Card brands started rolling out cards with EMV chips in late 2015 in the United States. These chips were developed by Europay, MasterCard, and Visa (EMV) to combat the fraud that was associated with magnetic stripe cards. You can read more about EMV Liability Shift here. With the switch to EMV from magstripe in 2015 came a practice is known as “EMV fallback.”
You’ve probably encountered EMV fallback just when going about your normal shopping—you’re getting groceries or new clothes, you go to insert your chip card into the terminal, and then the transactions fails, and the cashier asks to swipe the card instead. This process of trying to use the EMV chip and then having to use the magnetic stripe instead is known as “EMV fallback,” and it is declining in frequency. EMV fallback is undesirable because the purpose of EMV is to protect against fraud—if the chip doesn’t work and a customer has to use the magnetic stripe instead, the anti-fraud technology present in the chip is useless for that transaction.
Why Wouldn’t an EMV Transaction Work?
There are several reasons why an EMV transaction wouldn’t work. For example, sometimes the terminal or POS system isn’t programmed correctly to accept chip cards. Other times, the chip itself is damaged and the terminal cannot read the information. As previously stated, this isn’t ideal because magnetic stripe transactions are not automatically tokenized (see our article on tokenization here) like EMV chips are, and are therefore more susceptible to fraud. As customers, merchants, and their employees get more familiar with EMV, these fallback transactions are becoming rarer.
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In order to force a fallback, criminals can damage the chip on the card or the terminal itself. This means that it’s easier for a thief to use a cloned credit or debit card. While of course, not all fallbacks are fraud, and in fact, many legitimate customers may have to use the fallback mechanism, but it is recommended to monitor how often your business is processing fallback transactions. If you have too many fallback transactions, you may be subject to fees either from your credit card processor or from the card brands themselves.
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