Following recent data breaches at major retailers (Target and Neiman Marcus, et al.), American merchants will follow the lead of others around the world and drop magnetic stripes in favor of chips on the 1.2 billion credit and debit cards currently used in the U.S.
The new cards are called EMV. The “E” stands for Europay and the “M” and “V” stand for MasterCard and Visa, companies that first backed the idea of a chip to replace magnetic stripes. Credit card networks have set a deadline of October 2015 – less than 18 months away – for most U.S. merchants to adopt EMV payments systems. Following this deadline, any retailers and banks supporting magnetic stripe cards will be liable for fraud losses as a result.
“The U.S. is the final G-20 country to make the transition to EMV chip cards,” said Julie Conroy, retail banking research director, Aite Group. “While the transition will effectively address the rapid increasing rates of counterfeit fraud, fraudsters will focus their efforts more intensely online, as they have in all other countries that have made the switch to EMV. Merchants and issuers alike need to adjust their online defenses to combat the fraud while at the same time preserving the customer experience.”
Because they create a unique code for each transaction, EMV chip cards are much more difficult to hack or counterfeit than current striped cards. Therefore, many criminals have taken their “talent” for fraud, moved it online and become cybercriminals.
With the introduction of the EMV chip, UK credit card fraud has gone down dramatically according to Financial Fraud Action UK. However, online fraud increased 21 percent in Europe as a whole in 2012, in part due to the introduction of EMV cards.
“Card providers and online merchants need to be aware of the likely increase in online fraud associated with the adoption of EMV chip cards,” said Andreas Baumhof, chief technology officer, ThreatMetrix. “Retailers are up against a hard deadline to make the switch to EMV payments systems, but they need to be prepared for the influx of online fraud that will go hand in hand with the transition to EMV. We have seen this in every single country that introduced EMV – and it will happen here as well.”
ThreatMetrix has outlined several cybersecurity strategies to help merchants and card providers protect their businesses and customers during the transition to EMV chip cards, including:
• Frictionless context-based authentication – To protect customers from the potential increase in online fraud, merchants and card providers should implement frictionless context-based authentication. This strategy enables businesses to establish trust for each account login based on a fully-anonymized user identity, device usage, geolocation, customer behavior and other factors without compromising the user’s identity or workforce efficiency.
• Real-time trust analytics – To protect cardholders from potential online fraud or identity theft, merchants, card providers and other financial institutions should use real-time trust analytics. These offer instant analysis of device, location and behavioral context for every authentication attempt. Using a consistent set of identity authentication policies compared against global benchmarks derived from industry peers, the size and scale of the enterprise, geographic location and more, real-time trust analytics offer unprecedented identity authentication policies.
Effectively protecting customers, merchants and card providers means ramping up efforts to combat online fraud prior to the widespread adoption of EMV.