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Just in case you haven’t heard, effective October 1st, 2015, US merchants who have not upgraded their point-of-sale system to support chip cards may be held liable for fraudulent transactions that take place in their business location.To recap, this shift is taking place in an attempt to minimize credit card fraud in the US, which is currently responsible for 50% of the world’s credit card fraud. What you may not be aware of however, are Fallback transactions and what it might mean if this type of transaction takes place in your business. Here’s what you should to better protect your business and customers against fraud.

What Are EMV Fallback Transactions?

A Fallback transaction takes place when a transaction is initiated between an EMV chip card reader and an EMV-enabled chip card but the chip on the card cannot be read. As a result, the terminal “falls back” on, or in other words, relies on the magnetic stripe data (less secure data) in order to complete the transaction.

SEE ALSO:The EMV Shift: What You Need To Know Before October 1st

Why Do Fallback Transactions Happen?

There are several scenarios that can cause a Fallback transaction to occur at an EMV-capable credit card terminal, requiring the merchant to use the magnetic stripe reader to accept payment:

Non-chip terminal. The merchant’s terminal does not support EMV chip cards. In this scenario, the magnetic stripe reader becomes the default option to process payment. If the transaction turns out to be fraudulent, the merchant is held liable for any losses associated with the transaction.

Damaged card or dirty card reader. If the card is damaged, the EMV chip card reader may not be able to read the chip on the card. Dirty or damaged contacts on the card reader can also prevent communication between the reader and the chip on the card.

Compatibility issues. In rare cases, the terminal’s EMV kernel and the card’s chip may support different versions of EMV technology. If this occurs, you should contact your point of sale provider or credit card processor for more detail.

Incomplete EMV migration. The merchant’s terminal is EMV-capable but not EMV-enabled. Just because your technology has the ability to accept EMV chip cards, does not mean it will be able to do so by the October 1st deadline. In order for an EMV chip card transaction to successfully take place, all external stakeholders have to be EMV-compliant. In other words, the financial institution approving the transaction, payment processor, and POS hardware must all be compliant.