Card Fraud Rate is Third Highest in the US

EMV Chip and Pin USA Benefits and Risks

ACI Worldwide released new data, according to which about 30% consumers globally have been a victim of card fraud in last 5 years.

Adding on, out of the 17 countries, which were studied, 14 witnessed an increase in the card frauds between 2014 and 2016. Among these, US are among the top fraud-hit countries and it has sustained its position in the top three since 2014 to 2016. The top two reasons that are exacerbate the US card frauds are assumed as Lagging EMV Adoption and Increasing E-commerce Fraud.

Lagging EMV adoption: It is alleged that the security of card transactions will improve if the EMV is completely implemented. However, in the US, just 2% of card-present transactions were compliant to EMV in 2015. Its reasons are at the end of merchants as well as issuer. The EMV adoption is slow as it is costly and time-consuming for the issuers to upgrade all their clients to chip cards. Adding on, merchants face the difficulty in certification and installation processes of EMV terminals.

Hence, there is less number of secure transactions and hence high number of card based frauds.

Increasing E-commerce Fraud: BI Intelligence has estimated a growth to $632 billion by 2020 for the e-commerce sector. With the acceleration of EMV migration processes, it is expected to augment the security of in-store payments, causing the skimmers to transfer their focus on the e-commerce websites. This will also be a part of overall growth of fraud.

If these issues prevail, there will be a huge financial burden on the issuers. In the US, after a fraud incident just 6% of users alter their financial organization. However, 30% of customers choose to use cash or some other payment method after an incident.

If such frauds persist on a larger scale, it will rack up the costs for card issuers since in case of a fraud, many factors are affected like cost of card, shifting of loyalty & trust, and brand reputation. In the U.S., the cost of fraud was about $32 billion in 2014, which is $9 billion more than that in 2013.

Report on Payment Security – Compiled by BI Intelligence, Business Insider’s Premium Research Service

This report is compiled by John Heggestuen, a senior research analyst for BI Intelligence. It peeks into the fraud’s dynamics, which are transferring across online and in-store channels. The report also details the new security types, which are being used more throughout these channels, comprising Apple Pay.

Précis of this Report

1) EMV card that have an embedded microchip are more secure. Herein, the microchip analyzes the card user’s profile to conduct a real-time risk assessment on the individual’s card purchase activity. Upon the insertion of card into a payment terminal, the chip creates dynamic cryptograms, which alter with each purchase. Hence, it becomes difficult to make counterfeit cards.

2) The security of entire payment chain is being bolstered by encrypting the payment’s data. This encryption degrades the important and crucial data via an algorithm, which decodes the card numbers into a new data. Hence, fraudsters find it difficult to reap the original card information for future transactions.

3) The best type of payment encryption is the point-to-point encryption, wherein the encryption takes place initially from the time of capture at payment terminals throughout the acquirer or gateway. Hence, usable data is very difficult to get hands on from the transactions in stores and online.

4) With the implementation of tokenization, online and swiped transactions become more secure. In this scheme, the payment data is assigned with a random value, which makes the sensitive data almost impossible to access from the token itself. The tokens are generally “multiuse”, which implies that consumers do not have to re-enter their payment details repeatedly at the same merchant.

5) Online authentication for users is also ensured with 3D Secure, but is flawed. In this, it is complex to let know whether the card user is in fact the cardholder. In terms of authentication, 3D Secure requires a pass code or a biometric data for the completion of online transaction. Merchants using this method risk elevated shopping-cart abandonment.

This blog post has been posted by Bill Trueman and Kevin Smith, who are widely accepted as some of Europe’s leading payments, risk and fraud experts and frequent commentators and writers on the issues involved. They have extensive experience of the banking, insurance, retailer and international payment schemes, and are recognised thought leaders at the forefront of many industry-wide and international debates. For more information about EMV CHIP & PIN Security, Risk Review Strategy and Parameters, visit here.

Reference: Business Insider

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