Page 67 - Pay Magazine s2014

volume 9 • fall 2016
100%
80%
60%
40%
20% 0%
SOURCE: Aite Group interviews with 20 large issuers and processors, February to April 2016
26% 4% .6% 8%
25%
63%
81%
57%
89%
78%
89%
96% 98%
n credit n debit
96%
99% 100%
2013 2014 2015 e2016 e2017 e2018 e2019 e2020
Lessons learned from countries that preceded the U.S. in upgrading to EMV indicate that as the U.S. migration progresses, dwindling counterfeit card opportunity will further magnify the increases in other forms of fraud.
In a research e ort sponsored by authentication technology company iovation, Aite Group interviewed
16 large U.S. issuers, four issuing processors and two payment net- works between February and April 2016. Collectively, the interviewees represent 73 percent of the credit card issuing market and 69 percent of the debit card issuing market in the U.S.2
The State of Migration
While merchant reterminalization continues to lag, large U.S. issuers have moved quickly to get chip cards in the hands of consumers. Figure 1 shows the trajectory for upgrading the balance of the U.S. credit and debit card portfolios.
By the end of this year, 81 percent of credit cards and 57 percent of debit cards will be EMV-capable. The approach to completing re- issuance varies among the FIs interviewed. Many FIs performed a forced reissuance for their highest- spending and most active clients, and once those are complete they will reissue the balance of their portfolios at the card’s natural expiration date. Other FIs are performing a mass reissuance
of their entire portfolios, with the goal of having the entire process complete in 2016 or early 2017. Small FIs and prepaid issuers
continue to lag, and some will trail into 2017 and beyond to complete their conversion. (For more on prepaid and EMV, see page 52.)
Post-EMV Fraud Trends
As the U.S. moves to EMV, fraud rings will not sit idle while their revenue from counterfeit card fraud gradually melts away. Instead, they will shift their tactics to other forms of fraud. Plenty of precedent from other countries, such as the U.K., Australia and Canada, can help educate the U.S. industry about
the types of fraud that will see
an uptick post-EMV: CNP, account takeover and application fraud.
Similar to many other countries, gross counterfeit fraud is increas- ing in the year following the EMV transition, as criminals burn through their stocks of compromised card data before the opportunity to leverage this data disappears. Counterfeit fraud opportunity will diminish rapidly as more merchants
become EMV-capable, however, falling from a high of $4.5 billion in 2016 to less than $1 billion in 2020. Cross-border counterfeit fraud will not be as signi cant an issue for U.S. issuers as it was for issuers in the U.K. and Canada because there will be relatively few non-EMV card markets of any size, and U.S. issuers’ analytics will be tuned to spot emergent cross- border fraud patterns.
Application Fraud
Concurrent with the U.S. shift to EMV, breaches have made con- sumers’ PII readily available for organized crime, while larger FIs are making a concerted e ort to expand their footprint and increase the proportion of their onboarding activity that takes place via the higher-risk digital channels. These factors will contribute to a contin- ued uptick in application fraud for U.S. FIs. A number of the FIs inter- viewed report sharp increases
in application fraud losses, with
Figure 1:
u.S. Chip Card iSSuanCe TrajeCTory 2013 To e2020
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