Chips Not Stopping Fraud Growth, Report Claims
Meet the new chip. Same as the old…well, the old credit and debit cards didn’t have EMV security chips. But the bottom-line on the rollout of chip-enabled cards apparently is the same as older cards when it comes to the ability to halting rising theft.
A new research report from Javelin Strategy & Research just dropped a bomb on the credit, debit card and retail industry. The electronic chips that are embedded in your credit cards, the ones that cause delays in retail lines, added costs for merchants, and headaches for clerks, the fail-safe tool that was supposed to massively reduce credit and debit crime -- well, as it turns out, they really aren’t that effective in preventing fraud.
The reason? Credit card thieves have merely concentrated their efforts and resources away from brick-and-mortar stores. Instead, they are putting a renewed effort toward targeting e-commerce web sites and apps.
While retailers are more protected at the cash register in their stores, most of them now have online outlets that contribute heavily to the financial bottom line. For them, fraud is fraud and losses are losses no matter where they occur, so the theft problem is still growing and merely shifted to a different venue.
FRAUD ROSE LAST YEAR
The Javelin report indicates that incidents of fraud rose 16 percent in 2016, resulting in an all-time high of $16 billion in losses suffered by 15.4 million victims. That’s two million more consumers than the year before, representing $700 million in increased losses. While the fraud isn’t totally credit or debit card-related, the vast majority of it can be blamed on malfeasance using your plastic.
That news has to be a bitter disappointment to those invested in preventing fraud. The heralded EMV rollout began in October, 2015 in the U.S. and was touted as a massive step forward in security, ushering in a brave new world that would keep merchants and card companies one step ahead in their war against crime.
The new security process requires chip-enabled cards to be inserted into the card terminal (a process called a “dip” in industry parlance), replacing the traditional “swipe” with the magnetic stripe. The EMV chip cards (so named for its founders, Europay, MasterCard and Visa) generate a unique code for each transaction, which makes it difficult for fraudsters to create duplicate cards unless they have access to their own microchip factories.
The EMV technology was first devised in the early 1990s by Europay. The US is one of the last nations to implement the technology, and not without a lot of kicking and screaming from retailers. The cost associated with implementing the new tech was substantial, resulting in 64 percent of retailers still doing the stripe swap. That is changing, but still provides a wide avenue for fraud at gas stations, supermarkets and mom-and-pop retailers.
Almost half of chip-enabled card fraud occurred online or at retailers that do not have the tech implemented, according to the Javelin report. The downside for the foot-dragging retailers – where once the card company was on the hook for the fraud, now the non-compliant retailer must bear the burden of the loss. In a world where businesses operate on razor-thin margins, fraud losses can be the difference between profit and loss.
To combat online losses, some card companies are again turning to technology. A process called “tokenization” is being implemented. This generates a unique code that must be approved by the retailer before merchandise is shipped. Masterpass, a MasterCard tech, and Visa Wallet are two such payment services using tokenziation. If they prove successful in stopping fraud, expect more retailers to restrict payment options to these outlets.
Aside from actual cards, crafty thieves have devised yet another way to rip us off. Javelin says account takeovers, which happen when a thief gains access to your account and changes the contact information, rose an astonishing 61% last year. This gives them free reign, as any warnings or other notifications go back to the thief instead of the account holder. If you don’t keep close track of your account, there may be a huge run-up in charges before you become aware of any problem.
Don’t think consumers are immune from all this fraud activity. While you won’t be charged for any criminal actions if you report the matter promptly, the costs have to be amortized in some fashion by the ultimate victims, either the retailer or the card companies. That usually translates to higher prices, fees, and interest rates.
Sadly, fraud will likely always be with us, as the incentive to stay one step ahead of the curve is too tempting for thieves. Retail sales are expected to top $27 trillion by 2020, according to Javelin. The only real shield against further increasing theft by the dark side is additional attention from retailers, online hubs and consumers, and that typically occurs after the crime has been committed.
Stephen Coggeshall, the chief analytics and science officer at LifeLock, a fraud prevention service, puts it in a more colorful way. “Fraud is kind of like squeezing Jell-O,” Coggeshall told the Wall Street Journal. “Stop it in one place, and it migrates to somewhere else.”
In other words, there’s always room for Jell-O. Just like there is for fraud.
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