This fall, the United States will finally transition to EMV—but it’s too little too late.
EMV will help reduce fraud at point of sale, but that matters less and less as shoppers continue to migrate to online platforms, especially mobile ones. For example, just 29% of shopping events are in-person only today, according to the Marketing Research Association.
Where shoppers go, fraudsters follow. Card-not-present (CNP) fraud—typically from purchases made online or via mobile device—was about $10 billion in 2014, according to Javelin Strategy & Research. Point-of-sale (POS) fraud, by comparison, was $6 billion in 2014.
The transition to EMV will only make the CNP fraud problem worse, as fraudsters look for new, less-secure avenues to exploit. While Javelin projections predict that POS fraud will decrease between now and 2018, CNP fraud is expected to increase by more than 100 percent. We’ve seen this effect before: in the United Kingdom, CNP fraud rose 79% in the first three years after EMV adoption.
It’s becoming increasingly clear that EMV is just one piece of a growing puzzle. Retailers really need a solution that provides a secure and consistent customer experience, no matter which payment channel is used. According to a study by The Economist’s Intelligence Unit, consumers said that, when it comes to a satisfying customer experience, some of the most important factors include simple purchasing processes (47%); clarity and simplicity of product information across channels (25%); and the ability to interact with a company across multiple channels (22%).
Security is top of mind for many shoppers as well, and a data breach—or even the threat of one—can negatively impact a retailer’s bottom line and reputation. According to a recent survey, 48% of consumers would stop shopping at a retailer or visit the retailer less frequently if they found out their data had been breached.
Retailers seem to understand all of this: 84% say that delivering a consistent customer experience across all channels is very important, according to a Retail Systems Research study. However, most of them aren’t doing it. According to the same study, no retailers reported full synchronization across all channels, and just one-third said they would have that capability “soon.”
In addition to EMV, then, retailers need to start transitioning to next-generation payments platforms. These solutions prevent CNP fraud as well as work across multiple channels to provide a secure, consistent customer experience throughout.
However, it can be tough for retailers to find skilled vendors to provide such solutions. Traditional payments providers are often structured to help with POS fraud and the sale of real goods, not increasingly popular virtual products like e-books or digital gift cards. New vendors in the space promise CNP protection, but many of these partners don’t have the industry experience or expertise necessary to back up their claims. As such, retailers would be wise to do thorough research before choosing a partner.
When investigating vendors, retailers should ask the following questions: What approach does the vendor take to identifying fraud? Do they use people? Technology? Or a combination of the two? How often does the vendor update its data consortium models? Can the vendor offer multiple channels, including SMS, live agent, web, mobile app, text-to-pay, and IVR? How established is the vendor? Are they new to the field? How many years have they been providing CNP fraud services?
Vendors that can do all of the above will be better positioned to help retailers combat CNP fraud while also delivering a multi-channel platform that’s easy to use.
Whatever retailers choose to do, it’s certain they’ll need much more than EMV to effectively reduce fraud. The United States is finally switching to a more secure point-of-sale process, but fraudsters are already miles ahead.
The EMV transition combined with the growing popularity of online sales is going to leave many shoppers—and their sensitive information—vulnerable. To survive, retailers must address the CNP threat across all channels without negatively impacting the customer experience.
Chris Uriarte is chief payments officer at Vesta.