What liability does a merchant face if a chip card cannot be accepted and claims of fraud arise?

When a chip card—often referred to as an EMV card—is not accepted by a merchant, and a claim of fraud arises, the liability generally shifts to the merchant. This is because the technology embedded in chip cards provides enhanced security features compared to traditional magnetic stripe cards. EMV technology helps reduce fraud by generating a unique transaction code that cannot be reused, which protects consumers and reduces the likelihood of fraudulent transactions.

If a merchant fails to implement the necessary chip card processing technology and a fraudulent transaction occurs, they are considered to be at fault for not providing the safer method of transaction. The payment card networks (such as Visa and Mastercard) enforce this liability shift to encourage merchants to upgrade their systems and reduce the prevalence of card-present fraud.

In instances where the merchant has not adopted the chip card technology and a chip card is presented, they bear the financial consequences of any fraud claims. This liability encourages merchants to take proactive steps toward adopting security standards that minimize fraud risk, ultimately safeguarding both their business and their customers.