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On 1st January 2005 a change occurred as to who bears the cost of fraudulent transactions which could
have been prevented by the use of a chip and PIN terminal.
This change means that the liability for fraudulent card transactions in situations where the card is
counterfeit or has been lost/stolen will pass to the party that is not chip and PIN compliant. Where all
parties are compliant, then fraudulent transactions should not occur, but any fraud will be the responsibility
of the card issuer/cardholder. It should be noted that this only applies to transactions where the cardholder
is present at the time the transaction is carried out.
What does the liability shift mean for you?
If your POS terminal is not upgraded to chip and PIN capability then you are liable for the losses on the
fraudulent transactions you process, which might have been prevented if you had been chip and PIN compliant.
You may already have experienced losses through this type of fraud. However, the introduction of chip and
PIN will provide protection from future losses of this type.
If you have not yet experienced this type of fraud, this could be because under previous rules the card issuer
has borne the cost.
Fraudsters will target those merchants who are still processing signature transactions, so whilst you may not
have experienced losses through counterfeit fraud in the past, this could change if you choose not to upgrade your
equipment.
This is particularly relevant for those merchants who are responsible for upgrading their existing POS equipment.
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