EMV's proving its mettle in counterfeit reduction
U.S. counterfeit card losses have plummeted in the past four years, a signal the challenging EMV migration has made a dent.
Counterfeit card fraud dollar losses were 87% in March 2019 compared to September 2015 for merchants who have upgraded their POS terminals to accept EMV chip cards. Overall counterfeit fraud losses were down 62% in March 2019 compared to September 2015 for all U.S. merchants (including non-EMV enabled stores).
In June 2019 there were 3.7 million merchant that accepted EMV chip cards, up from 392,000 in September 2015, representing approximately 80% of U.S. storefronts according to Visa.
The dramatic increase in EMV POS adoption reflects how important it is for merchants to control their fraud losses by being on the correct side of any point of sale transaction. However, there still remains a 20% EMV adoption gap among merchants.
“There are still holdouts. Many non-compliant merchants use [mobile point of sale hardware], which typically carry low value/low volume transactions. Most large merchants accept EMV, but there are some holdouts... One of the drivers that people justify non-compliance is the risk/reward tradeoff between an EMV compliant device and Mag stripe,” said Brian Riley, director credit advisory service at Mercator Advisory Group.
The deadline for EMV liability shift for all merchants was October 1, 2015 with the exception being for gas stations which now have until October 1, 2020 to comply. Originally gas stations were to be EMV compliant or face fraud losses with the shift occurring October 1, 2017 but that was moved as the card networks recognized the conversion task would be more costly and time consuming for fuel station owners.
One major factor in driving down counterfeit card fraud losses is the fact that many issuers such as Chase have rapidly moved to adopt EMV cards initially on their credit portfolios but quickly ramping them up on debit as well.
In June 2019 there were over 521 million EMV chip-enabled Visa debit and credit cards, up from just 160 million Visa cards in September 2015 representing a 227% increase over that period. Visa reports that 72% of its debit and credit cards are now EMV chip-enabled.
Another factor in driving up EMV adoption by issuers is a major push to roll out contactless cards which also happen to be EMV-enabled. Bank of America announced in June it would aggressively roll out contactless cards. Wells Fargo in April and Chase in November 2018 made similar announcements.
American Express has committed to gradually rolling out contactless cards later this year as customers cards expire while Visa has positioned itself at the center of the contactless renaissance. Visa's CEO, Al Kelly, announced in last October’s earnings call: “Contactless continues to grow rapidly and it's a better consumer and merchant experience than paying with a dip, swipe or a scan."
While EMV has taken a major bite out of counterfeit card fraud at POS, it has also pushed fraud into the card-not-present (CNP) channels. According to data from the 2019 Debit Issuer Study commissioned by PULSE, the share of CNP fraud related cases using debit cards has increased to 70% in 2019, up from 44% in 2018. Meanwhile the share of debit transactions conducted in CNP channels has only grown to 25% in 2019, up from 21% in 2018.
So the question remains, is EMV merely shifting fraud from storefronts to CNP channels such as online and mobile. If that’s true, then how are the card networks and issuers responding?
“Yes, there is a shift, but the industry continues to innovate. Features like 3-D Secure and tokenization will help control fraud as we move into the next decade,” added Riley.