How to Reduce Fraud with EMV Fallback

The checkout line is long and only getting longer, and your relatively new employee needs help to keep up. Suddenly, a customer inserts their chip card into the EMV-certified terminal, expecting a smooth transaction. 

But – of course – the transaction fails. You can almost hear an audible groan from the customers standing in line. 

Wanting to save the sale and provide a seamless experience, your employee then reaches for the fallback solution: swiping the card. 

Unfortunately, this seemingly innocent workaround initiated an EMV fallback transaction. 

Sure, it might appear harmless on the surface. But the truth is much harsher: fallbacks expose your business to unforeseen risks and potentially grave consequences. 

Two Scenarios, Different Outcomes

It's essential to recognize that fallback transactions can occur in two distinct scenarios. 

The first involves your business using an EMV-certified terminal. Despite this, a chip transaction fails, and you resort to swiping the card. Liability is avoided if the transaction is appropriately identified as an EMV fallback and receives online approval from the issuing bank. Another example is if the customer's card lacks an EMV chip, and you swipe the card, your company is not liable for any resulting fraud. 

However, the second scenario is more troublesome. Here, your terminal is not equipped to handle EMV transactions or lacks an EMV slot. As a result, you ask the customer to swipe their chip card. This time, the liability shift guidelines apply, making you, the merchant, responsible for any potential fraud resulting from the swiped chip card. Or, if the customer's card chip is malfunctioning, and you fallback to a magstripe swipe, your company may be held liable for fraud.

The difference between these scenarios hinges on whether your technology has been upgraded to meet new EMV standards. If it has? Then you're shielded from liability. Upgrading protects you from liability, while failure to do so leaves your business vulnerable to potential fraud charges. If not, you're walking a thin line, leaving your business vulnerable to potentially crippling fraud charges.

Credit card fraud prevention: The Hidden Dangers of Fallback

What makes an EMV fallback a security risk? It's all about technology. 

EMV chip cards contain a unique code-generating computer chip for each transaction, making it harder (though not impossible) for fraudsters to duplicate cards. Yet, this advanced security feature only works when paired with an EMV-certified terminal. An older terminal simply defaults to the less secure and easily duplicated magnetic stripe for payment.

Even more worrisome? This sort of setup is just begging for fraudulent activity. Scammers create faulty EMV chip cards, then hope (and rely) on EMV fallbacks. That's why the first scenario is risky if you fail to identify the transaction as a fallback correctly.

Safeguard Your Business Against EMV Fallback

That said, merchants who have upgraded to EMV chip systems have found success, with counterfeit fraud down 76 percent, according to the most recent statistics from DataProt, which reviews cybersecurity products.

So, how can you navigate this complex landscape and protect your business? Here are a couple of strategies to consider:

• Choose an EMV-Certified Provider: Select a provider that offers EMV Level 3 certified equipment. You don't want a reader with an extra slot that isn't fully certified. You need top-of-the-line equipment that keeps you ahead of the technological curve.
• Use Intelligent Terminals: Some cutting-edge terminals can intelligently detect whether a customer swipes a chip card or inserts a magstripe card. This feature can drastically reduce the incorrect processing of chip cards and is particularly valuable in customer-facing terminals.

You’re in Control of a $130 Billion Problem

While upgrading your equipment might seem like a significant investment, it's a small price to pay considering the alternatives: higher rates of chargebacks, increased fraud, and the potential for merchant account termination due to EMV fallback. In fact, by 2023, retailers stand to lose approximately $130 billion per year to fraudulent card-not-present transactions if they fail to keep up with digital fraud prevention measures, according to DataProt.

Fortunately, you can outsmart fraudsters by understanding and managing the associated risks while adopting advanced technology and best practices. 

Protecting your business isn't just about today's transaction; it's about ensuring its viability for future transactions.

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