Why Credit Card Frauds Are on Rise?

EMV Chip and Pin USA Benefits and Risks

If your credit card is rejected and the payment is halted, even when you have a good credit score, then you should blame skimmers. In United States, every one out of four cards fall prey to skimmers, who steal your private financial account information and use it for their benefit. According to a website CreditCards.com, American Credit Cards holders are in constant danger of getting their credit information purloined. The problem is serious and increasing with each passing year. According to MasterCard, the credit swindle cost retailers more than $32 billion in 2014.

Skimmers or credit card sliders are attached to genuine point-of-sale machines by the fraudsters. The said machines may be ATMs, gas pump etc. In most of the cases, unmanned machines are one targeted. Once your information is copied by the skimmers from the electronic strip, which is present in the backside of card (debit or credit); it can be imprinted on a fresh, blank card. Such information can also be sold online.

U.S. alone contributes to 47% of point-of-sale credit card theft, however taking about worldwide rate; the country represents just 24% of credit card volume. Until date, every quarter of cardholders in America fall victim of such frauds, reports CreditCards.com. The reason for this high percentage is the prevalent use of old technology in the credit cards.

U.S. has shown less interest in implementing latest EMV technology over the existing magnetic strip; says Craig Shearman, who is Vice President at the National Retail Federation. He also compared the strip with an 8-track tape of 80s. He added that it is very simple to copy the magnetic strips and the blank magnetic strip cards can be legally purchased with ease. Hence, this old technology is itself an open initiation to the fraudsters to skim the credit card information. Lastly, Mr. Shearman said that a new and better technology, which goes by the name of EMV, has docked the American shores.

The Europay MasterCard Visa (EMV) card is integrated with a data chip, which is much more secure than a magnetic strip. At each purchase, the chip cards or EMV cards create a unique code, which is very thorny to skim. In addition, these new technology cards also emit a signal on every transaction, which signals legitimate use. Such kind of technology is not easy to replicate and hence chances of credit card frauds are much less.

October 2015 was the deadline for the retailers in U.S. by which they should have implemented the chip card technology. However, just one-third retailers upgraded their resources and facilities for the EMV cards; reports MasterCard. In addition, the company’s official cites that there have been about 40% declines in card fraud since the chip card mandates were rolled out.

Bank of America, Visa, and MasterCard are some of the foremost credit card issuers, who provide an additional secondary security measure, which decreases the chance of a fraud.

Contributor to this post are Bill Trueman and Kevin Smith, leading payments, risk and fraud experts and frequent commentators and writers on various issues involved; with vast 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.

Visit here for more information on EMV CHIP & PIN Card Security, Risk Review Strategy and Parameters.

EMV Dilemma for Card Networks

EMV Chip and Pin USA Benefits and Risks

Is U.S. prepared for the EMV chargeback avalanche?

Will merchants stop accepting credit cards?

These two are the main dilemma associated with the EMV or “Europay, MasterCard, and Visa” Cards. For their answers, let us peek into its background.

EMV Background

The cost of annual frauds related to debit / credit cards is billions of dollars over the entire globe. To curb this cost, a scheme was hatched many years ago wherein EMV cards were to introduce to the U.S. The most beautiful part of this scheme was “the liability shift”, which allowed the EMV cards to be sold as voluntary, user-friendly and highly secure. The participants of payment industry would have the flexibility of deciding themselves on whether or not the economics holds water to the high price of the conversion. For the end users, there would be drastic cutback in the chances of fraud. As far as the Card Brands were concerned, the EMV Cards will cost very little or nothing.

The fateful PIN decision

Majority of banks and issuers considered that a premature move to the EMV Cards based on chip-and-PIN format could result the consumers in pushing their card to “back-of-wallet.” Unlike the rest of world, Americans prefer to shun the PIN-based credit transactions. In general, an average consumer has an average of 4 credit cards, where no PIN is required. Hence, the shift of EMV Cards of chip-and-PIN type was considered as extremely risky in terms of the transaction volumes.

Therefore, there was always a dilemma associated with the implementation of EMV in the United States of America. To overcome this, it was decided that U.S. credit cards would have an EMV Chip along with a magnetic stripe for “fallback.”

The chargeback avalanche

The POS liability shift was seen six months ago and now in 2016, merchants are feeling arduous because of it. The Merchant Advisory Group states that for smaller merchants, the chargebacks have piled up to $10,000 weekly and for larger ones, the rate is up to $1 million weekly. The fact is, they were not serious regarding the “optional” upgrade to EMV for which a four-year window was provided. So now, they are jostling to install the necessary hardware for eliminating the torrent of chargebacks. They are also complaining about the 4 years window being too small for the EMV implementation.

