Fraud is one of the biggest challenges that the payments industry faces. Payment networks such as Visa consider fraud prevention as an important step in securing payments for both merchants and customers.
Even with fraud being a commonplace occurrence, some merchants such as those who run Automated Fuel Dispensers (AFD) are more vulnerable to fraud than others. This is why Visa introduced the Automated Fuel Dispenser EMV Liability Shift to incentivize merchants to use EMV chip reader enabled pumps to reduce fraud.
This post will explain what the EMV liability shift is, why Visa is rolling it out and how it will affect merchants.
What is EMV?
The term EMV is an acronym for Europay, Mastercard, and Visa, which is a credit card industry standard for chip cards, Point of Sale (POS) terminals, and Automated Teller Machines (ATMs). EMV cards are more secure than magnetic stripe cards because they generate a one-time code for each transaction, which prevents counterfeit fraud.
What is Visa's Automated Fuel Dispenser EMV Liability Shift?
Currently, fuel merchants are only liable for fraudulent transactions that are done using credit cards that are other lost or stolen. They are not responsible for fraudulent purchases made with counterfeit cards that fraudsters make using skimmed data. The issuing bank of the cardholder currently shoulders this liability. The EMV liability shift will move the liability for fraudulent transactions done with counterfeit cards from the issuing bank of the cardholder to the merchant. This shift means that:
- If a fraudulent transaction happens using a counterfeit card and EMV technology (chip card plus an EMV reader) was not used, the merchant will be held liable for the fraud.
- If a fraudulent transaction happens using a counterfeit card, and EMV technology was used, then the merchant will not be liable for the fraud.
This is to say that AFD merchants who don't have EMV readers at their fuel terminals would be liable for counterfeit card fraud.
Why Is Visa Rolling Out These Updates For AFD Merchants?
Visa's main reason for insisting on using EMV technology is to reduce fraud in card-present transactions. AFD merchants are extremely vulnerable to counterfeit fraud for two reasons:
- Most fuel dispensers still use magnetic stripe card readers that are vulnerable to card skimming fraud.
- Automatic fuel dispensers are unattended, which makes it easy for fraudsters to tamper with them and install card skimmers.
What is Card Skimming?
Credit card skimming happens when fraudsters steal credit card information from card readers at payment terminals using an electronic device known as a card skimmer. When customers swipe their cards at an automated fuel dispenser, the card skimmer reads their credit card information from the card's magnetic stripe.
The fraudster then uses the stolen credit card information to create duplicate cards that can be used in other non-EMV payment terminals. The stolen information is also used for e-commerce transactions or is sold to other fraudsters.
Visa is shifting the EMV liability to AFD merchants to upgrade their pumps to EMV readers that will reduce counterfeit fraud that comes with card skimming.
How Will Merchants Be Affected By This Change?
The EMV liability shift will affect merchants in the following ways:
- For merchants to upgrade their automatic fuel dispensers, they will incur the cost of getting EMV readers and labor costs of doing the upgrade.
- Those merchants who don't upgrade their pumps will be liable for chargebacks and chargeback fees of fraudulent transactions carried out with counterfeit cards on their pumps.
What Are The Benefits Of The EMV Liability Shift To Merchants?
The main benefit that AFD merchants who upgrade their terminals with EMV readers will be that they will not be held liable for counterfeit fraud. Moreover, since EMV technology is safer, merchants will see a reduction in other fraudulent transactions, such as those involving lost or stolen cards.
What Challenges Are AFD Merchants Facing as They Migrate to EMV?
Even with AFD merchants understanding the risk of card skimming and counterfeit fraud that comes with their magnetic stripe readers, they face the following challenges to migrating to EMV:
- The high cost of upgrading because fuel pumps have integrated payment systems, and some merchants have to replace entire pumps.
- Upgrading can require heavy construction and environmental permits, making it even more expensive and time-consuming.
- There is an insufficient supply of EMV software and hardware that is compliant with regulations.
How Has Covid-19 Changed The EMV Liability Shift Adoption Timeline?
When Visa first introduced this liability shift, the adoption date was set for October 1, 2017. However, AFD merchants were facing challenges with the EMV migration, which are mentioned above, the adoption date was moved to October 1, 2020.
With the COVID-19 pandemic and the unpredictable challenges that it has brought to economies and the payments space, Visa has extended the adoption date for the EMV liability shift to April 2021.
What Can Non-EMV Compliant AFD Merchants Do To Reduce Counterfeit Fraud As They Take Steps To Migrate?
Seeing as AFD merchants need significant time and financial investments to be EMV compliant, here are some fraud tools that you can use to reduce fraud before you migrate:
- Address Verification Service (AVS): this service requires customers to key in the ZIP codes that correspond with their credit card billing address. If the ZIP code provided does not match the one on file, it indicates a high risk of fraud.
- Visa Transaction Advisor (VTA): this tool uses Visa's wide range of transaction data to carry out a real-time risk analysis. If an AFD transaction is assessed to be high risk, the customer is prompted to go inside to complete the transaction.
- Velocity checking: this checks the number of transactions done by a visa card. If a card has carried out more than two AFD transactions within 24 hours, the customer is prompted to complete it in-store during the third transaction.
The adoption of EMV technology is a worthwhile investment as it will help AFD merchants reduce fraud and secure the entire payments environment.