As the U.S. shifts to EMV-chip cards to improve security at the point of sale, fraud will move online, and ACI Worldwide is preparing for that challenge.
The payment technology company's $205 million purchase of Retail Decisions Plc, or ReD, will help it close up vulnerabilities in card-not-present transactions. ACI's all-cash purchase of ReD is expected to close in the third quarter 2014.
"Based on what we've seen in other countries and regions (like the U.K.) it's so much harder to make counterfeit cards due to EMV, and fraudsters prefer to take the path of least resistancemoving online with stolen data obtained via data breach," said Mike Braatz, senior vice president for payments risk management solutions at ACI Worldwide, in an email to PaymentsSource.
The acquisition will give ACI a range of security tools such as ReD Shield, ReD Fraud Xchange, ReD PRISM, ReD Alerts, ReDi, ReD1 Gateway and LiveProcessor. ReD has worked with companies such as Yapital and Verifi to analyze e-commerce payment data such as the transaction size and the user's location to spot potential fraud attempts. Bank of America Merrill Lynch is acting as financial advisor to ACI Worldwide, while William Blair is acting as a financial advisor to ReD.
The U.S. already faces heightened fraud due to the EMV shift in other countries. Canada's Interac debit network says only 25% of its card-skimming fraud losses in 2013 occurred in Canada. Most of the remaining losses occurred in the U.S.
"Fraud is a lot like the arcade game Whac-A-Mole. Just when you think you've eliminated it, it reappears elsewhere," said Jordan McKee, a senior analyst for mobile payments at 451 Research.
The U.S. card networks set a deadline of October 2015 for most merchants to be able to accept EMV-chip cards (gas stations have until 2017). After those dates pass, any company that cannot handle EMV card payments faces an increase in fraud liability.
"While fraud in the physical world will see a reduction as a result of EMV, a significant portion will migrate to card-not-present channels such as online and (interactive voice response)," McKee says.
Card-not-present fraud will double to more than $6 billion by 2018, according to research from Aite Group.
"There are a number of companies out there providing innovative solutions, from platforms such as ReD to point solution providers, so I think partnership or acquisition is a very smart way for processors to add robust card-not-present fraud prevention capabilities," said Julie Conroy, a research director for Aite.
Given the significant card-not-present fraud problem, consolidation in the fraud prevention market makes sense, said Al Pascual, a practice leader in fraud and security for Javelin Strategy & Research.
"I expect that acquisitions and mergers in this space will continue as merchants and issuers demand more capabilities and vendors attempt to control the cost associated with them while maximizing profits," Pascual said.