MasterCard is extending its zero-liability policy to more card transactions and dropping restrictions on who is eligible — putting pressure on Visa to follow suit
“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 signature.
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.