Card fraud losses incurred by banks and merchants worldwide reached $16.31 billion in 2014 when global card volume totaled $28.844 trillion. The United States accounted for 48 percent of gross card fraud losses globally, but generated only 21 percent of the total volume. What’s the deal?
According to The Nilson Report, multiple factors contributed to the gap, but, “Nothing mattered more than the lack of an EMV®-compliant infrastructure,” says its publisher, David Robertson.
As the newsletter notes, EMV technology offers the best protection to-date against losses from counterfeit cards, which accounted for almost half of all card fraud losses worldwide last year. “U.S. issuers were slammed by losses due to counterfeiting, fueled by data center breaches that made available tens of millions of stolen card account numbers as well as personal cardholder identification information,” it adds.
Now that EMV chip cards are turning up in more American wallets, hopefully those figures will start to decline, as they have in countries where EMV has become the standard. For example, Canada began the transition to EMV in 2008, and by 2014 credit and debit card fraud were down 63 and 89 percent respectively, according to statistics from credit card processor Helcim.
Chip cards are considered to be far more secure than the magnetic stripe cards they replace. That’s because the microchip embedded in each “smartcard” stores account information securely and performs cryptographic processing that keeps the data safe from fraudsters and identity thieves.
Processing EMV at POS is different from processing a mag stripe card. The smartcard is “dipped” into a slot in the EMV reader, which collects the data required to complete the transaction. The chip creates a unique value to make each processing transaction unique in a process known as dynamic authentication.
Chip-and-PIN EMV cards, which are the most common type of chip card outside the U.S., require the cardholder to enter a four-digit personal identification number (PIN) at the POS. Chip-and-signature cards, which U.S. banks have largely chosen to distribute, require the cardholder’s signature to verify the sale.
Over a year ago, the financial liability for credit card fraud shifted from the card issuers to the party to the transaction that does not support EMV. In other words, if a retailer or service provider has not updated to EMV-capable processing equipment, they could be held financially responsible for a fraudulent transaction. The liability shift for businesses that sell fuel is set for October 2017.
EMV-compliant terminals will continue to support traditional mag stripe payment processing during the U.S. transition to chip cards.
If you haven’t become EMV compliant yet, its time to get on board. Chargebacks are expensive and if you aren’t protected, you could lose valuable time, products and profit!