When the U.S. broadly adopts chip-enabled payment cards, it is less likely a drastic increase in card-not-present fraud will occur like the spike Europe experienced after its conversion to the EMV card standard, an analyst tells PaymentsSource.
Certain regions of Europe, including the United Kingdom, saw a sharp increase in card-not-present fraud several years ago when EMV mandates forced issuers and merchants to adopt chip-and-PIN technology for point-of-sale transactions (see story).
But the card networks' introduction within the past few years of extra security measures, such as MasterCard SecureCode and Verified by Visa, has helped to block such fraud, says London-based Auriemma Consulting Group managing associate Stuart Sykes.
For example, card-not-present fraud, including card fraud on transactions conducted online or by phone, has been declining steadily since hitting a peak a few years ago, according to Financial Fraud UK. Card-not-present fraud declined 32.7% to £220.9 million in 2011 from £328.4 million in 2008, the group said in March. The UK adopted EMV broadly in 2006.
Once EMV is more prevalent in the U.S., merchants and issuers will likely benefit from such additional security measures and other lessons learned from Europe's experience, Sykes says.
“I think because these (security measures) are already in place, from the U.S. point of view, whenever (the U.S. is) chip-and-PIN-enabled, they won’t be hit as hard as we have [been] across Europe with mail-order fraud spikes,” Sykes says.
Moreover, worldwide card fraud should decline when the U.S. adopts EMV, cutting off the pipeline card-skimming crimes tied to magnetic-stripe cards, says Sykes.
The UK-based European ATM Security Team on April 10 said its data show nearly 80% of ATM-related skimming losses originate in markets like the U.S. that still rely on lower-tech magnetic-strip card technology that is more vulnerable to skimming.
Criminals are stealing payment card data in the UK, sharing it with accomplices in the U.S. and using it to create counterfeit cards that can be used at U.S. payment terminals, Sykes contends.
“Once the U.S. is chip-and-PIN-enabled, I think worldwide we’ll drastically see a drop (in counterfeit card fraud),” Sykes say.
Ed Falco, a director with Auriemma based in the U.S., adds that the U.S. move to EMV could spark certain other problems. For example, if there is a rise in card-not-present fraud once EMV use increases in the U.S., new questions about liability for such card-fraud could emerge, he suggests. Merchants are presently fully liable for card-not-present fraud.
“Will there be a liability shift that’s advocated once we get to more card-not-present fraud?” Falco asks. “To the extent the merchants will take more losses, will they be able to influence the liability shift through the networks back to the issuer?"
If indeed U.S. EMV adoption causes an increase in domestic card-not-present fraud rates, all card issuers may need to take additional strategic action to mitigate it, Falco contends.
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