There are two different kinds of credit cards. One is probably quite obvious: a credit card with a magnetic strip, which is swiped through a machine and verified via signature. This technology is decades old – created by IBM in the 1970s – and rather archaic.
Many people, however, might not be familiar with the alternative form of credit card technology. The card itself looks very similar to the existing models, but that magnetic strip on the back is replaced with an embedded microchip. EMV chip technology was developed by Europay, MasterCard and Visa much more recently than the magnetic style card. EMV credit and debit cards have been popular in Europe for years now. When using the card, the individual will slide it into a machine during the transaction, so the chip can be verified, along with other stylistic additions such as holograms.
EMV will be popular soon enough
There is a lot good news associated with EMV chip cards. First, they are on track to be rolled out in the U.S. by Oct. 1, 2015. According to BizTech, Carolyn Balfany, group head for U.S. product delivery for MasterCard, said that half of U.S. consumers should have a chip-enabled card by the end of 2015 and the same percentage of retailer terminals will be equipped to handle EMV transactions. Balfany also told the source that by 2017, she expects that 100 percent of merchants will accept the new form of payment.
“EMV is not a silver bullet approach to fraud.”
The second benefit is that credit and debit cards embedded with EMV microchips will drive down card-present transaction fraud. Balfany explained that counterfeit rates should drop by as much as 80 percent, according to BizTech. Balfany added that this is not a silver bullet approach to fraud, however, and she is correct. Those statistics only apply to in-person transactions, and as technology, Internet marketplaces and mobile devices only increase in use, EMV will not solve every problem.
While EMV embedded credit and debit cards reduced the number of cases of fraud in Europe, criminals moved to online sources for purchasing products with stolen credit cards. InformationWeek reported that when the United Kingdom made the switch to EMV between 2004 and 2005, online transaction fraud jumped from £117 million in 2005 to £155 million in 2006, eventually reaching £178 million by 2007 – which is around $283 million.
“Card-not-present fraud is just happening,” Nick Holland, senior analyst at Javelin Strategy & Research, told InformationWeek. “In Europe, EMV deployments were correlated with increases in Card Not Present fraud. That mythology has been transcribed to the U.S. market. Retailers think that if you bring in EMV, they will get a net negative. They think you’re just moving fraud to online.”
However, a recent report cited by a different InformationWeek article suggested that this is not a myth and that EMV will drive credit card fraud down in one sector but up in another. The source reported that counterfeit card fraud will fall 51 percent due to EMV chips because it is hard to fake this new technology. That is great news for traditional, brick-and-mortar retailers, which were once held responsible for some cases of fraud.
However, according to InformationWeek, online, card-not-present fraud will increase by 106 percent, from $3.3 billion to $6.4 billion, meaning that the net gain of fraudulent credit and debit card use will be around $1.5 billion after EMV implementation. This will cause a headache for retailers and consumers as they battle against these use cases.
EMV is great for in-person transactions, but it can lead to online fraud if retailers don’t find a tokenization solution.
What is tokenization, other than being a savior?
There is a solution to this problem. It lies in tokenization, and it can be the best way to prevent cases of fraudulent activity online and in-person. Everyone is talking about tokenization, from Balfany to reporters from InformationWeek. Essentially, online and traditional retailers can find organizations that provide SAP-integrated payment solutions for the Web and point of sale.
As many know, credit and debit cards are identified and processed by their identification numbers. With tokenization, those numbers are replaced with another group of digits called a token. In essence, the digital token is a cryptogram containing the bare minimum of user information without all the sensitive data that cybercriminals use to commit fraud, meaning that the data they collect is useless. This gives retailers the power to protect their customers’ private payment information. The token is specific to each retailer, and it will work across the entire network, so if a consumer visited the online marketplace or physical location before, the information is already there, but protected.
To sum EMV up in a nutshell, it is very useful for in-person transactions, but susceptible to fraudulent purchases made online. To mitigate that risk, online retailers – and traditional stores – can use tokenization solutions to prevent fraud and protect their customers’ private data. While some might fear EMV, there are ways to make it very secure.
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