The Answer Lies in How Liability Shift Is Handled by the Networks.

Why Does Liability Shift Matter for Digital Wallets?

In the world of digital payments, “liability” refers to who bears the financial burden of a fraudulent transaction — the merchant or the issuer. When we talk about “liability shift”, we mean a shift in that responsibility, typically from the merchant to the issuer, provided certain security protocols are met.

This shift is especially critical in e-commerce, where fraud risk is highest. But it also plays a role at the point of sale (POS). For merchants, achieving liability shift is about reducing fraud-related chargebacks. By leveraging secure authentication protocols like 3D Secure (3DS), merchants can shift liability and protect themselves. However, this often comes with trade-offs in conversion rates and checkout friction — a balance many merchants constantly evaluate.

Liability Shift in the Context of Apple Pay vs Google Pay

1. How Can Merchants Achieve Liability Shift in E-Commerce?

To shift liability for e-commerce transactions, merchants typically implement 3DS authentication. A successfully authenticated 3DS transaction shifts liability for fraud from the merchant to the issuer. This protects the merchant from chargebacks caused by unauthorized card use, such as lost or stolen cards.

2. How Do Digital Wallets Handle Liability Shift?

When it comes to Apple Pay and Google Pay, both use tokenization — a system that replaces the real card number (PAN) with a device-specific token. However, the treatment of these tokenized transactions by the payment networks differs, affecting liability outcomes.

Apple Pay: Card-Present Behavior

• Though Apple Pay uses tokenization, it behaves like a traditional contactless transaction.
• Networks and issuers treat Apple Pay transactions as card-present, so liability typically shifts to the issuer if the merchant follows contactless acceptance rules.
• From a liability perspective, Apple Pay essentially inherits the benefits of physical card transactions, despite the use of digital tokens.

Google Pay: Card-Not-Present (CNP) Risk

• Google Pay also uses tokenization, but transactions are often treated as card-not-present, especially for in-app or online use.
• Because of this, liability typically remains with the merchant, unless the transaction is authenticated using 3DS.
• This CNP classification results in greater exposure to chargebacks unless specific fraud prevention steps are taken.

3. What’s the Difference Between Contactless and Tokenized Transactions?

Traditional Contactless Payments:

• Card is physically tapped using NFC.
• The PAN is transmitted and processed in a secure manner.
• Treated as card-present, with liability shift rules favoring the merchant.

Tokenized Wallet Payments:

• PAN is replaced by a Device Account Number (DAN) stored on the phone.
• Token is transmitted instead of PAN.
• Offers greater security, but liability treatment depends on wallet implementation and network policy.

4. Why the Difference Between Apple Pay and Google Pay?

While both wallets use tokenization, Apple’s integration is more tightly controlled.

Apple Pay transactions are:

• Limited to Apple devices.
• Processed with consistent cryptographic protocols.
• Designed to emulate contactless behavior, which issuers and networks recognize as card-present.

Google Pay, on the other hand:

• Operates across a wider array of devices and platforms.
• May be processed in ways that lack the consistent behavior expected in card-present transactions.
• As a result, liability often does not shift, unless additional authentication like 3DS is applied.

Key takeaway: It’s not the tokenization itself, but how the transaction is classified and processed by the network that determines liability shift.

What Does This Mean for You as a Merchant or Payment Professional?

If you’re working with or supporting merchants, understanding the liability implications of Apple Pay vs Google Pay is crucial. While both offer tokenized security, only Apple Pay consistently offers liability shift comparable to contactless transactions. Google Pay, depending on context and implementation, may require 3DS or additional authentication to achieve the same protection.

For payment strategists and developers, this distinction should inform risk management decisions, checkout design, and customer experience optimization. In an ecosystem where fraud and conversion are in constant tension, knowing how your digital wallet behaves under the hood isn’t optional — it’s essential.

Want to dive deeper? Check out my previous article: “Apple Pay vs. Google Pay: How They Handle Sensitive Credit Card Information.”