Credit Card Fraud Liability To Be On Issuers, Merchants

Sept. 30--Only a fraction of U.S. payment card issuers have sent chip-embedded cards to customers, and only a fraction of merchants have installed chip-enabled payment systems as a deadline looms tomorrow to shift liability for fraudulent transactions from credit card companies.

The liability shift to card issuers and merchants will apply to in-store fraud from counterfeit and cloned credit and debit cards.

The EMV Migration Forum -- EMV stands for Europay, MasterCard and Visa, the three companies that created the chip card standard -- estimates 200 million-plus chip-enabled cards have been issued out of 1.2 billion cards in the marketplace.

"There's still a lot more cards to be updated to the chip technology for sure," said Randy Vanderhoof, director of the forum, a multi-industry group.

For U.S. merchants, only about 40 percent of their payment terminals have been upgraded to accept the microchip-embedded cards, according to the National Retail Federation.

The adoption of chip-enabled technology is a business decision rather than a mandate for card issuers and merchants, who must weigh the costs of issuing the new cards and installing the point-of-sale systems against the potential costs for fraud liability.

But as of tomorrow, if a chip-enabled card is used for an unauthorized in-store transaction, the merchant will bear the liability if it was unable to process it as a chip card transaction. If a merchant can process a chip-enabled card, but the card used for the fraudulent activity doesn't have a microchip, then the card issuer would be responsible.

"The liability is with the party that's least secure in the transaction," Vanderhoof said.

Retailers Association of Massachusetts president John Hurst estimates only half of his 4,000 member companies have adopted chip-enabled payment systems. "My gut feeling is the larger members are pretty much all there," he said. "It's smaller members that are not."

The National Retail Federation estimates costs for chip card readers, software and installation could hit $35 billion nationwide.

Boston's Aquitaine Group, owner of seven restaurants, has yet to install chip-enabled payment processors because its point-of-sale vendor has yet to make them available, partner Jeff Gates said.

"But I have had statistically zero issues with counterfeit/cloned cards in 35 years, so why worry until it is available?" Gates said. "Enabling chip-and-pin in most restaurants is like buying flood insurance in the desert."

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