What is EMV and how can you protect your auto repair shop from the liability shift?

As an auto body shop, you’re likely writing an average of 31 or more estimates per week. Your average small to medium repair can range between $500 - $4,000, and major repairs exceed $6,000. In other words, when you’re swiping cards, there are some big transactions happening. That being said, some of the issues other retailers may face - such as friendly fraud and EMV liability shifts - can affect higher ticket shops like yours in much more significant ways. 

We already discussed the issue of “friendly fraud” in our last blog post. We know that it’s a major issue that has become more and more prevalent in recent years. There’s always the question of who is held responsible, or who takes the hit when a payment is disputed. Sometimes there’s a clear answer. If you, as the merchant, didn’t deliver on your promise or your product, you take the hit. But it’s often murkier than that. 

Chargeback fees can cost the merchant double the amount of the actual transaction, meaning as a business, you can lose significant money if you’re frequently dealing with disputed charges. As we discussed, there are ways to mitigate your risk and lower the chances of chargebacks and transaction disputes, even if you can’t eliminate the issue altogether. 

EMV chips

EMV chips are encrypted microchips embedded in credit cards.EMV chips are much more secure than their predecessors (the magnetic strip) and less likely to be cloned - all in all, a much-needed update. 

The “old way” of swiping the magnetic strip, requiring a signature, and having the merchant check the signature on the back of the credit card (which rarely happened, in my own experience), was far less secure. Not only that, but it became terrifyingly easy for criminals to copy the unencrypted magnetic strip and steal information - yikes. They even found ways to use old credit cards. With the rise in identity theft and credit card fraud, the EMV chip was created. Most require a pin - rather than a signature - which is much more secure. 

Ever wonder why the chip reader seems to take longer? Many people hated this fact and felt as if we had “gone backward.” But - check this out - the chip actually creates a new authentication code for every single transaction. Before the card can be processed, that code is sent to the card issuer’s bank to verify it’s authenticity.

These are great features. However, along with the EMV chip came the liability shift. 

Prior to the EMV (and when fraud was less prevalent) card issuing banks wanted cardholders to feel safe and secure using their cards, so in cases of fraud, stolen, or lost cards, these banks always took on the financial repercussions. 

However, with the invention of the EMV chip and a new way to prevent credit card fraud, card-issuing banks wanted to protect themselves. So in order to entice merchants to upgrade their terminals (since some customers still wanted to swipe - change is hard!) to EMV chip readers, card-issuing banks implemented the liability shift. 

The liability shift put the responsibility back on the acquiring bank. If a lost or stolen card is disputed and it had an EMV chip, but the merchant couldn’t or chose not to scan it, the chargeback falls on the acquiring bank. The bank in turn, most of the time, puts that charge on the merchant.

That’s you. 

So how can you avoid this liability shift? As auto body professionals, your loss in chargebacks will be much greater than other merchants simply due to higher tickets with auto mechanic transactions. In order to mitigate this loss, you must take some steps: 

Best option: upgrade your terminal! 

Obviously, the best way to avoid liability shift is to upgrade your terminal. EMV chips and terminals are designed to prevent card-present fraud (which simply means the card is swiped, in person, at your business). You reduce the risk of fraud significantly since it’s almost impossible to counterfeit a chip card. Additionally, you’re avoiding the liability shift altogether even if fraud happens to occur with an EMV chip. Visa reported a 52% decrease in fraud when chip cards became widely used in 2016. 

Follow the rules 

Your payment processor/network will have other rules to follow, and it’s important to abide by these to avoid chargeback fees. Some of these rules include requiring a signature, retaining sales receipts for a certain period of time, and more. Every processor is different, so stay up-to-date with yours. 

If you don’t upgrade, reduce your risk through extra safety measures

We get it - upgrading to an EMV reader will cost you more upfront (though, if you look at Visa’s report and others, it will likely save you money in the long run!), so if it’s a switch you’re not ready to make, you’ll need to take some extra security measures. Teach your employees to check for photo I.D. (remember when that was a big thing?!), compare signatures on the receipt with their signature on the back of the card, and pay attention to suspicious behavior. 

While the liability shift and other rules can certainly pose a financial threat to merchants and especially higher ticket processing such as auto body shops, there are ways you can avoid fraud and chargeback fees. For more information, reach out to us at TelosPay. We’d love to chat with you about your current payment processing service and how we can help your business save money.