What Impact Will EMV Have on US Card Fraud?

A sea-change in the US card market starts today. Are we ready?

If you’re a card issuer and have issued all your cardholders with chip cards, you might think you’re ready.

If you’re a merchant and have upgraded to chip reading equipment and software, you might think you’re ready.

If you’re a cardholder with new chip cards in your wallet, you might think you’re ready.

However, are we all ready, together?

The liability change that takes effect today — aimed at curtailing counterfeit card fraud — has triggered a tremendous amount of process and technology change. But in truth, it’s just the start of the changes.

Based on the UK and other countries here’s what we at FICO anticipate what will happen in the following months:

• Overall card fraud losses will drop
• Banks without chip cards will see their counterfeit losses increase
• Merchants without chip POS and ATM terminals will be targeted
• All banks will experience a rise in  card-not-present (CNP) fraud
• Other loss types (including account take over, first-party fraud, application fraud) will rise
• Data compromises will continue and vary

I think it’s absolutely time for the US to introduce the technology. We see the reality in the numbers and it’s apparent that the US has been a target of unnecessary card fraud for far too long. In 2014according to the July 2015 Nilson Report, US card issuers lost $3.9 billion to counterfeit fraud, which was 24% of the total global fraud losses The US also accounted for 48% of global card fraud in 2014, while it only accounted for 21% of card sales. Basis point losses (fraud as a percentage of total card sales) were 12.75 in the US, compared to 3.73 for the rest of the world.

Criminals will continue to pursue the weakest link and with the introduction of EMV they will target new channels.  They will be looking for the next lucrative criminal opportunity. With the rapid adoption of digital alternatives coupled with the explosion in m-commerce, CNP channels are the most at risk. That’s what happened when the UK adopted chip and PIN technology. Counterfeit fraud shrank dramatically, but CNP fraud took its place.

That’s why a recent Mercator report on EMV Adoption and its Impact on Fraud Management Worldwide stated, “Card issuers will need to maintain as much vigilance to counter fraud activity after full U.S. migration to EMV as they currently employ—and perhaps more.”

This is a big week for payments with both the EMV milestone being reached and the launch of a significant alternative to ApplePay. Digital has disrupted commerce and there is no turning back.

To hear more about the topic, watch this on-demand webinar with American Banker, “Protecting the Digital Payment Revolution.”