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Credit Cards and the Liability Shift

Uncategorized / August 7, 2015

reprinted from Advocates for Independent Businesses –

There’s a big change coming for credit card payments. The major credit card companies are rolling out a new kind of credit card, called a “chip” card for short, and officially known as an EMV card. Merchants will need new hardware to read these cards—and there’s a deadline for having it. Here’s a guide to what independent retailers and trade associations need to know.

Basic Information

EMV cards have been the standard in major markets outside of the U.S. for years. The cards contain a microchip that generates a unique code for every transaction, and research finds that they could reduce credit card fraud by up to 40 percent in the U.S.1 Beginning in 2012, the four major credit card companies—Visa, MasterCard, American Express, and Discover—started outlining road maps for switching to EMV cards in the U.S., and for getting stores and businesses to be ready with the credit card readers and point-of-sale software to handle them. Among the steps they came up with is something that’s being called the “liability shift.”

The liability shift means that the major credit card companies are changing their fraud policies in the U.S. Beginning Oct. 1, 2015, if any party has technology that’s not EMV-compliant, that party will be the one responsible for the costs of credit card fraud. In other words, whoever’s the weakest link in the chain of issuer, acquirer, payment processor, and merchant is the one on the hook. So for instance, if someone commits fraud using an EMV card at a business that hasn’t yet upgraded to an EMV-capable system, then that business is liable for the costs of the fraud. While the Oct. 1 deadline isn’t a legal requirement, it does mean that merchants risk steep fees after that date—and it appears that many small businesses haven’t yet taken the steps to switch.

In theory, this change may benefit small businesses in the long term by reducing credit card “swipe fees,” which are the rates that credit card companies charge for each transaction. The companies have long argued that they charge such high swipe fees in order to cover the costs of credit card fraud. With the incidence of fraud decreasing as EMV cards become the norm, the rates that merchants have to pay should also go down.

Challenges and Opportunities

The liability shift creates both challenges and opportunities for small businesses. Businesses will have to invest in new hardware, train their employees on how to use it, and make sure that it’s integrated into their point-of-sale software. The price of EMV-capable payment terminals can run from $100 to $1,000, depending on features like operating systems and built-in inventory management. Small businesses should look into promotional offers for upgrading to EMV-capable hardware; American Express, for instance, has a program to provide $100 toward the purchase of a new payment terminal through April 30.

Despite these costs, the switch also offers opportunities. Since they’re acquiring new payment terminals anyway, merchants should also consider other improvements, such as adopting a system that can process mobile payments (e.g., Apple Pay), or instituting one that connects to their inventory. There’s also an opportunity for trade associations to get their member groups onto a compatible system, so that they can build in competitive features like the capacity to offer shared gift cards or loyalty cards throughout their alliances.

Businesses should note that though credit card companies are retaining the system of a signature verification for now, they may switch to a PIN verification system at some point in the future, such as the ones used with EMV-capable systems in other countries. Retailers should be sure to upgrade to payment terminals that will be able to process PIN transactions as well as signature transactions.

Additionally, some retailers will have to go through a certification process to ensure that their system is compliant. While small retailers can purchase pre-certified EMV-capable payment terminals off the shelf, larger retailers that use a custom system will need their unique changes certified by several entities. Retailers looking into this process should start now, because getting a qualified company to certify their systems can be a lengthy process.

1 “The U.S. Adoption of Computer-Chip Payment Cards: Implications for Payment Fraud.” Richard J. Sullivan. Federal Reserve Bank of Kansas City, 2013.

Good Guides for Small Businesses

QuickBooks has several useful guides that walk small businesses through the EMV migration process. One of them, “Step-by-Step Guide to EMV Migration for Small Businesses,” includes a list of useful questions for merchants to ask, such as, “Will I have to replace or simply upgrade my existing hardware?” It can be accessed online at this link: <>.

A second QuickBooks guide, “EMV Costs, Certifications, and More: What You Need to Know Before the Migration,” is available here:

For larger merchants, Visa also has an in-depth guide that delves into more complicated issues, called “Visa U.S. Merchant EMV Chip Acceptance Readiness Guide: 10 Steps to Planning Chip

Implementation for Contact and Contactless Transactions.” Merchants can download this guide here: <>.