Since the roll out of Chip and PIN in the UK in 2004, ‘Card Present’ fraud has decreased year on year, with that type of fraud migrating to non-EMV countries.  The issue with the US has always been the economics of mass migration to EMV.  However, MasterCard and Visa are forcing players in the US card industry to catch up and ‘belt up’ by introducing Chip and PIN technology (and setting a ‘switch’ deadline of October 2015). Unlike the UK experience, the implementation is not being mandated by Government and is leading to a raft of variations within the US which are both confusing and unclear.

One of the key points in the ‘switch’ journey is the liability shift – this is the process by which a decision is made as to who is liable for the costs of the fraud.  After the ‘switch’, liability will broadly sit as follows for ‘Card Present’ transactions:

  • Transaction processed via ‘swipe and sign’ using Chip and PIN card: merchant liable for the costs.
  • Transaction processed via ‘swipe and sign’ using non-Chip and PIN card: card issuing bank liable for the costs.

The aim of the liability shift seems to be to encourage the players in the market to use the enhanced technology and therefore reduce the likelihood of fraud for ‘Card Present’ transactions.  Whoever does not have the technology will be liable.

What this means for you

Card Issuers: options for issuing new Chip and PIN cards to customers should be assessed, including the cost of implementing the technology alongside the savings. For non-US issuers, the issue of the liability shift will need to be carefully monitored.

Merchants: reviewing the Point of Sale devices on offer and the costs of upgrading or replacing their current technology, including the ability to add functionality for new payment methods.

If Chip and PIN technology is deployed, the US card industry will have the opportunity to utilise a lot of functionality of the chip technology, enabling more targeted and better lending practices, safer authorisation and reducing 'Card Present' fraud.

Should Chip and PIN divert fraudsters’ attention away from ‘Card Present’ transactions, it is likely there will be renewed focus on ‘Card Not Present’ transactions.  Chip and PIN has no impact here and this method of fraud remains a key risk area for the card industry across the globe.  Investment in fraud screening, identification software and security software will be key in the ongoing fight against fraud, but merchant take-up remains patchy.