The introduction of EMV car technologies has been great for stores – not so great for card not present fraud online. Matthew Katz, CEO at Verifi, takes a look at why it has been such an issue and what can be done about it
It’s no secret that the UK’s adoption of EMV card technologies is considered one of the most successful in Europe. Guided by an innovative awareness campaign that integrated the concept of chip and pin into shoppers’ everyday lives, the UK completed a successful roll-out in four years and mitigated tens of millions of pounds in Point-Of-Sale-based credit card fraud.
Unfortunately, we discovered that Newton’s Third Law of physics – every action has an equal and opposite reaction – also applies to payments systems. By mitigating POS fraud, EMV compelled criminals and fraudsters to focus their energies on Card Not Present channels. Looking forward, as consumers continue to shop with more connected devices, fraud rates will continue to increase.
In addition to criminal fraud, friendly fraud presents its own challenges. When cardholders fail to recognize a charge to their account, they often avoid contacting the merchant to dispute a charge directly and instead report to their issuing bank.
The result is oftentimes an expensive chargeback due to friendly fraud. In most cases merchants bear the total cost of the chargeback including a refund of the sale, lost product, fees and employee time and effort.
Here in the UK, merchants lost £1.1 billion to fraud in 2015, according to Action Fraud. Wise merchants have already bolstered their risk management with a multifaceted operation that enables a merchant to manage multiple anti-fraud tools in real-time. Each merchant action is based on analytics provided by fluid data points and back-end feedback loops.
A primary line of defence
For merchants who wish to strengthen their risk management – and counter friendly fraud – the ideal line of defense permits merchants to get involved during the initial call to the issuing banks. Merchants can provide insights into the cardholder’s order by providing shopping cart level data through the financial institution’s platform. This deeper level of data can help cardholders better understand their purchases and avoid filing false cases of fraud that result in lost sales.
This primary line of defense is invaluable as it provides the cardholder with the information they need to remember the charge while enabling the online banking platform or the issuer’s call center to obtain vital information about the purchase without having to leave their existing customer service screen and open up the merchant’s website.
By providing all of the relevant order details through the financial institution, this level of insight helps reduce cardholder confusion and creates a far better cardholder experience while benefitting the card issuer.
Without this level of data, card issuers are limited in their ability to remedy the situation and often revert to filing a fraud or chargeback claim. As a result, issuers see their costs spike downstream when legitimate charges get challenged again during the representment process as merchants seek to protect their sales.
Today it’s also possible for a post billing chargeback notification platform to process hundreds of thousands of cases monthly and to enable almost near real-time collaboration for both fraud and non-fraud chargeback disputes. By integrating directly with card issuers and redirecting disputes from the issuer to the merchant for resolution, disputes can be resolved before they escalate and become chargebacks.
The strategy may sound complicated, but with the right tools, the fraud prevention process can be optimized to save time and money. Ideally, CNP fraud should be detected and prevented before the transaction becomes a chargeback. The core of this multifaceted operation is a post-billing chargeback notification platform that enables near real-time collaboration for both fraud and non-fraud chargeback disputes. By integrating directly with card issuers and deflecting disputes from the issuer to the merchant for resolution, disputes can be resolved before they escalate and become chargebacks.
Ultimately, dealing with CNP fraud in an aggressive and analytical manner ensures that everybody wins; merchants avoid costly fees, fines or penalties; issuers experience lower operating expenses while supporting cardholder satisfaction through timely resolution and card holders avoid unnecessary chargebacks for items and services they truly purchased.
Matthew Katz is CEO at Verifi
An American experience
The US has only recently adopted EMV as a security screen and before hand many industry watchers believed – based on the UK and European experience – that in store card fraud would go down and online CNP fraud would go up.
And it did.
According to the Card Fraud Control Benchmark Study from Auriemma Consulting Group, counterfeit card fraud has reached its lowest level since 2013, falling 18 percent in Q1 from the previous quarter. At the same time, the New York City-based consultancy said, other types of fraud have increased—headlined by a 12-percent jump in CNP fraud, which has become the largest category of fraudulent activity, according to the issuing banks the study focuses on.
Also, said Louis Buccheri, senior manager at Auriemma Consulting Group, there is good reason to believe EMV has had a big impact on the change.
“While there is no doubt a shift in fraud to card-not-present as e-commerce continues to grow, what we see here is a pretty clear shift in the distribution toward card-not-present away from counterfeit, in particular,” Buccheri told CardNotPresent.com. “Card-not-present now represents a larger category of fraud. It’s difficult to attribute the increase solely to EMV, but of the 30 issuers represented in the report, we’ve seen significant headway on the EMV migration. So, the data is correlated with EMV adoption.”