The belated rollout of EMV security chips in credit cards in the US is expected to lead to an increase in fraud.
In fact, more fraud is already here, said Allen Friedman, director of payment services at Ingenico, a provider of card payment terminals and services
“Sixty-seven percent of the UK-issued card fraud is from the US.”
“We are the last G20 country to go EMV and the the criminal rings behind card fraud come with P&L demands,” said Julie Conroy, research director for retail banking at Aité Group, a Boston-based firm specializing in financial technology. “The transition will be challenging,” she added. “We are going to have all these different permutations of transactions at point-of-sale terminals — EMV- enabled with EMV terminals, some terminals will be ready and some cards will have EMV chips. (EMV stands for EMV for Europay,
In her report on EMV, Conroy predicted that fraud would migrate to ATMs and e-commerce fraud, called “card not present.”
But Friedman said that the US delay in moving to EMV has meant that fraudsters can use the mag stripes on European cards for fraudulent transactions at American merchants.
“Some European issuers have started to decline card-present transaction from the US because the fraud is so high. They decline the card [at the point of sale] which causes a problem at the merchant locations. You may have a perfectly good card and a good customer, but in a swipe environment they can get declined. It definitely has an impact on tourism in the US.”
Brazil had a similar experience as it transitioned to EMV, he added.
“After they migrated, they saw a 27 percent increase in approvals on foreign cards. The foreign cards that are being declined in the US today at card-present locations are likely to see an improvement in approvals [after EMV terminals are implemented at point of sale] which could lead to increase revenues for merchants.”
Industry experts think that by October 2015, when responsibility for card losses on mag stripe cards shifts to merchants, about 70 percent of the US cards in use will have EMV chips, leaving less opportunity for fraud.
“We will have fraud assessment challenges,” Aité’s Conroy added. “It will be a big task for issuers and you can be sure fraudsters are aware of it and will prepare attacks. And then they will transition to attacks on card-not-present channels.”
Friedman said that while card fraud has increased in the US, it was never as high as it was in Europe because most American merchants have used online authorization while Europeans tended to accept chip and PIN cards offline and then process them at the end of day.
“The fraud on UK-issued cards went up while their domestic fraud went way down,” Friedman explained. “The overall fraud went way up in UK cards because cards were being counterfeited and used in the US. A lot of counterfeit fraud is from European issuers since the fraud is migrating to the easiest target, and the easiest target now is the US.”
Conroy said that many American merchants will leverage tried and true technology to combat fraud, while in other cases they are looking to new systems, including some big data capabilities, to get better insight into true customer behavior to prevent fraud losses and also false positives.
“They are also thinking of understanding customers better, to avoid declines. Some issuers have capabilities to leverage the same big data stack for marketing.”
Making this work in legacy environments can be a challenge, she added.
“Many of the capabilities of the issuers are still pretty siloed. An issuer may have one big data store for marketing and a separate one for fraud.
“The combination of legacy technology, inertia and silos make it hard to turn the Titanic on a dime. They have a lot of good intentions but it’s hard.”
Stopping fraud will take layers of security, said Carolyn Balfany, senior vice president of product delivery for EMV at MasterCard. She expects the US will do better than other countries which have introduced EMV because card networks here already have fraud prevention tools in place.
“Those don’t go away, which is important for people to understand. Fraud monitoring and neural networks, will be an additional layer of security; those will still be running.”
The speed at which the US migrates will also be an advantage, she added.
“We have the cumulative knowledge of the rest of the world's migrations, [I guess there are some advantages in being last] and cards and terminals are at a better price point and have better availability. All those factors and the pure competitive nature of the US will accelerate the migration. While other countries took 5-10 years to migrate, we think the US will migrate in a more compact timeframe.”
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