Although there are many reasons why the United States will benefit from the adoption of EMV chip technology for mobile and contactless payments, the effectiveness with which these devices prevent fraud is a primary consideration. There are no exact numbers to indicate the level of electronic credit card fraud in the U.S., but physical world fraud in the country is well above the world average and escalating. Additionally, studies in other countries clearly show that credit card fraud migrates toward markets where EMV technology has not been implemented, making the U.S. a major target.
EMV Single-Use Data Foils Thieves
The chip-based cards have proven extremely difficult to manipulate for fraudulent purposes. The chip itself performs PIN verification and card authentication, generating dynamic data. Essentially, each transaction made on the card is uniquely “stamped.” The data needed to complete the transaction is used one time and cannot be reused. Even if a thief does acquire the card, there’s nothing on it he can re-use, and the traditional methods to work with the data or to clone the card itself are rendered ineffectual.
This level of protection is true when chip cards are used at physical points of sale, automated teller machines, and even in card-not-present situations. The standards on which the chips rely for these single-use transactions have been stable for more than 10 years, and as improvements have been made to the protocols, backwards compatibility has been strictly observed. Underlying this consistent forward development is a worldwide interoperable infrastructure supporting EMV cards, a fact that has also fueled the drive for U.S. adoption. Traveling American businessmen are at a distinct disadvantage with magnetic stripe cards. Currently there are more than 1.2 billion EMV cards in use that can access approximately 18.7 million POS terminals that are EMV compliant.
Greater Card-Not-Present Security
For card-not-present scenarios, like purchases made online or over the phone, the cards rely on one-time passwords (OTP), which the cardholder transmit to the issuing bank where it is verified with EMV back-end authentication. Most cases of data breach and identity theft occur in the “non face-to-face” environment. For the past 11 years, identity theft has been the number one complaint lodged by consumers with the U.S. Federal Trade Commission, with 1.34 million instances reported in 2010. The stronger, highly encrypted EMV standard with dynamic two-factor authentication (2FA) would dramatically lower the current identity theft epidemic.
Significant Benefits to Card Issuers and Merchants
Since card issuers accept liability for fraud that happens in fact-to-face settings, they will benefit from reduced instance of direct theft. At the same time, the EMV cards will increase productivity for the merchants themselves by eliminating the need to sign paper slips, as well as the need to produce payment records when a chargeback is requested. Even the balancing procedures that occur in the merchant’s off hours will be streamlined. And, since merchants who do not participate in strong authentication programs are responsible for fraud that occurs in “card not present” situations, they also gained an added layer of protection via EMV.
Although the U.S. has been slow in adopting the EMV “chip” cards, the need to lower rising fraud rates, and the convenience and protection created for both consumers and merchants make the migration to the payment standard almost a foregone conclusion. This transition is not only being aided by a significant incentive program on the part of Visa and other card issuers, but by the widespread adoption of smartphones with integrated EMV capability.