The EMV liability shift has occurred in the US, so what can we expect to see happen in the coming months and years as a result of this change?
It’s been very well documented that fraud tends to shift to the card-not-present (CNP) arena when EMV is introduced in a country. While there is some debate about just how much EMV will be the driver of CNP fraud in the US, it’s still expected to rise significantly over the coming years.
But what other lessons can we glean from past experiences of EMV roll-out in other countries?
Less face-to-face counterfeit fraud
In the UK, counterfeit card fraud at first fell sharply but then picked up in 2007 and 2008 as it shifted abroad. Since 2009, however, it’s been declining as more countries are now signed up to EMV than ever – more than 80 at the last count. It’s getting harder for criminals to use stolen EMV card details abroad. The US should experience a significant drop in counterfeit fraud as there are fewer places where stolen mag stripe details can be used in the card present environment. In fact the US has been the only country where counterfeiting has been rising and the country accounts for half of all card fraud globally, according The Nilson Report.
First-party fraud may rise
David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed, notes that first party fraud may rise as a result of EMV as criminals shift their attention to easier avenues.
He cites the example of Canada, where financial institutions reported a threefold increase in fraudulent applications for credit and checking accounts since its EMV liability shift. “Criminals are opening checking accounts to perpetrate overall identity theft fraud as well as to create conduits for future counterfeit check or kiting fraud. And they’re submitting fraudulent credit applications to purchase automobiles or other merchandise that they can then sell easily,” he says.
Debit and credit all together
Canada also provides the US industry players with an important lesson about rolling out EMV cards. Because Interac was slower than Visa, MasterCard and American Express to migrate to chip cards, fraud simply shifted away from credit cards and onto debit cards.
“As has been the case in every market that has migrated to chip-and-PIN, fraudsters have sought the easiest method for perpetrating card fraud. And in Canada, with debit cards’ migration to chip-and-PIN lagging credit cards, fraudsters have taken notice,” commented Douglas King, also of the Atlanta Fed’s Retail Payments Risk Forum.
Merchants may be slow
As noted in a recent NCR whitepaper, Visa data on EMV transitions in various other markets reveals only around half of merchants had converted their point-of-sale terminals for EMV at liability shift date. Javelin Strategy and Research estimated around three-quarters of merchants were not ready in time.
And it can take a lot longer for merchants to get on board fully. Visa figures suggests it can be years for 90 per cent adoption, which chimes with Forrester Research data suggesting that widespread EMV adoption in the US will not occur until 2020.
Consumers will be on board from the off
A lot of reports have indicated that few consumers really understand their newly-issued EMV cards. But the experience from other nations tells us that once they make their first chip transaction – whether chip-and-PIN or chip-and-signature – they fully embrace the new process.
Moreover, EMV allows for secure contactless payments, which are exploding in popularity around the globe. If US issuers and merchants allow contactless payments to be made with EMV cards, consumers will be ready to make the switch too.