America is the last country in the world to implement EMV, according to the card industry standards group EMVCo. But it is finally here.
What took so long? Part of the answer is that US banks were already doing a good job monitoring and catching fraud using data analytics to detect suspicious patterns, which made the expense of shifting to new technology hard to justify. Unfortunately, as one region after another implemented EMV, the US became a haven for credit card fraud, accounting for nearly 50 percent of global fraud losses, according to the Nilson Report.
EMV’s main target is to eliminate in-person counterfeit fraud. In contrast to magnetic stripe cards that can be quickly and easily manufactured in the thousands by criminals using stolen card numbers, chip cards are virtually impossible to clone or counterfeit. If an EMV card is counterfeited to look like a magnetic stripe card, it would be rejected by an EMV-enabled point-of-sale terminal because the system recognizes that the card should have a chip and doesn’t. If the user is not able to insert the chip portion into the reader the incident of fraud is thwarted.
That’s a definite improvement. But, sadly, EMV is not a silver bullet that will instantly stop all fraud. EMV still cannot address e-commerce or mobile commerce “Card-Not-Present” (CNP) fraud. In other countries credit card fraud migrated to the CNP channel after EMV was introduced. Equally disheartening is the fact that, according to Strawhecker Group, in the US, merchants and ATM owners will remain fraud targets because it will be a number of years before we reach significant adoption of EMV.
In the meantime, one strategy the retail and banking industry can use to protect itself against relentless and mutating fraud attacks should include a layered approach to security, involving:
- End-to-end encryption, in which all data transmitted from the point-of-sale until it reaches the firewall of the secure bank environment.
- Tokenization, a technique that devalues card numbers. The card’s actual account number is swapped with a surrogate value which has little to no value if compromised. Apple Pay is an example of this technique; the card number stored in the phone is actually a token.
- Security best practices such as Payment Card Industry Data Security Standard (PCI DSS). A hallmark of the standard is that no real account data should be stored in the clear.
- Authentication techniques, including device authentication and fingerprinting, one-time passwords, randomized PIN pad to thwart key logging, and biometrics.
- Fraud detection, including data analytics, address verification and Card Verification Value (CVV) verification.
Whille the recent October 1 deadline for fraud liability represents the beginning of an evolution, it's imperative that all industry stakeholders maintain a vigilant eye on fraud patterns.
What does the liability shift mean? In the past, banks paid for counterfeit credit and debit card fraud losses, provided the merchant properly authorized the transaction. Starting in October, if a counterfeit transaction goes through at a merchant that does not have EMV equipment, the bank passes the loss to the merchant. Some merchants -- and especially ATMs -- are prime targets for counterfeit activity: think jewelry, electronics, gift cards, liquor, gambling and gasoline. (Because of the additional complexity, gas pumps have a two-year grace period before having to upgrade equipment.)
Each enterprise and merchant will make their own decisions on when to upgrade. Keep in mind though, there are other benefits to shifting to EMV. Along with EMV enablement, nearly all modern point-of-sale equipment supports mobile and contactless payments. In effect, upgrading to EMV will also bring merchants into the world of modern payments, because they will be able to accept Apple Pay, Samsung Pay and Android Pay from consumers’ phones and watches.