Credit card security breaches are in the news every day. Cyber thieves and hackers are stealing credit card information online and at the point-of-sale, and the cost of managing credit card theft, let alone dealing with the losses, is escalating. In fact, a recent report from Credit Union Journal notes that credit card companies have issued more credit cards than there are people in the United States largely because of credit card theft. In fact, 47 percent of the world’s credit card fraud occurs in the United States, and the cost of U.S. card fraud is growing at around 29 percent annually. Credit card security seems to be like the weather; everyone complains about it but no one does anything about it.
EMV Cards Will Not Stop Fraud
The migration to EMV cards this year is supposed to address the security problem, but will it? As you probably know, retailers have been told they must accept smart chip cards based on the Europay/MasterCard/Visa (EMV) standard by October of this year. Those retailers who fail to conform will become liable for fraudulent purchases, so the burden of fraud is moving from the credit card companies to the retailers. And even though credit card companies and retailers have invested $8.65 billion issuing new EMV cards and converting point-of-sale systems, it will only address a few of the security problems.
Only 37 percent of credit card fraud is due to counterfeit cards. And banks and credit card companies are not issuing PINs with the new cards but are staying with the current system that requires signatures. Adding a PIN system, similar to the one used in Europe, would eliminate most fraudulent purchases at retail locations.
Credit card companies say moving to a PIN system is too costly, and they expect that EMV cards will still substantially reduce fraud at the cash register, and it probably will. However, the vulnerability for fraudulent online purchases is as great or greater than ever. Aite Group estimates that U.S. losses due to only card fraud will double from $3.3 billion this year to $6.6 billion by 2018.
Rather than looking at the migration to smart EMV cards as a solution that only partially addresses the fraud problem, EMV cards could also present a real opportunity to banks and credit unions.
Helping Retailers With New Products
For most consumers, the move to smart chip cards is seamless; they receive a new card in the mail, activate it, and continue to use it as they always have. Retailers, however, are becoming increasingly concerned about assuming the burden of in-store and online credit card fraud. Banks and credit unions can help in a number of ways.
One of the challenges retailers have been facing is upgrading point-of-sale equipment to handle EMV cards. While large retailers like Wal-Mart and Target have already installed smart-card readers, smaller retailers are having trouble with the complexity and expense of setting up EMV card systems. There also seems to be a shortage of card-reader hardware as suppliers scramble to keep up with demand.
Banks and credit unions can help their commercial retail customers by offering special loan deals to help finance new transaction systems and other incentives to make it easier for them to move to EMV cards. One of the biggest fears for retailers is the potential cost of fraud, since the retailer will now be liable for fraudulent transactions. Although banks and credit unions don’t have to continue to assume responsibility for fraudulent transactions, they can help out retailers and SMBs with lines of credit and other resources to protect them from disaster in the event of fraud.
The migration to EMV cards presents a golden opportunity for banks and credit unions to work with retailers, helping them make the transition and providing support and customized products that not only eases this transition but increases customer loyalty.
Educating Consumers and Preventing Fraud
To stem the growing tide of credit card fraud it’s also going to become increasingly important to educate consumers. More banks and credit unions are incorporating services like Apple Pay into their offerings to help stop online credit card fraud, however, even services like PayPal, Google Wallet, and Apple Pay are vulnerable so embracing third-party payers merely passes the buck, so to speak.
Most banks and credit unions are great about reacting to fraudulent transactions, providing customer support and dealing with fraudulent transactions, but what about fraud prevention?
Banks and credit unions are in a better position to educate customers and members about credit card abuses and how to prevent them. They also are in a better position to apply new technologies such as big data analytics to predict and prevent fraudulent transactions. Granted, big data isn’t cheap, but consider the saving in the long run, and the potential value to consumers. Fraud prevention and protection are services that more banks can offer.
Adopting the EMV credit card standard is a positive step in stopping fraud, but everyone can do more, especially credit card companies and banks. Incorporating additional security protocols such as a credit card PIN is one solution. Working with retailers and others to help make their transaction systems more secure, and standing behind them when there is fraud is another. And the card issuers should be more proactive in educating consumers and monitoring for fraud using predictive analytics.
The problem of credit card fraud is complex and won’t be addressed overnight. It’s also far-reaching which means we need to work together to find solutions. In the meantime, banks and credit unions can get more creative in their service and product offerings to help retailers and consumers cope with credit card fraud.
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