Tom Gara spoke with MasterCard’s Carolyn Balfany about the new chip-based payment system known as EMV:
Part of the October 2015 deadline in our roadmap is what’s known as the ‘liability shift.’ Whenever card fraud happens, we need to determine who is liable for the costs. When the liability shift happens, what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability.
So if a merchant is still using the old system, they can still run a transaction with a swipe and a signature. But they will be liable for any fraudulent transactions if the customer has a chip card. And the same goes the other way – if the merchant has a new terminal, but the bank hasn’t issued a chip and PIN card to the customer, the bank would be liable.
The key point of a liability shift is not actually to shift liability around the market. It’s to create co-ordination in the market, so you have issuers and merchants investing in the migration at the same time. This way, we’re not shifting fraud around within the system; we’re driving fraud out of the system.
That’s an interesting way to make everyone is very much incentivized to update their systems. It sure seems like it will work. We’ll see. It’s ridiculous that the United States isn’t using the chips already.
<rant> Thank god for progress - you know how embarrassing it is to go back home to the UK and not have a chip in your card (and associated PIN). It gets harder and harder to actually use your card, and the kid behind the counter at (insert a high street store that still exists here) thinks you’re a freak of nature and has no idea that cards existed without chips at one time. And don’t get me going on the whole restaurant debacle. So thank you USA for finally catching up - now if we can only have our mobile time charged by the second rather than the minute, and not pay for incoming call time, we might be getting there ;-) </rant>