The Payment Networks Liability Shift (PNLS) associated with EuroPay, MasterCard and Visa (EMV) credit and debit cards — already adopted by Europe, Canada, Latin America and the Asian/Pacific region — took effect in the United States on Oct. 1.
As a result, global payment card and point of sale (POS) technology requirements are changing, and so are rules regarding liability for fraudulent transactions. These changes are affecting banks, credit unions, credit card issuers, retailers and consumers.
What are the changes, and why are they being made?
The main reason for the change to EMV is payment card-related fraud. After multiple data breaches at major retail chains like Target and Home Depot, United States’ credit and debit card issuers are replacing legacy magnetic stripe (magstripe) payment cards with EMV-compliant payment cards embedded with smart chips and magstripes.
Accordingly, United States retailers are replacing payment card processing systems with POS terminals that can read EMV cards as well as magstripe cards. The combination of the chip-enabled cards and the chip-enabled terminals reduces the risk of financial fraud because the technology is much harder to hack.
When do retailers need to update POS technology?
The PNLS deadline was Oct. 1, so merchants already should have installed EMV chip card readers. However, many retailers, especially small- to medium-sized businesses, are not aware of the new technology requirements or the consequences of the liability shift.
Who will be liable for fraudulent transactions now?
Retailers who have not installed EMV-compliant payment card processing systems will not face fines or penalties. The liability shift means that banks, credit unions and other financial institutions that issue credit or debit cards, and merchants using non-EMV-compliant POS terminals who choose to accept transactions made with EMV chip-enabled cards, will be liable for counterfeit transactions. Liability will be apportioned based on which party is least EMV-compliant.
How will consumers and retailers be affected by the changes?
Millions of consumers already have EMV chip-enabled payment cards. Some retailers already have EMV chip-enabled card readers. Customers will have to get used to inserting the card into, or dipping it toward, chip-enabled POS terminals instead of swiping. They also will have to adjust to the longer time the EMV-compliant card readers take to process the transaction, which can be frustrating.
Consumers who do not have EMV-compliant payment cards or who shop at retailers that do not have EMV chip-enabled card readers still will be able to make in-store payment card purchases for now.
The migration to smart chip embedded credit and debit cards without magstripes will take place over an extended period of time. This will give customers and merchants time to transition to PNLS without disrupting purchases. However, it also will leave consumers more vulnerable to financial fraud and put retailers at greater risk of being held liable for counterfeit transactions.
What should retailers do?
Retailers should switch to the new EMV-compliant payment card processing systems as quickly as possible to avoid potentially devastating consequences of the PNLS. Merchants may risk loss of reputation or even bankruptcy if held responsible for fraudulent transactions.
Here are some tips for retailers to make the PNLS easier.
- Talk to a payment card processing company about options.
- EMV chip-enabled payment card readers are available for around $200. Before buying, retailers should check their current POS terminals; they may already be EMV-compliant.
- Consider transaction processing time before purchasing a new card reader. All EMV-compliant POS terminals are slower than swiping, but the time varies depending on the system.
- Educate employees and consumers about the changes so they will know how to use the new technology and why it will benefit them.
- Make a transition plan that includes a timeline for purchasing, installing and testing the new technology as well as educating staff and customers.
The PNLS associated with EMV credit and debit cards means that global payment card and POS technology requirements are changing, as are rules regarding liability for fraudulent transactions. These changes are affecting retailers and consumers, but the transition doesn’t have to be stressful.
Merchants and customers need to be aware of the shift and should start making necessary changes, including obtaining chip-enabled payment cards or chip-enabled payment card readers, in order to reduce the risks associated with financial fraud.
John Bruning is senior vice president and senior deposit officer at Revere Bank. He can be reached at John.firstname.lastname@example.org or 240-264-5345.