How Effective Has EMV Been?
In October 2015, merchants were urged to move ahead with the EMV switchover before the EMV liability shift came into place. However, a year later, how successful has EMV been?
There have been mixed reports about the success of EMV, and there have been several obstacles along the way. This article explores EMV’s progress and looks at how successful its introduction has been so far.
Figures for the take-up of EMV are undoubtedly on the increase, with Visa stating there are over 1.46 million chip-enabled businesses on its network.
MasterCard states that 80% of MasterCard consumers’ credit cards now have chips, and the company says take up among retailers is up by 88 per cent following last October’s liability shift.
1.7 million, or 30%, of the merchants on MasterCard’s network are now said to be chip active, and adoption has been strong among major retailers like Wal-Mart, Macy’s and Tower; however, major stores, like Costco, Foot Locker, and Staples, still weren’t accepting them in December 2015.
Nevertheless, overall progress is said to be steadily improving. A survey conducted by the National Retail Federation shows that 86 per cent of retailers will either have installed an EMV terminal, or say they expect to have one installed by the end of 2016, and although it is too early to tell the full impact on fraud, EMV does seems to be having a positive effect, with figures from May 2016 showing a 47 percent reduction in fraudulent transactions among chip-enabled merchants.
Problems with EMV
With such a large-scale change to the way payments are accepted, inevitably, there was always going to be some problems along the way. Some of the most common obstacles are detailed below:
– While many retailers have installed the EMV terminal, there have been delays in certifying them, which is a problem highlighted by the National Retail Federation. Retailers are facing lengthy delays in the installation of the new EMV terminals due to the lack of technicians to install the equipment.
EMV Liability Shift
– This meant credit card companies would no longer reimburse a merchant for fraudulent transactions under certain circumstances, and this has reportedly led to retailers asking customers to pay for gift cards with cash or to prove their ID.
– Legal action has been taken from several retailers following a considerable increase in chargebacks.
Surge in Chargebacks
– This has been attributed to the liability shift and cards not being properly read.
– While some high-end retailers and stores with high levels of fraud considered the return on investment reasonable, this hasn’t necessarily been the case with some smaller businesses.
Is There a Need for Additional Security?
Chip cards are regarded as a more secure payment method. With a chip card, each transaction has a unique code, which then gets validation from the purchaser’s bank. Chip card transactions also no longer depend on the magnetic strip, which makes them less easy to copy; however, there have been several possible security flaws identified.
One tech company, NRC, alleges the magnetic strip code can be rewritten, which potentially means a credit card could be counterfeited; the team used an EMV POS terminal on the Raspberry Pi platform to assess this flaw.
However, this isn’t viewed as a major concern. Randy Vanderhoof, director of the U.S. Payments Forum, explained to CNN these transactions would ultimately be rejected, and this potential scam won’t work if the POS terminals are using point-to-point encryption. Nevertheless, retailers should know this encryption isn’t included as a default setting.
There have also been other alleged security flaws discovered; however, overall, statistics show that in countries where chip cards are in use, counterfeit card fraud has fallen considerably.
Increase in Online Fraud
An article on Business Insider predicted fraud would move to the ‘weakest channels’ once EMV is fully in place, and ahead of the introduction of EMV it was predicted eCommerce fraud would increase as fraudsters looked for easier targets.
Statistics appear to show the move towards EMV has resulted in an increase in new account fraud and moved to card not present channels, like mobile payments and e-commerce. Figures from Javelin Research indicate the EMV switch has led to a 113 per cent rise in new account fraud.
Research Director and Head of Fraud & Security, Al Pascual at Javelin Research, concluded “Fraud is evolving at a frantic pace” and added “This just shows that when the industry cracks down on one type of fraud, criminals quickly shift their attack vector and area of operation.”
The Future of EMV
EMV connection says the more integrated EMV becomes, the fewer opportunities there will be for counterfeit fraud. As EMV progresses, Vanderhoof says chip on chip transactions will become a larger proportion of transactions.
Although October 2016 is considered the official one year migration, Randy Vanderhoof of emvconnection.com says:
“The U.S. will need to reach critical mass of chip-on-chip transactions before we will start to see big drops in counterfeit card fraud.”
“From what our chip-enabled merchants are telling us, chip-on-chip transactions are increasing at a very solid rate and our larger enabled merchants are seeing most of their transactions come in as chip transactions.”
As for future developments, the next big challenge for EMV integration is the ATM liability shift introduced in October 2016. However, MasterCard says only 33 percent of ATMs are currently chip enabled.
Despite the shaky start, EMV is gaining greater prominence, and most retailers are likely to have made the shift by 2017, but the move has been slow to gather pace. However, the early signs are that the results have been positive and retailers who have adopted EMV have noted a reduction in fraud.
As predicted, there appears to have been a greater shift to e-commerce fraud, but at this early stage it is not possible to assess just how successful EMV has been at reducing fraud overall.
EMV is a work in progress and there is still plenty of work to be done, but both Visa and MasterCard note the increase in chip card use among merchants and consumers.