A. Visa defines this circumstance as a fallback transaction. Fallback transactions are defined as the acceptance of chip cards via magnetic-stripe processing, key entry or paper vouchers at chip-capable terminals. This occurs in situations where a chip transaction cannot be completed at a chip-capable terminal. This means that chip cards may only be accepted by means of the magnetic-stripe when the chip cannot be read. If the magnetic-stripe functionality of the card or terminal is also not working, the merchant may then process a fallback transaction using key-entry or paper.
Fallback transactions can be unintentional, such as a faulty chip or acceptance device, technical interoperability issues, or poor merchant acceptance practices. They can also be deliberate, when a fraudster disables a card’s chip or an acceptance device’s chip reader in order to process the transaction using counterfeited magnetic-stripe data. Fallback transactions can also occur if an acquirer has flagged a merchant terminal as being chip-enabled, when it is only capable of reading magnetic-stripe cards. Issuers and acquirers should review their daily transactions to determine their level of fallback occurrences and make adjustments as necessary.