Visa’s Take on EMV Liability & Chargebacks

June 21, 2016

Credit card processors and merchants in the U.S. are starting to experience the true implications of the enormous switch to the EMV system, which stands for Europay, MasterCard and Visa.

In the wake of several terrible data breaches by hackers who went after major retailers such as Target and Home Depot, the payments industry has made it clear that merchants in the U.S. need to implement the EMV chip card system, which has proven to be much more secure than the status quo of magnetic band swipes.

There is no question that the new EMV system needs to be adopted as soon as possible.  This was actually foretold by the major credit card companies as early as August of 2011. All the industry stakeholders, from credit card companies to merchants and from issuers to regulators, knew that completion of the switch wouldn’t happen overnight due to the size of the American retail landscape.

In an attempt to speed up and reinforce the transition, a deadline for liability shift was set for October 2015. This meant that merchants who for whatever reason had not fully adopted the new system yet could now be the ones liable for chargebacks caused by fraudulent use of credit cards.

Many merchants in the U.S. have complained that they are absorbing major hits because of the liability shift. Specifically, they are being affected when they swipe a magnetic strip card that was fraudulently copied from a different card. If the swipe is done at a traditional terminal that is not EMV chip card supported, then the burden of liability falls onto the merchant.

As to be expected, many merchants are fighting against the EMV chargebacks, particularly when they have already made the effort of becoming compliant by obtaining new POS terminals, which are not being used only because they have not been certified yet.

For smaller merchants who operate with only a few Point-of-sale terminals, the EMV switch has mostly been a smooth process because they don’t face the same problems as big retailers when it comes to certification. Multiple point-of-sale terminals connected to a local network that works with custom coding take longer to certify, therefore it is not too surprising to learn that retail chains are the ones being affected the most by the new chargeback structure.

According to Visa, the continuing chargeback issue is not as tricky as it seems. Visa has pledged to work with merchants and issuers with regard to the certification process. They believe that credit card fraud will be greatly reduced within the next few years.

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