All eyes in the payment world are currently on the US, as the last major economy to tackle the migration to EMV. This shift is part of the global initiative to combat payment fraud, by moving away from the old mag-stripe standard to EMV-chip enabled cards.
The project has been a success in countries which have already adopted the standard, where fraud levels have reduced dramatically. However, the ultimate goal of stamping out payment fraud altogether will be unachievable whilst regional ‘loopholes’ exist.
Fraudsters are skilled at identifying and targeting weak links in security, and the US has suffered as a result. While ATMs still accept mag-stripe cards to withdraw cash, it has been the ideal playground for fraudsters to test and use skimmed mag-stripe cards. Cards from other EMV-mature regions are not excluded from this, as the mag-stripe remains on the card for legacy reasons This scenario is brought to life through findings from a number of fraud and security reports.
Financial Fraud Action UK recently revealed that counterfeit fraud from skimmed or cloned cards decreased from £169.8 million in 2009 to just £42.1 million in 2012. By contrast, according to the Nilson Report in 2011, US payment card fraud losses reached an estimated $3.56 billion. The impact of fraud migration from non-EMV mature markets is stark when considering that this figure accounts for 47 per cent of all reported worldwide fraud losses.
EMV migration is a significant undertaking. The transition to the new standard affects every element of the payment chain, making it a costly and complex project to implement. This is true in any region, though is particularly evident in the vast US market. Faced with the modification of an entire payment ecosystem across a large geography and numerous time zones, it is perhaps unsurprising that the US is lagging behind the global EMV adoption curve.
The importance of global interoperability of devices and systems within this initiative is highlighted by the rigorous testing and certification processes put in place by EMVCo. EMVCo is the standards body setup by the Card Brands to manage all aspects of EMV. Although these are necessary to facilitate truly global adoption, the testing process can be time-consuming and expensive. With resources in short supply amongst both certification labs and the wider payments industry, a certification bottleneck, which could slow down global adoption, is a real possibility.
The enormous cost of implementation associated with EMV migration has not gone unnoticed by some industry experts, who have recently called the benefits of the transition into question. These doubts are based largely on a direct comparison of the potential financial losses through counterfeit card fraud and the cost of EMV migration. This stance does not take other important market factors into account – the benefits of EMV migration for the industry run deeper than immediate financial gains.
It is important to note that those behind card fraud are often behind larger organised crime units and, according to some reports, terrorist activities. Eleven people across the US, UK and Vietnam were arrested and accused of running a $200 million worldwide credit card fraud ring just a week ago, according to a report from Reuters. In this regard, parties across the entire payments ecosystem have a global social responsibility to protect customers and help prevent money being stolen and used for further criminal activities.
US migration to the EMV standard will close a major loophole for fraudsters, representing a significant step towards worldwide interoperability and adoption of the standard. However, the momentum must not end there. The industry must continue to collaborate, with a synchronised cross-border approach if the core goal of EMV – stamping out global payment fraud – is to become a reality.
This guest blog comes courtesy of Jeremy Gumbley, CTO, CreditCall.
[Image: Paymentmax – Flickr]