“The shift of liability” of fraudulent transactions of point-of-sale payments in the United States of America will enter into force on 1st October 2015.

To this date, the bank that acquires a fraudulent transaction, that may not justify the chip presence control during the payment, will be held financially liable of the losses related to the approval of the trader, acceptor of a counterfeit card, according to the transactions contested by the legitimate holder.

It is a major issue for the credit establishments in countries that have already adopted the EMV (Europcard Mastercard Visa) standard, as previously seen in the United States of America, and the implementation of this liability shift in Canada in 2013, that have witnessed the fraud transfer to the United States of America.

The “liability shift” implementation in point-of-sale payments on the North American territory is one of the main stages of the migration to the EMV chip card started in 2013 that will continue until the first of October of 2017, the date on which the “liability shift” will extend to the transactions related to the Automated Teller Machines (ATM) and Automated Fuel Dispensers (AFD).

Those constraints will motivate the points of sale to be equipped with terminals that comply with the EMV and should prompt at the same time the issuing bank to adopt the chip card for all the new issued cards. It is planned that a total of almost 500 million cards will be renewed according to EMV standard during 2015.

As outlined by the Annual Report of the Banking Card Observatory 2014, set up by Banque de France, for the first time in 12 years since its inception, the amount of fraud on international transactions (266 million of €, increase by 15% compared to 2013) exceeds the amount of fraud on the domestic transactions (234.6 million of €, decrease of around 2%).

The fraud rate on international transactions have substantially decreased last year, however, it remains more than seven times higher than the fraud rate on the domestic transactions.

Therefore, the international transactions represent in 2014, 53% of the total amount of the fraud, noting that they count only 13% of the total value of the transactions.

It is to be mentioned that the transatlantic progress of the EMV chip card deployment is eagerly awaited in France and Europe.

As illustrated in the latest report of the BCE on the card fraud condition in Europe published on July 2015, the EMV deployment had a significant net effect on the fraud configuration:

  • While representing 54% of total losses linked to the fraud in 2008, the ATM withdrawal or point-of-sale payments, represents only in 2013 one third of the total losses. NB: At the same time, ATM withdrawal or point-of-sale payments transactions increased by 27% in volume and 2.5% in value.
  • The decrease of losses observed on this type of transaction caused by lost/stolen, not received or counterfeited card, may result from the significant decrease of losses on counterfeit card
  • So in 2013, the counterfeit card reason represents only 45% of the fraud in point-of-sale payments and ATM withdrawal, against 64% in 2008.

The smart card and the secret code adoption has a direct impact by deterring fraudsters from copying the magnetic stripe of European cards and from using these counterfeited card outside Europe.

The question is how the fraud amount level in the United States will decrease in European banks, following the implementation of the “liability shift” of fraudulent transactions of point-of-sale payments on the coming 1st of October.