As most of you are aware (perhaps painfully), there has been a big change in the relationship between merchants that accept credit cards and the banks that issue them. This “liability shift” happened October 1 and impacts face-to-face payment transactions involving cards with an EMV chip on the front.
Now that our merchant processing program has handled a couple million transactions for our members since then, we are starting to gain hard data on the number of counterfeit cards being used in retail stores. To date, about 10 percent of all chargebacks since October have involved EMV cards (also known as chip cards) used at merchants that have not yet upgraded their processing terminals.
You’ll recall that the liability shift means that the organization with the least secure system now assumes risk for the counterfeit transaction. If you, the merchant, have not upgraded your terminal and you process a chip card whose alternative magnetic stripe has been recoded and is now a “counterfeit card,” you assume liability for that transaction.
EMV cards will continue to include a mag stripe, precisely so that shoppers can use them in businesses that aren’t using an EMV-ready terminal. Although your old terminal will work, you’ll bear the liability for a counterfeit chip card.
As we get further into the world of EMV, I expect the number of chargebacks to rise, because the bad guys will have fewer and fewer places to use those cards. If all other merchants in your community have upgraded and you are the only one with an old terminal, the bad guys will figure that out and focus on your business as a place to use those cards.
It is analogous to being the only car in the parking lot with the windows rolled down and no one in it; the thief will target your car because it is an easy target.
The other place we expect to see an increase in the use of fraudulent cards is for online purchases. If you have any sort of online retail presence you should already be developing a plan to thwart the bad guys. As we shut down face-to-face fraud, it is expected to cause online fraud to spike.
Make sure you are preparing your business and your staff for these changing times. No one wants to be the poster child for what not to do.
As always, if you have specific questions about this or any other aspect of the merchant processing world, please reach out to our expert customer service team for assistance.
John Mayleben CPP is Michigan Retailers Association senior vice president, technology and product development, and a national expert on electronic payment processing. He was the first person in Michigan and among the first in the nation to receive the Certified Payments Professional designation from the Electronic Transactions Association.