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Have EMV Chip Cards Helped Lower Fraud?

October 26, 2017

Have EMV Chip Cards Helped Lower Fraud?

As the United States moves into the post-EMV-transition world, you might be asking whether or not chip cards have helped reduce fraud. But the answer isn't a simple one.

You probably know that October 2015 marked the official liability shift in the US. Merchants without chip readers at the point of sale (POS) can now be liable for fraudulent transactions. Despite potentially serious financial consequences, EMV adoption lagged in 2015.

Reports show merchants failed to upgrade POS systems due to end-of-year financial constraints, lack of time during the busy holiday shopping season, or simply a lack of confidence in the process. That lack of action seems connected to increased costs in the form of chargebacks, especially for small to medium-sized businesses (SMBs).

Rising chargeback rates following EMV transition

An April 2016 report by The Strawhecker Group showed that chargeback rates—for SMBs with annual card volume of less than $10 million—rose nearly 31 percent in the last quarter of 2015. In that same time frame, chargebacks as a percentage of the dollar volume of card transactions increased more than 15 percent.

These financial penalties may be enough to spur business owners to upgrade to EMV. If not, merchants should be concerned about fraudsters shifting their targets to businesses without EMV-ready card readers.

In spite of these negative trends, the improved security of chip cards is notching wins for the American card industry.

Counterfeit credit card fraud at lowest point since 2013

The past few years have seen card fraud rise dramatically, coupled with high-profile data breaches at large, well-known American merchants. But the data show that the introduction of EMV cards is playing a part in reversing that upward movement.

In the first quarter of 2016, financial losses traced to counterfeit card activity fell 18 percent. It’s the lowest level since 2013, and a decline of almost one-fourth since counterfeit card fraud peaked near the end of 2014.

With 66 percent of cards in circulation now converted to EMV, and “chip-on-chip” transactions—chip cards used in EMV readers—rising to 30 percent in Q1 of 2016, the data correlate lower rates of counterfeit fraud with increasing EMV adoption.

What you can expect from EMV in 2016

For merchants that have already started moving to EMV, you may hear reports of certification and testing delays for hardware and software. A June announcement of new streamlined certification processes by Visa, MasterCard, and American Express promised relief for business owners.

For merchants still on the fence, the decline in counterfeit card fraud and likely penalties for non-chip-ready card transactions should be enough to spur action. Not starting the upgrade process will only become costlier over time.

Like the move to EMV in other countries around the world, the transition will probably take several more years to complete. For value-added resellers, the opportunity to sell hardware, software, and recurring services remains strong.

Have EMV chip cards helped lower fraud for your clients?