America has been called the land of opportunity, and the phrase rings no less true for fraudsters. In fact, the amount of opportunity abounds to such an extent that they’ve made the U.S. a veritable land of plenty—plenty of credit card fraud, that is.
The U.S. currently leads the world in credit card fraud, accounting for 47% of all global credit card fraud, according to a Barclays research note. While this is certainly a dubious distinction, the U.S. has made small progress to curb the ease of card theft despite also laying claim to leading the world in non-cash transactions. Comfortably holding the world’s No. 1 position in card usage, the U.S. nearly doubles that of the runner-up: the entire Eurozone.
It could be assumed that Americans’ overwhelming card usage goes hand-in-hand with their vulnerability to fraud, but not necessarily. Despite trailing the U.S. in card usage, the Eurozone has implemented a security measure that the U.S. has been slow to adopt: EMV technology.
What Is EMV?
EMV—short for Europay, MasterCard and Visa—is a technology for processing credit cards using an embedded microprocessor chip that stores cardholder account data. Unlike the magnetic stripe used on traditional cards, this chip creates a unique transaction code that is considered to be useless to cyber thieves looking to intercept transaction data.
In order to process EMV chip cards, merchants must employ specialized POS terminals capable of processing chip information. Traditional payment cards lack the enhanced security features of EMV cards and are subject to fraudulent actions such as “skimming.” Using a card-reading device or malicious software installed on checkout terminals, data thieves are able to “skim” card information from the magnetic stripe. This data can then be used to create a fake card. EMV makes chip cards theoretically impossible to counterfeit and helps ensure the person using the card is the legitimate cardholder.
Why Do I Need to Adopt EMV?
On Oct. 1, 2015, the U.S. made the long awaited jump to EMV technology, recommending all POS systems convert to the EMV standard. On that date, a new fraud chargeback liability shift went into effect, potentially holding non-EMV-compliant businesses liable for certain financial damages resulting from fraud involving an in-store chip card transaction.
Most U.S. banks began issuing EMV payment cards in advance of the October deadline; however, to date, many have not been able to supply the bulk of their cardholders, leaving a significant population without EMV chip cards. Continuing to use traditional cards bearing the magnetic stripe without the protections afforded by EMV, the U.S. is the only region where the use of fake cards continues to increase, according to recent information from The Nilson Report.
Compounding the lack of widespread availability of EMV cards is many merchants’ hesitancy to make the EMV conversion. Despite the ramifications and numerous studies verifying the effectiveness of EMV, some U.S. businesses have been slow to embrace the new technology. By the end of 2015, only 44% of U.S. merchants are expected to have adopted EMV. Many experts believe this slow adoption accounts for the dramatically high rate of credit card fraud in the U.S.
According to a 2014 study by Aite Group, 51% of U.S. card fraud came from card-present deception, which includes counterfeit cards and the use of lost or stolen cards. Widespread EMV adoption stands to dramatically reduce that number.
But while chip technology may effectively weaken fraudsters’ ability to pass stolen data in person, in-store EMV alone won’t affect the 45% of U.S. fraud that occurs online. And that’s precisely where the future of fraud is expected to turn.
As EMV technology becomes the norm in the U.S., card-present fraud is projected to drop as it has in other EMV-subscribing nations. However, as card-present fraud drops, card-not-present fraud is likely to increase. In the U.S., online card fraud is already a significant concern. Should EMV implementation play out in the U.S. much like in other adopting countries, a drop in card-present fraud may be overshadowed by the prevalence of fraud occurring online.
So why does the U.S. lead the world in credit card fraud? There isn’t a simple answer. Perhaps it’s a combination of two substantial challenges facing American merchants and consumers today: U.S. consumers use cards more and are therefore at a greater risk for fraud, and as U.S. merchants and banks continue to be slow adopters of EMV card processing technology, Americans are less protected against card-present fraud.
Only time will tell what the effect of EMV adoption will be in the U.S., but one thing is for certain: Payment fraud is not going away entirely.
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