TABLE OF CONTENTS
- What is liability shift?
- Why does liability shift matter?
- Transactions eligible for the liability shift
- Transactions not eligible for the liability shift
What is liability shift?
Liability shift is a term used in the payment card industry to describe the transfer of financial responsibility for fraudulent transactions from the merchant to the card issuer or payment processor. In other words, if a fraudulent transaction occurs and the card issuer or payment processor approves it despite the use of security measures such as 3D Secure or EMV chip technology, the issuer or processor may be held responsible for any resulting chargebacks and associated fees.
Why does liability shift matter?
Liability shift can incentivize card issuers and payment processors to improve their fraud prevention measures. If they know they will be held financially responsible for fraudulent transactions, they have a greater incentive to invest in and improve their security measures. This can ultimately benefit merchants and consumers alike by reducing the number of fraudulent transactions.
Worth mentioning that it will be quite troublesome for a cardholder to have a positive solution to fraudulent disputes where 3DS took place.
Transactions eligible for the liability shift
- Customer Initiated Transactions (CIT) 3DS authorized transactions;
- One-click CIT payments;
- Frictionless payments
- Apple Pay payments for American Express, Discover, JCB, Mastercard, but not VISA.
- Google Pay payments.
Transactions not eligible for the liability shift
- Merchant Initiated Transactions (MIT) recurrent transactions, where 1st payment was not 3DS authorized;
- Dealings without 3DS authorization.
In conclusion, liability shift is an important concept for online merchants to understand. By implementing security measures that are eligible for liability shift protection, merchants can reduce their financial risk and incentivize card issuers and payment processors to invest in and improve their fraud prevention measures. To learn more about liability shift and how it can benefit your business, reach out to your payment service provider or card issuer for guidance.