What Happens When...

What happens if I get a chip card from outside of the U.S.?

Posted On: March 21st 2011

If you are a merchant than you will process the transactions as a normal magstripe (fallback) or when not possible enter manually.

EMVco and the major payment schemes take great care in ensuring the global interoperability of chip cards. Your international customers should be able to execute transactions in the same manner as a domestic customer would. Of course the language on the pin pad might be a bit different.

As a card accepting merchant, if your point-of-sale device is chip enabled, you would be able to process these foreign debit chip cards due to global interoperable standards for chip cards and acceptance devices. If your point-of-sale device is not chip enabled, you would process this cardholder transaction using the magnetic stripe data (along with PIN or Signature). Any liability shift requirements in place would fall to the lesser of the technology – to the issuer of the magnetic stripe card if the card accepting merchant has an enabled chip card point-of-sale device; or to the card accepting merchant if a functioning chip card is presented at their non chip enabled acceptance device.

It should work. That is the point of the EMV standard.

What happens if a magnetic stripe cardholder visits the U.S. after merchants migrate to chip and PIN terminals?

Posted On: March 21st 2011

It will still work as there is fallback to magstripe when not Chip is available.

Most (if not all) chip card terminals are backwards compatible meaning, that customer will still be able to use their cards in the same way mag-stripe cards work today.

As a card accepting merchant, you would process this cardholder transaction using the magnetic stripe data (along with PIN or Signature). Liability shift requirements would fall to the lesser of the technology – in this case – liability shifts to the issuer of the magnetic stripe card if the card accepting merchant has an enabled chip card point-of-sale device.

That will depend on the rules of your card schemes. If you accept it, you may find yourself liable if it turns out to be fraudulent. Check with your acquirer and your scheme rules.

What if we get fraudulent cards from other countries?

Posted On: March 21st 2011

This is a major concern for many countries that have implemented EMV. As there is no liability shift in place, the transaction will be processed as a regular magstripe transaction and the issuer is liable. As soon as there is a liability shift in place, you as magstripe only accepting merchant will be liable.

The process is the same as in the mag-stripe world.

Based on global interoperability of chip cards and chip enable acceptance devices, there has been significant reduction in fraud based cards and transactions. Each smart card has a UID (unique identification) and digital signature that can not be copied like the magnetic stripe. If transaction information is duplicated, the bank issuer would deny the transaction during authorization based on duplicate information. During an Internet transaction, using a card reader attached to a PC, data on the chip can be used with a cardholder PIN/password to validate the cardholder. It is also possible that the card holder may use an OTP (one time password) that is good only for that specific Internet transaction which also provides online fraud protection.

You should not be getting any fraudulent chip cards. Fraudulent mag stripe cards will be a problem if you continue to accept them and liability will depend on the card scheme in place in the US.

My business deals with a number of tourists. Will foreign debit cards work at these new terminals?

Posted On: March 21st 2011

If you have an EMV terminal and deal with magstripe only customer, than this will be done using the magstripe (fallback). The other way around will also be done as magstripe transaction due to fallback.

That will depend highly on your terminal settings and capabilities. Chip terminals will not necessarily allow you to accept payment methods you didn't accept before, therefore, if you didn't support it in the mag world, you won't be supporting it in the chip world.

Yes - as a card accepting merchant, if your point-of-sale device is chip enabled, you would be able to process these foreign debit chip cards due to global interoperable standards for chip cards and acceptance devices.

Yes. Debit networks can be enabled through the terminals. Check with your acquirer.

What happens if we don’t convert?

Posted On: March 21st 2011

You will have no direct affect as there is no liability or mandate in place. However, with 6.4 billion dollars on fraud today (rising each year) you as US citizen will indirectly pay for this fraud! This fraud figure will only rise as the rest of the world is converting and fraud will migrate to the US.

You will be liable for all transactions done with a chip card, on your terminals.

There could be payment brand or payment group organization liabilities along with the transaction liability shift associated with a merchant or card issuing having the lesser technology in place.

You will likely become liable for fraudulent transactions in accordance with card scheme rules.

What happens when the power is out?

Posted On: March 21st 2011

You cannot make a transaction. You may need to fallback to embossing.

Same as today, you have to process the transactions based on your floor limits.

As a card accepting merchant, you could use your existing fall back processes (including floor limits ) for accepting cards which could allow for a non card based form of payment.

Take cash.

Are there any rules regarding the placement of pin pads in relation to the customer?

Posted On: March 21st 2011

No rules and regulations. The only rule is that the PIN pad should be easily accessible for the customer and the customer should be able to enter his/her PIN securely.

There are many recommendations and best practices available from your support network of banks, schemes and terminal providers.

I am not familiar with any in Canada. However, you may be subject to human rights/accessibility rules in your own jurisdiction.

Are we liable for fraud if the chip doesn’t work and the cashier uses the stripe?

Posted On: March 21st 2011

At this moment there is no liability shift so you are not liable. When there is a liability shift you will be liable for the fraud when going to magstripe.

These types of transactions can be uniquely identified by the issuing banks; therefore, they have the ability to decline or approve them. If the transaction is approved, the issuing bank will be liable.

There are certain circumstances where fall back to magnetic stripe could be accepted with limited liability if the chip in the card is non-functioning and specified alternative card verification methods are followed.

That will depend on the rules of your card schemes. If you accept a mag stripe transaction, you may find yourself liable if it turns out to be fraudulent. Check with your acquirer and your scheme rules.

When retailers become responsible for the fraud, can we refuse to accept mag-stripe cards?

Posted On: March 21st 2011

Rules and regulations state that no merchant is allowed to refuse magstripe transactions. However, these rules are not always honored (e.g. UK merchants) and merchants do reject more and more magstripe cards.

That decision is essentially up to the merchant, however, it might limit your customer experience and you might lose some sales as a result. If you look at the MCI / VISA liability shift rules, if you have chip enabled terminals but your customer has a mag-stripe card, then the card's issuing bank is responsible for any of those transactions.

Not at this time.... liability shift requirements would fall to the lesser of the technology – to the issuer of the magnetic stripe card if the card accepting merchant has an enabled chip card point-of-sale device; or to the card accepting merchant if a functioning chip card is presented at their non chip enabled acceptance device.

That will depend on the rules of your card schemes regarding "fall-back to mag stripe". Check with your acquirer and your scheme rules.

How do chip cards impact chargebacks?

Posted On: March 21st 2011

They don't unless there is a liability shift in place.

The chargeback changes are significant. The most notable change is the liability shift which essentially states:

  • If the terminal is chip enabled but the card is not, the card's issuing bank is responsible for the transaction.
  • If the terminal is not chip enabled but the card is, the merchant is responsible for the transaction.

Contact the payment schemes you accept for more information on other changes.

The chargeback rules are unchanged to my knowledge. EMV is about authentication of the transaction. Chargeback rules are about reversals due to goods or services not provided as contracted for.