The End of the Swipe and Sign Credit Card – Are You Ready?

The End of the Swipe and Sign Credit Card – Are You Ready?

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October 1, 2015 marks a date when U.S. merchants may experience a shift in liability for fraudulent credit card transactions.  Up until now, the burden for credit card fraud has fallen on the issuing company but that is about to change.

You may have noticed over the last several months that credit card companies have been issuing new credit cards to their customers which contain an EMV (Europay, MasterCard and Visa) chip. The issuance of these cards represents an attempt to reduce credit card fraud.  This system has been in use in most of the world but has been slow in coming to the United States due to the complex markets that exist here. At present, the United States accounts for nearly fifty percent of the world’s credit card fraud.

To fully comply with the use of credit cards with the EMV chips will require merchants to purchase new card terminals (referred to as dip and sign) which could, with related software upgrades, cost between $600 and $1,000 each.  Large retailers like Walmart and Target have already put the new equipment into use but the majority of retailers in the United States will not meet the deadline and will continue to use the older sign and swipe machines.

Beginning October 1, 2015, the burden for credit card fraud will depend on the equipment the merchant is using and the type of credit card used by the customer.  The party to the transaction (merchant/issuing company) using the oldest technology will bear the burden of a fraudulent transaction.  For example, if a transaction for a customer using a card with an EMV chip is processed through a swipe and sign reader, the burden of a fraudulent transaction will fall on the merchant.  Conversely, if a transaction for a customer using a card without a EMV chip is processed through the newer style terminal, the burden of a fraudulent transaction will fall on the credit card issuing company or credit card processor.  This represents a shift from current policy which does not hold the merchant responsible to fraudulent purchases.  As a result, the deadline is forcing many small retailers to weigh the cost of the new equipment versus the potential of liability for fraudulent charges.  An exception to the October 1, 2015 deadline is being made for gas stations, which until 2017, will continue to operate under the pre October 1, 2015 policy.

In the future, it is expected that both “swipe and sign” and “dip and sign” will be replaced with a system that utilizes both the EMV chip and a pin number.  That system, called “chip-and-pin,” is already being utilized in Europe.

Wayne Heaton, CPA, Partner Wayne Heaton, CPA, Partner
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Wayne Heaton, CPA, Partner

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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.

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