iovation and Aite Group reports EMV switchover will lead to doubling of CNP fraud losses; sees big spike in recent counterfeit fraud
iovation, the provider of device intelligence for authentication and fraud prevention, today announced the immediate availability of a report it and research and advisory firm Aite Group developed entitled “EMV: Issuance Trajectory and Impact on Account Takeover and CNP.” The report calculated that card-not-present fraud—fraudulent transactions where a credit card is not physically presented to a merchant—will cost retailers and financial institutions $7.2 Billion in the United States by the end of 2020. The report also found that account takeover losses for financial institutions—when a fraudster poses as a genuine customer, gains control of an account and then makes unauthorized transactions—will increase from $644 million in 2015 to more than $1 billion by 2020 in the U.S.
iovation and Aite Group believe a big driver of this fraud will be the shift from consumers using traditional credit and debit cards with magnetic strips to EMV (Europay, MasterCard, and Visa) chipped cards. The report found that by the end of 2016, 81 percent of credit and 57 percent of debit cards in the U.S. will be EMV capable. The widespread adoption of EMV cards in the U.S. began in October 2015 when all merchants who refused to accommodate chip cards were legally forced to shoulder more of the financial burden of fraudulent transactions.
“In other countries that preceded the U.S. in widespread EMV adoption, there was a big increase in counterfeit fraud activity during the time period where people transitioned from stripe to chip cards,” said Michael Thelander, product marketing manager at iovation. “We are seeing that exact scenario play out in the U.S. as criminals realize their window for perpetrating counterfeit card fraud is rapidly closing, so they are working through their vast piles of compromised cards.”
The report found that as more merchants become EMV-capable, counterfeit fraud will fall from a high of $4.5 billion in 2016 to less than $1 billion in 2020. EMV is a computer chip on a credit or debit card. These chips contain embedded microprocessors that, unlike the more familiar magnetic stripe cards, transmit unique data with every transaction that makes card duplication extremely difficult.
“As the U.S. migration to EMV progresses, the combination of continued strong growth in e-commerce, ready availability of consumer data and credentials in the underweb, and disappearing counterfeit fraud opportunity will create a perfect storm that will result in a sharp rise in CNP fraud,” said Julie Conroy, research director at Aite Group. Conroy went on to say, “CNP fraud is already on the rise, and the problem will get worse before it gets better. Financial institutions and merchants must invest in technologies that will help detect fraud, while at the same time maintaining a delightful user experience.”
To understand the current state and trajectory of the U.S. EMV migration, as well as the concurrent fraud shifts, Aite Group interviewed 16 large U.S. issuers, four issuing processors, and two payment networks of credit and debit cards between February and April 2016 to come to its conclusions. Collectively the interviewees represent 73 percent of the credit card issuing market and 69 percent of the debit card issuing market.
TransUnion Global Fraud & Identity Solutions unite both consumer and device identities to detect threats across markets while ensuring friction-right user experiences. The solutions, all part of the IDVision with iovation suite, fuse traditional data science with machine learning to provide businesses unique insights about consumer transactions, safeguarding tens of millions of transactions each day.