EMV – What does Liability Shift mean?
One of the main concerns facing merchants during the switch to EMV technology is what’s known as the liability shift. In short, the liability shift means exactly what it says. It is the change in financial responsibility, to either a merchant, bank or credit card company, should a fraudulent transaction take place. The rules for which party is left with the liability depends on what level of technology either party has. The entity with the least amount of technology is left liable. For example, if a merchant has implemented EMV technology but a bank has not supplied that technology to a credit card customer, then the bank is held liable for a fraudulent transaction during card-present transitions. If the consumer presents a chip-card and the merchant is not EMV enabled due to the ISO, then the liability falls on the credit card company. The liability shift will be enforced on October 15, 2015. From then on, all parties will have to comply with the new regulations.
Now that we understand the definition of the liability shift, let’s uncover what the change will mean for merchants, banks, consumers and credit card companies.
What it means for merchants
Many major retailers have already upgraded their point of sale terminals to include EMV transaction capabilities. However, it is projected that nearly 40 percent of merchants will not have upgraded systems by the liability shift deadline. One reason merchants are dragging their feet is the cost to upgrade a system. While a new EMV-enabled credit card machine may cost a few hundred dollars, it pales in comparison to the millions of dollars in fraudulent transactions that took place in 2014. Since the liability would fall on that business for not having an upgraded terminal, the potential costs could be tremendously debilitating.
What it means for consumers
While many other regions in the world have had EMV cards for decades, people in the United States are still very unfamiliar with the technology and what it does. Now, banks have already begun to distribute EMV cards, or “smart cards” to their customers. Still, about 70 to 80 percent of buyers in the US will not be equipped with an EMV card by the liability shift. Many banks are urging customers to request a new card before their current cards expire in order to have more secure purchases. By encrypting each transaction individually through EMV cards, consumers can expect fraud to be much less prevalent, instilling trust in both banking companies as well as businesses.
What it means for banks and credit card companies
Banks have an expensive responsibility to send new cards to their customers. With only one year until the liability shift takes place, banks have issued only 20 million chip cards, according to Smart Card Alliance. This leaves a large number of the U.S. population without EMV cards. Credit card companies have stated both banks and retailers will be liable, even as bank investments for the switch are very high and many merchants are hesitant to invest into making the switch as well. Furthermore, credit card companies and similar organizations will be liable if they do not provide EMV solutions to merchants. With that, card companies have urged both banks and businesses that the time to make the switch to EMV is now.
The bottom line
The liability shift will be enforced in less than one year. Merchants, especially small businesses, are wise to be ready sooner rather than later, when large companies are likely to be the focus up against the deadline. Avoid the rush by taking steps to upgrade now – a reliable and certified EMV-enabled POS system provides customers with safer, more efficient transactions while assuring you’ll be protected and stress less, come October 2015.