The HCIMA Hospitality Users Discussion Forum for Chip and Pin

About Chip & PIN

Chip and Pin machine

Liability

What is Liability Shift?

Every merchant faces the prospect of installing new equipment at the point of sale to accept the new standard [EMV] smart cards which reads the chip on the card instead of the magnetic stripe and allows the cardholder to confirm the payment using a PIN rather than a signature. Failure to upgrade the card acceptance process leads to risk of increased chargeback on fraudulent transactions.

Liability Shift is seen by the card schemes as the stick that will propel all participants in the card transaction towards the adoption of Chip & PIN. Consequently, Visa and MasterCard have mandated that, over a period of time, every part of the chain involved in the card transaction has to be able to read the chip on the card. Then if a payment is fraudulent, liability for the fraud will go to the party, issuer or acquirer, not equipped to handle chip.

In the event it is the merchant that is not chipped and the card is, and there is a fraud, the acquirer will pass that liability back to the merchant. But if the Merchant has chip capability and the card does not and if there is a fraud on a card that was issued within the EMEA region, then the issuer will have to cover the fraud. This is ‘Liability Shift’.

Liability comes into force as follows:

  • 1 January 2005 - Europe
  • 1 January 2006 - CEMEA, Asia-Pacific, Latin America
  • 1 January 2007 - Rest of the world
  • 1 April 2010 - Canada but not the USA

Chip migration is already a reality in Europe, CEMEA, Asia Pacific and Latin America.

Liability Shift makes it imperative for merchants to move to implement Chip & PIN.

A number of people did not believe that the Liability Shift would happen, and that the card industry would not enforce the Liability Shift on 1 January 2005. Others thought as the time drew near they could make the card industry change its mind and delay its introduction.

Regardless of the publicity, negative or otherwise, the Card Schemes would never relent on their decision to impose Liability Shift. As a result we are seeing Chip & PIN technology rolled out throughout the United Kingdom, albeit mainly in retail and in all outlets where cards are accepted on bank owned terminals.

Now as 2006 starts we are seeing more hospitality merchants starting to implement Chip and PIN