The Impact of EMV Chip Technology on Card Not Present Fraud

By Ben Cornett, Partner Marketing Manager, Kount

For the last couple of years, consumers receiving new credit cards have noticed a change – a new chip is now on the front  of credit cards. Consumers may not have thought much of the new credit card chip, but little did they realize that they have been part of the larger shift to EMV (Europay, Mastercard, and Visa). Traditional magnetic strips on credit cards are rapidly being phased out with EMV chip technology in an effort for credit card companies to reduce Card Present fraud. Card Present fraud may be seeing a reduction, but unfortunately it had a impact on the Card Not Present fraud that was unforeseen.

In October of 2015, businesses in the United States joined their counterparts in Europe, Canada, Latin America, and the Asia/Pacific region to help make this new EMV chip technology mandatory. Merchants who have not adopted these new credit card standards are deemed liable for fraud and assume the costs. That means less money in merchants pockets.

What EMV chip technology did

The shift to EMV chip technology has been a good first step in combatting fraudulent transactions, specifically for card-present transactions. EMV chip technology has made credit card duplication significantly harder, cutting down on counterfeit fraud and fraud at the Point of Sale. With EMV, card-present fraud has seen a steady decrease – this new and dynamic credit card authentication has increased security and reduced fraud for in-person transactions, and as a result its success has enabled the use of value-added applications. Remote chip authentication, loyalty programs, and information-based programs has been emerging.  Chip technology is helping to protect consumers and merchants are able to more easily combat fraud.

What it didn’t do

Unfortunately EMV chip technology did not entirely eliminate fraud or prevent data breaches. Instead, it lead fraudsters to adjust their tactics and targets and turn their attention to Card Not Present fraud. We know because every market where EMV chip technology has been implemented, the Card Not Present fraud has gone up dramatically. The UK experienced a 350 percent increase in Card Not Present fraud losses from the adoption of EMV chip technology in 2001 until 2008. Card Not Present fraud usually doubles in the announcement phase, doubles again in the implementation phase, and continues to go up throughout the lifecycle. The potential amount of Card Not Present fraud for the United States has been even greater as the ecommerce market continues to exponentially grow.

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.

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

Perfect Storm of CNP Fraud

Lime Light Guest Post Series:  Ben Cornett is a Partner Marketing Manager at Kount. Ben joined Kount in 2016 bringing two decades of experience in business development and marketing in the SaaS and financial services space. Ben is also adjunct faculty at Brigham Young University-Idaho where he teaches business classes to the next generation of Marketers.   Here he discusses some of the often overlooked costs of fraud and provides some tools and data to protect your bottom line.