A fallback transaction occurs when the customer tries to use their chip card into an EMV chip card reader but the card cannot be read due to an error with the chip. The device will permit the transaction using the magnetic stripe.
If the customer tries and fails to use the chip reader due to an error with the chip, the business is not liable for that transaction.
Note that this only applies if your terminal is working properly! If there is a fault with the terminal instead of the chip, the business owner is still liable.