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The Wills and Won’ts of EMV

posted on: Mon Apr 20 2015

EMVHailed as a solution to increase security, how much will the new “chip and PIN” technology really cut down on fraud?

For the last year or so, consumers receiving a new credit card may have noticed a slight change in their card – a new chip on the front – but may not have thought much of it. Little did they realize that they’re part of the larger shift to EMV (Europay, Mastercard, and Visa), in which traditional magnetic strips are slowly being phased out with EMV chip technology that reduces card-present fraud.

Come October of this year, US businesses will join counterparts in Europe, Canada, Latin America, and the Asia/Pacific region in making EMV mandatory. Those who have not adopted these new standards will be deemed liable for fraud and assume the costs. Merchants and consumers alike need to be prepared and aware of what is transpiring with this shift, including understanding what will and what won’t happen as a result.

What it will do

The shift to EMV is a good first step in combatting fraud – specifically for card-present transactions. With EMV, card-present fraud will potentially decrease. While credit cards using a magnetic strip provide the same data for each transaction, EMV chips create a unique code for every transaction made. This dynamic authentication is anticipated not only to increase security and reduce fraud for in-person transactions, but also enable the use of future value-added applications such as remote chip authentication, loyalty programs, and information-based programs. EMV will make card duplication much harder, cutting down on counterfeiting fraud or fraud at the Point of Sale.

What it won’t do

EMV will not eliminate fraud or prevent data breaches. Instead, it will lead fraudsters to adjust their tactics and targets, leading to a surge in Card-Not-Present (CNP) fraud. We know this because every market that EMV has been implemented in the fraud has gone up dramatically. The UK experienced a 350 percent increase in CNP fraud losses from the adoption of EMV in 2001 till 2008. CNP fraud usually doubles in the announcement phase, doubles in the implementation phase and continues to go up. The potential amount of CNP fraud for the US will likely be even greater as it is undergoing this transition after e-commerce has grown exponentially and minimized friction.

As the shift to EMV continues, businesses need to prepare for the in-person changes – including adopting EMV-friendly payment processors and receiving updated credit cards – along with the potential increase in fraud online. Not only do businesses and consumers need to be prepared for different procedures for credit card transactions, but also for evolving fraud.

Fighting fraud requires a collaborative effort from all parts of the payment chain, and tackling fraud at the top of the chain (payment service providers, banks and acquirers) will make the most difference. Anti-fraud solutions and capabilities need to operate seamlessly together and in real-time. A truly comprehensive platform that operates in real-time is not a luxury – but a necessity.