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volume 8 • fall 2015
U.S. Card-PreSent FraUd LoSS trendS
2011 $2.5 billion *estimated
2012 $2.98 billion
2013 $3.2 billion
2014* $3.8 billion
2015* $4.5 billion
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Source: Aite Group Financial Institution Survey, June 2014
to Balfany. “Based on how EMV migration went in other countries, consumers will catch on quickly and get used to a new routine, following payment terminal prompts indicating whether
to ‘dip’ [insert the chip] or swipe their card,” she forecasts.
The mag stripe isn’t going away; it will remain indefinitely as part of network branded cards as a backup method for processing transactions. And experts say it may take months or years before the U.S. is fully converted to EMV, as industry participants balance the cost of upgrading versus the risk of fraud exposure.
Will Fraud Migrate, Too?
For merchants that haven’t yet upgraded to EMV, the effects likely
will vary, experts say. There’s always the possibility that savvy fraudsters may concentrate their counterfeit card fraud efforts on the operations of these unprepared issuers and merchants, driving up their fraud rates. But what usually happens when the majority of merchant locations becomes EMV-compliant is that fraudsters shift their activities because they’re no longer able to conduct counter- feit card fraud on a mass scale, according to Randy Vanderhoof, executive director of the Smart Card Alliance.
Some observers also worry whether introducing EMV at the POS could possibly cause a sharp spike in fraud via other channels, such as criminals using stolen card data for card-not-present (CNP)
transactions, an effect seen in Europe during its transition to chip cards in 2004-2005. “We’re likely to see a sharp rise in CNP fraud
in the U.S. as well as new card application fraud using stolen identity information,” cautions Julie Conroy, research director at Aite Group. “As the criminals are no longer able to readily purchase stolen card data off the ‘dark Web’ and make counterfeit cards, they will instead use synthetic and stolen identities to acquire their own cards.”
Not all observers expect the U.S. to experience a sudden rise in CNP fraud, however. “It will take some time to see card-present counter- feit card rates come down, so we don’t expect to see fraud shift to CNP channels overnight,” says Vanderhoof. “Retailers increasingly are applying a holistic approach
to fraud risk as they expand into omnichannel commerce, and those that do it well will be protected from the expected increase in CNP fraud likely due to the explosive growth of e-commerce itself, not necessarily the POS shift to EMV,” he adds.
The shift to EMV won’t eliminate all card fraud, but it will put a stop to the fastest-growing category, Vanderhoof emphasizes. “EMV eventually will be one of several major planks in our bulwarks against card fraud, including broader use of tokenization,” he adds. “But everything begins with upgrading to EMV, and we’re well on our way there.”
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