ensure you aren’t on the hook for fraudulent purchases is to switch to EMV terminals before the October deadline.

Who Is Normally Responsible for Fraudulent Charges?

Typically, banks and credit card companies absorb the cost of fraudulent transactions. They must bear the financial burden of the chargeback that occurs from a merchant. Mostly, this will still hold true. Retailers and merchants will only be held responsible for these transactions if they fail to update by October. Purchases will still be able to be processed, but the banks and credit card companies won’t take responsibility for bad purchases made on, what will be, unsecured technology.

Why Is the Liability Shift Such a Big Deal?

It is estimated that business owners in the U.S. will spend up to $10 billion in fraudulent transaction recovery previously absorbed by banks. Not only does your business risk losing money, but you also risk losing business. By the end of this year, nearly 600 million Americans will have EMV cards. If your POS system can’t read these cards, customers may not be inclined to purchase products or services.

How Can I Switch?

Many major POS brands already started making “future proof” terminals that accept EMV cards and provide businesses with a host of benefits. These terminals average around $500 and are expected to remain relevant and useful for many years. It’s not like buying a new phone or computer that will be outdated within months.