MasterCard expands fraud protection
PIN-based transactions covered by zero-liability policy
MasterCard is strengthening fraud protections for consumers by
extending its zero-liability policy to cover more card transactions and
dropping restrictions on who is eligible -- putting pressure on Visa to follow
suit, one expert said.
"I think it was bold of MasterCard to come out with
this announcement," said Philip Philliou, head of payments advisory firm
Philliou Partners LLC. "It tells banks that MasterCard is very serious
about fraud, and very serious about protecting cardholders' interest."
The No. 2 global transaction network said it will extend its
zero-liability policy for fraudulent transactions to PIN-based and ATM
transactions, starting in October. Card users already have zero liability for
fraudulent signature debit and credit transactions, meaning they are not exposed
to losses if a fraudster runs up charges on transactions that require a
Policy restrictions narrowed
Perhaps just as important, MasterCard said it would drop two
restrictions on the zero-liability policy for all transactions. No longer will
accounts have to be in good standing to qualify, or have fewer than three previous
fraud problems within the past year.
"The old rule imposed three requirements on the
consumer," MasterCard representative Beth Kitchener said. "Under the
new rule, the only requirement is that cardholders exercise reasonable care in
safeguarding the card from loss or theft."
Examples of not exercising reasonable care would include
leaving a card on the table in a restaurant while visiting the restroom, she
added, or leaving the card in the car during a stop at a convenience store.
Visa would not discuss its U.S. fraud liability policies,
which currently do not provide zero liability for fraud transactions when a PIN
is used. Visa has 428 million U.S. debit cards and 278 million credit cards,
making it twice as large as MasterCard, according to reported 2013 figures. MasterCard
has 144 million debit cards in the U.S. and 180 million credit cards.
Philliou predicted that Visa would match MasterCard's move,
rather than have less fraud protection than the rival network.
PIN fraud rising
PIN debit and ATM transactions carry lower risk of fraud
than other card transactions, according to Federal Reserve statistics. For PIN
debit, there's just 1 fraudulent transaction per 22,200 transactions, according
to the Fed's 2013 payments study.
However, reports of card skimming are on the rise, posing a
greater threat to PIN-protected transactions. Sophisticated fraudsters are
using modified keypads or tiny cameras to obtain the PIN a cardholder enters,
while a separate swipe reader skims the card number.
Liability policies by card networks aren't consumers' only
protection from fraud losses. Federal law limits consumers' liability for credit
card fraud to $50. The same limit applies to debit card fraud, provided that consumers
alert the bank within two days of discovering the fraud.
In addition, the banks that issue cards may have higher
protections than required by card networks. Industry research by Javelin Strategy
& Research in 2009 found that the top 25 banks already had zero-liability policies
for their cardholders, including for PIN transactions.
MasterCard also announced that, starting in July, U.S.
credit, debit, prepaid and small-business cards will come with Identity Theft
Resolution assistance, providing extra help for canceling a missing card and
alerting credit bureaus. The program will also help determine if cardholders'
stolen identity details are being shared online, MasterCard said.
Extending its fraud liability protections signals that
MasterCard is serious about switching to the smart chip technology known as EMV,
Philliou said. Cards with an EMV chip (which stands for Europay, MasterCard and
Visa, the companies that developed the specification) have greater protections against
fraud than magnetic-stripe cards. The major payment networks -- including
American Express and Discover as well as MasterCard and Visa -- have said that
merchants who don't adopt the technology to support chip cards by October 2015 will
be on the hook for losses that occur as a result of mag-stripecard fraud.
See related: Do chip-and-PIN cards work in the U.S.?
, Video: How to use EMV smart chip credit cards
Published: May 30, 2014
Three most recent Innovations, features, new products stories:
- 30 renowned restaurants that don't take credit cards – Some beloved eateries refuse to take credit cards from patrons, yet still find a way to thrive ...
- Anatomy of a credit card – With the coming of chip cards, the anatomy of a credit card has become even more crowded. Do you know what all the parts are and what they do? ...
- 8 FAQs about the new EMV credit cards – The way you use a credit card is about to change significantly as the U.S. catches up with the rest of the world and moves to cards. Here, in Q&A format, is what you need to know about the transition ...