Credit Card Liability Shift & the Effect on Restauranteurs

Come October 1, 2015 there are big changes coming to the payment industry. The US is the last major market that is still using the old swipe and sign cards. The familiar card technology is blamed for the fact that the US accounts for nearly half of the world’s credit card fraud while only accounting for a quarter of the transactions. Here are some of the highlights from an article that showed up in my inbox from the Missouri Restaurant Association about the changes taking place on October 1, 2015:

  • Swipe and sign credit cards are being replaced with cards with a chip and will require either a signature or a PIN at the point of sale
  • The way they are incenting everyone to move to the new system is by placing liability on the party that doesn’t comply by the date ie:
    • If a customer uses a swipe and sign card the liability is on them
    • If a customer has a new chip card, but an establishment doesn’t have chip technology and forces the client to use a swipe and sign card the liability is on the merchant
  • The new chip based cards will erase themselves if they sense that they are being tampered with
  • The NRA predicts that the industry will lag behind other industries in adopting this technology with the main reason being that there doesn’t seem to be a lot fraud in our industry

Has anyone started looking into this at all? How are the payment vendors handling this? Are the fees and equipment more expensive? We’d love get any feedback so please join in the conversation.

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I have copied the full article below:

Be prepared, restaurant operators. Big changes are under way in the U.S. payment industry. Those swipe and sign credit and debit cards are on the fast track to extinction.

Replacing these familiar, but insecure payment cards will be chip-based cards under the EMV (Europay, MasterCard and Visa) global interoperability standard. The final architecture of the new cards is still under debate, but, in addition to a chip, they will either require signatures or personal identification numbers (PIN) at the point of sale.
This won’t come as any surprise to anyone who has been to Europe, in the last few years, where the chip and PIN standard is firmly in place, but the U.S. has been slow to shed the old card technology.

The U.S., indeed, is the world’s last major market that still uses the old-fashioned swipe-and-sign magnetic strip cards, and consumers and merchants are paying a serious price. The antiquated card technology is a major reason why the U.S. has nearly half of the world’s credit card fraud, as revealed in a 2014 U.S. Senate Judiciary Committee hearing, despite it being home to only approximately a quarter of all credit card transactions.

If you’re not focused on Oct. 1, 2015, you need to put it on your radar screen now. Why? Because on this date, liability for credit card fraud shifts. Although your customers will still be able to swipe their old magnetic strip credit cards after that date, whichever party is using the old technology will bear the liability for any fraud. Thus, if a guest comes to your restaurant with a chip card, but you only have a magnetic strip terminal, you will be liable for fraud. If, however, you have a chip-enabled reader, but your customer only has a magnetic strip card, the bank that issued the card is liable for fraud.

“EMV isn’t a mandate,” said Janette McGrath, vice president with MasterCard’s U.S. Product Strategy Division in a recent National Restaurant Association webinar on the new credit card standards. “There isn’t a penalty if you don’t meet the Oct. 1 date. We really are trying to create an incentive to get everyone to move to this more secure payment system.”

Security is, indeed, the major consideration for the shift to chip-based cards. The new cards validate the card and cardholder through either a PIN or a signature.

“If there’s a tamper detected, the card will erase all the information that’s stored on its chip,” said Michael English, executive director of product development at Heartland Payment Systems, at the same EMV webinar attended by McGrath. “The card uses cryptograms that authenticate the user and the card.”

According to a MasterCard, by the end of 2015, 50 percent of U.S. issued cards will be chip-enabled, and at least 45 percent of U.S. terminals will be chip-enabled.

So, how ready are restaurants for Oct. 1 and the EMV standard?

“We believe that the restaurant industry may be slower adopters of this technology than the general market,” said Jim Higgins, the National Restaurant Association’s vice president of payments and financial services, who was also present at the EMV webinar. “Most likely, restaurants will lag and will not reach this penetration by the end of the year. Restaurants don’t seem to have the same sense of urgency as some of the big retailers because fraud isn’t as big a problem for them.”

Should you switch over to the EMV standard now? There is no hard and fast answer to that question.

“Some of the metrics on whether a restaurant should switch to an EMV-compliant system sooner or later are related to the current chargebacks you get now for counterfeit cards and lost or stolen cards,” said Higgins. “If you’re suffering large losses, that’s a good reason to go with a chip card reader sooner rather than later.”

According to Higgins, among the considerations in switching to EMV-compliant equipment is what your competitors are doing with the new standard.

Switching to EMV is, however, a major undertaking not to be taken lightly.

“The training of staff is going to be imperative because these cards are going to be relatively new to the consumers as well,” said English. “It’s going to take a lot of patience on both sides to make the transition.”

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2 Comments

  1. Is this new card rules will only apply for the US resturants or it will be a worldwide campaign ?

    1. OpsAnalitica says:

      Just in the US. Most other countries are already using the new technology.

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