Adding onto the fusillade of chargeback losses, they are multiplied as the issuers have selected to retain the magnetic stripe, which expedites the card frauds.

The next chargeback landslide

The liability shifts are imminent for ATMs (Mastercard in October 2016, Visa in October 2017) as well as for the gas pumps (October 2017 for both brands). This clearly implies that their owners are the next to face the chargeback landslide. In addition, with the new EMV technology, the upgrade path may require aging gas pumps and ATMs to do a comprehensive replacement in the coming months.

Brand Damage

The card brands have blindfolded themselves by the financial windfall of shedding billions in fraud losses to their own clients. Therefore, these brands are now standing against a number of risks such as:

Regulatory Risk: Many people including senators and others in Washington are investigating EMVCo, inquiring about the factors like its ownership and impact in the payment sector. The question is can the liability shift cause an expanded financial regulation – and at what cost to the card brands?

Legal Risk: Already, lawsuits have been filed which caution class action. This raises the question – “what will be approximate cost of the legal & public relations o the card brands?”

A Return to Cash: There is possibility that the merchants affected with the chargeback avalanche may just decline accepting the credit cards. If a retail ATM is installed and nonexistent or minimal surcharge is implemented then clients can get convenient access to cash.

U.S. has preferred to convert to EMV without a regulatory mandate, which is entirely contrasting to the rest of the world. There is a good chance that instead of safeguarding themselves against the heavy losses of frauds, they might find themselves between a rock and a hard place.

Author of this post are Bill Trueman and Kevin Smith, who are Europe’s leading payments, risk and fraud experts and frequent commentators and writers on the issues involved. They have vast 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.

News Source: MobilePaymentsToday

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

Beware of Scams Intended for New EMV Chip & PIN Cards

EMV Chip and Pin USA Benefits and Risks

Americans are using new credit and debit cards, which are principally designed to make stealing of sensitive data, an arduous effort. Yet, crooks & scammers keep trying to do so by devious new ways.

A warning has been issued in New York by the state officials that warns consumers of a new phishing scam related to EMV Chip Cards, which are now omnipresent in the country after 3 years of their initial introduction.

The New York State Department of State’s Division of Consumer Protection (DCP) affirms that crooks are sending emails to individuals concealing themselves as card issuers. The targeted individuals are those who have not yet acquired their new chip cards.

In such emails, the recipients are asked to provide personal data and update their accounts so that delivery of their chip cards can be initiated. In some emails, the individuals are also provided a link, clicking on which will forward the process. DCP states that clicking such links can install a malware on your device.

Extract of The Nilson Report:

David Robertson, who is the publisher of The Nilson Report states in a trade journal for payment-card industry that EMV Chip Cards have better security than conventional magnetic-stripe cards. The latter traditional cards store the unchanging data on them, which is easy to copy (known as skimming) and can be used for making counterfeit cards. He also added that the availability of data-skimming devices is cheap and easy; making it easier for clerks and waiters to use them. In addition, these devices can also be installed at gas pumps and ATMs.

In EMV Cards, a unique code is generated whenever payment is made by it. This code is NOT Reusable for another transaction, making EMV Cards very difficult to counterfeit. The Nilson Report also mentions that in the last year, the payment-card frauds were maximum with valuation of $8 billion in the U.S.

In the year 2015, few merchants who used this chip-enabled payment terminal witnessed a drop of 18% in counterfeit transactions as compared to the data in 2014, as per the Visa (V).

A Fair Warning from DCP Officials:

According to DCP officials, EMV Cards can be scammed. Presently, a large number of these cards are “chip-and-signature cards” whose security is less than the “chip-and-PIN” type cards. In case the former type EMV Card is stolen, it is open to fraudulent use since it needs just a signature to complete the transaction and signature can be duplicated. 

The latter type EMV Cards are highly secure and have decreased the intensity of counterfeit-card fraud. However, crooks are also innovating by adapting themselves to get hold of sensitive account and personal data. This is the concern which was mentioned in the recent phishing scam reports. It aimed at consumers who are still trying to acquire the chip card.

According to Robertson of The Nelson Report, if any consumers falls prey to such scams, then they might fell prey to identity theft. The information gathered through such scams can be used to compile new individual profiles and then open credit cards under the victim’s names.

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, click here.

News Source: CBS News

How Criminals Defeated Secure Chip and PIN Cards

There is a lot buzz about chip and pin emv card and their benefits since more than one year. It was anticipated that the chip and pin card technology will reduce the no of fraud incidents drastically. But still there are many fraudsters who have been able to make a hole in this cutting edge technology and have shown the world that even this chip and card technology is not full proof. This news also covers such a similar story where criminals have defeated this secure chip and pin card technology.