As more POS terminals are being upgraded to EMV chip-ready, and more credit unions are getting chip cards in the hands of their members, questions regarding fallback transactions are being generated.
What is a fallback transaction?
Simply stated, a fallback transaction occurs when a chip card is presented to a chip enabled terminal (“chip-on-chip”), but the transaction is conducted as a swipe, usually due to the terminal unable to read the chip on the card. This could be due to a defective or scratched chip, a terminal or network incorrectly configured or with a chip reader that is defective (all legitimate reasons for fallback), or a chip intentionally damaged so it cannot be read, on a counterfeit card encoded with magnetic data stolen from a chip card.
When a terminal is properly configured, the process flow would be:
- The cardholder inserts the card (either because they initially knew to do so, or were directed by the terminal) but
- In this case, the terminal is not able to communicate with the chip on the card.
- After the terminal retries to read the chip (a pre-configured number of retries), the terminal will display a CHIP ERROR; USE MAG STRIPE message to the cardholder (sometimes reworded for cardholder display).
- The cardholder swipes the card, and the transaction is sent to the issuer for authorization.