Experts anticipate the issuance of 600-800 hundred million EMV cards by the end of the year as the United States moves away from the traditional magnetic stripe card to embrace the chip-and-PIN model.
The liability transfer in October is not a directive. Merchants won’t receive fines for non-compliance. Those that do not upgrade their terminals take on liability for financial losses from fraudulent cards. That includes the cost of any merchandise acquired by fraudulent means, as well as compensation for credit monitoring and other damages incurred by victimized consumers.
Card issuers seem geared toward moving along with the payment networks’ collective migration roadmap that rewards EMV adoption by shifting fraud losses from adopters to non-adopters.
There has been a focus so far to date on how EMV will stop much of the bleeding from card-present fraud, but the history in other countries showed fraud moved toward the path of least resistance to other areas of exposure.
The arrival of EMV chipped cards could trigger an increase in credit card-related scams. To reduce counterfeit, lost and stolen card fraud, and to protect cardholder data, nearly every country in the world widely deployed EMV. As a result, fraud attention turned toward the U.S., where an estimated 7.7 million people reported the fraudulent use of a credit card, according to December 2013 Justice Department statistics.
The good news-bad news scenario was following other EMV rollouts such as in the United Kingdom, Asia-Pacific region and Canada, the statistics showed successful EMV rollouts decrease card fraud. However, there is also a 300% to 400% jump in application fraud.
Application fraud can take place several ways. Criminals often first commit typical identity theft, whereby they steal someone’s identity to open an account. When successful, fraudsters often springboard into adding themselves to a valid account through ID manipulation.
In ID manipulation, also called synthetic identity fraud, criminals use actual information, such as social-security numbers, to create fake identities. It is estimated that synthetic identity fraud makes up 20% of current credit charge-offs and 80% of credit card fraud losses.
The U.S. is the last developed country in the world to move from the magnetic stripe card standard to EMV. It is also the largest and most complex market so far to make the switch. As a result many merchants are not fully cognizant of the change and its potential consequences.
Non-transitioning merchants leave themselves open to liability in the event hackers target them. Fraudsters know which merchants still use mag-stripe, and those hackers quickly migrate to those targets. In fact, when countries implement EMV, there is a well-documented migration of credit card data theft toward countries (like the U.S.) that still use mag-stripe technology. They seek the weakest links in the payment process.