The US is by no means the first country to make the EMV switch – in fact it’s years behind some. This has posed problems, not least the fact it’s the only country in the world where counterfeit card fraud losses are rising. But it’s also got the benefit of experience and can learn from what’s happened before in other countries.
So what can the US market expect to happen after the liability shift?
Counterfeit card fraud to drop
In the UK, losses from domestic counterfeit card fraud fell straight away. Counterfeit fraud was cut by two-thirds in the years immediately after EMV rollout.
However, it’s not that simple: counterfeit fraud rose significantly in 2007 and 2008 as issuers saw a steep rise in cross-border counterfeit fraud.
Chip cards still contain a magnetic stripe, which means fraudsters can still steal card data and commit fraud in countries that have yet to migrate to chip-and-PIN.
Lost and stolen fraud will fall
The UK also saw a fall in lost and stolen card fraud – but that is only possible because issuers rolled out chip-and-PIN cards exclusively. American banks are relying on chip-and-signature versions to a large degree, which will still be vulnerable if the card is lost or stolen.
Lost or stolen card fraud in the UK decreased every year since 2004 and hit the lowest on record by 2012. The US may not enjoy the same level of change. “Maintaining signature as a cardholder verification method for EMV chip cards might not have a similar positive impact on lost or stolen card fraud as experienced in chip-and-PIN countries,” noted Douglas King, an expert on the Retail Payments Risk Forum at the Atlanta Fed.
CNP fraud will rise
If we look to the experience of the UK or France, there is clear evidence that card-not-present fraud (CNP) could rise sharply in the US when EMV cards are introduced. France in particular has seen a big jump in CNP fraud and actually overall fraud rose post-EMV because of the shift.
Fraud from counterfeit cards in the UK declined 56 per cent from 2005 to 2013. But card-not-present fraud increased 79 per cent from 2005 to its peak in 2008.
The perceived wisdom is that fraudsters, prevented from counterfeiting cards and using them in stores, simply turn online, where all they need are the card details.
Only it’s not that simple. EMV is not the cause of CNP fraud that many assume. EMV migration in Western Europe occurred at the same time as online commerce began to take off and some analysts now consider that while the two are related, there is not the cause-and-effect nexus once thought. Better analytics, security features and fraud detection is in place today that means there is simply not the gap in the market for fraudsters that existed in the mid-2000s.
Javelin Strategy & Research said in one recent report that if EMV is implemented in the US, CNP fraud would rise from $9 billion to $18.6 billion in 2018. But if there was no EMV migration, the firm projected that CNP fraud would still increase to $18.4 billion in 2018.
The US market is very different to those that have migrated to EMV before it. In terms of online commerce, we live in a very different world to the one when chip cards began to take over in the early 2000s. And there is a huge difference between chip-and-PIN cards and chip-and-signature versions. In short, the lessons from the UK, Canada, Australia, France and others may not always apply to the American cards market.