The EMV liability shift for the nation's largest retailers came late last year, and many smaller companies are now starting to follow suit. This can be crucial to everyone in the payment ecosystem, from shoppers and merchants to payment processors, because more EMV use generally means less fraud. And the latest data on just how much payment card fraud there still is in the U.S. shows why switching sooner rather than later should benefit all involved.
Each year, credit and debit card issuers suffer about $10.9 billion in losses directly associated with payment card fraud, according to the latest study from LexisNexis Risk Solutions, titled "Issuers Confront Application Fraud and Account Takeover in a Post-EMV U.S." However, that number is likely to keep growing as use of cards does too.
A closer look at the numbers
Of that $10.9 billion each year, more than 70 percent of the losses on fraudulent card transactions impact credit card accounts, the report said. That averages out to $9 per credit card in circulation across the country, and is about three times greater than the amount of fraud impacting debit accounts, which only comes to about $2.7 billion, or $2.80 per account.
Interestingly, application fraud - that is, getting cards in another person's name - and taking over another person's existing accounts make up about $1 in every $5 lost to this type of crime, the report said. After that, counterfeit credit card purchases, usually associated with account information stolen in data breaches, comes to about 16 percent of fraud losses. Meanwhile, the biggest driver of card fraud losses - 28 percent - is the use of lost or stolen credit cards. The final 15 percent comes in the form of non-receipt fraud.
How can EMV help?
Fortunately, the EMV liability shift should provide a big deterrent to payment card fraud nationwide. The fact is that these transactions lessen the risk of several types of fraud, but in particular counterfeit card fraud because they are much more difficult to duplicate than traditional magnetic stripe cards. Requiring a PIN code instead of a signature adds an additional layer of protection at the point of sale.
"EMV chip technology represents the strongest anti-fraud protection at the POS terminal," said Kim Little Sutherland, senior director of identity management at LexisNexis Risk Solutions and study co-author. "However, as this new model continues to roll out over the next twelve months in the U.S., issuers expect certain fraud types to increase. Notably, with the window closing on easily replicable [magnetic stripe] cards, we forecast a shift and bump in identity schemes - characterized by the use of synthetic identities and the misuse of true identities."
While many smaller retailers may still be on the fence about adoption at this time, it might be wise for them to think of installing EMV-enabled POS devices as an investment that pays for itself over time. By reducing fraud in general, they run far less risk of being on the hook when the liability shift happens for them in the next few years.