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EMV Adoption in the US: Fraud Fallout?

Adoption of the EMV (Europay, Mastercard, Visa) technology standard by US issuers now seems inevitable, with American Express joining Visa and MasterCard in announcing an EMV roadmap. Most in the banking sector understand the considerable hardware changes that EMV adoption will entail. But beyond the generalities of improved security, many don’t realize how the introduction of EMV will likely transform the fraud landscape.

With its dynamic authentication protocol that can't be skimmed and copied like a mag-stripe card, EMV has been brilliant at dramatically reducing counterfeit card fraud in Europe and Brazil. Presumably the US will reap similar benefits.

This is great, but as we all know, fraud is a moving target. Quashing it in one place means that it is likely to pop up somewhere else; fraud flows to the path of least resistance.

Based on our experience in Europe, we anticipate that as point-of-sale (POS) fraud fades away, card-not-present (CNP) fraud will increase. In Europe, where chip cards have been standard for years, CNP losses are now estimated to be 30-40% higher than they are in the US. That rise in CNP rates was coincident with the up-take of the EMV standard.

CNP fraud such as e-commerce fraud is quick, easy, anonymous, and leaves a scant evidence trail. The widespread popularity of online shopping, and the proliferation of goods and services available via the internet continue to create tempting targets for fraudsters.

While fraud remains under control in the US, and the new chip cards will undoubtedly frustrate domestic counterfeit fraudsters, issuers must remain vigilant in anticipation of this expected new wave of CNP fraud. With the Fed’s recently finalized rule incentivizing effective fraud protections as of October 1, issuers have every reason to act now to ensure that their fraud prevention solutions will be ready for the changing fraud landscape.
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