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Learning from EMV experience of other countries

June 11, 2013 by Terry Dooley — SVP & CIO, ITS, Inc

Recent statistics regarding the U.S. payment and fraud volumes indicate that the shift to EMV is a necessary step in order to reduce fraud.

More than $3.9 trillion in payment transactions were made in 2011. Those transactions were made using 1 billion debit and credit cards an average of 69 times each. Payment card losses in 2009 totaled $3.4 billion.

It’s important to note, however, that signature magnetic-stripe debit and credit fraud was four times greater than PIN magnetic-stripe debit card fraud. Not surprising, but important, as that fact may have implications for post-EMV fraud levels.

It’s well known that while EMV has been effective at reducing face-to-face fraud, card-not-present fraud continues to rise in countries where EMV is the standard. That’s because EMV is less effective at preventing fraud online.

As EMV adoption ramps up in the U.S., card issuers are considering increased verification methods in order to lessen the magnitude of the shift from card-present fraud to CNP fraud. It was a trend experienced in Europe following its own EMV shift several years ago.

Specifically, U.S. payments companies are looking into verifications such as texting a unique password each time a cardholder initiates a transaction or using mobile location technology to compare with a transaction’s IP address.

Whether or not the U.S. shift to EMV, which will take several more years, results in a reduction of overall card fraud remains to be seen. Recent statistics indicate only between 40 percent and 50 percent of merchants and issuers will be EMV-enabled by 2015.

In the meantime, we must pay attention to the experiences of other countries and consider possible developments as a result. These may include elimination of magnetic stripe fallback, the adoption of credit PIN, and more robust CNP authentication.