On October 1, 2015 the major payment card companies instituted the EMV Liability Shift in an effort to incentivize card issuers and merchants to migrate to using payment cards with embedded chips (“chip cards”) according to the EMV standard. This shift is better characterized as an allocation of liability of counterfeit fraud to whichever party in a transaction has not conformed to the EMV standard. Card issuers can conform by issuing compliant chip cards and merchants can conform by implementing terminals that accept chip cards. Two weeks have passed since the shift was instituted and many companies have not become EMV compliant, meaning they are subject to an immediate increase in risk for fraud liability. Whether you work for a company, are a private equity fund manager assessing risk for your portfolio companies, or are brokering a deal that involves merchants or card issuer companies, these five facts will help you assess the impact of the EMV Liability Shift.

1. Chip Card Migration is Different from Compliance with Payment -

Card Industry Data Security Specifications (PCI DSS).

As the name suggests, chip cards are payment cards (credit, debit or prepaid cards) that have an embedded microchip. The function of this chip is to make the card more difficult to counterfeit. When a chip card is inserted into a compatible terminal, the terminal uses information contained in the chip to communicate with the transaction processors to verify the transaction. The chip generates dynamic values that are used to authenticate the card as genuine. This is an improvement over magnetic stripe technology, which was static and therefore susceptible to being “skimmed,” a process where the information in the magnetic stripe could be copied and then used to create a functional clone of the card. The dynamic nature of chip cards preclude such skimming. Chip card technology could be implemented in any one of a variety of manners but major payment card companies settled on a standard called EMV. The standard is currently maintained by a body called EMVCo, which is comprised of six member organizations—American Express, Discover, JCB, MasterCard, UnionPay and Visa.