Why Aren't Chip Credit Cards Stopping “Card Present” Fraud in the US? |
Chip cards help prevent fraud but only if you use them A security analysis firm called Gemini Advisory recently posted a report saying that credit card fraud is actually on the rise in the US Thats surprising because the US is three years out from a big chip-based card rollout Chip-based cards were supposed to limit card fraud in the US which was out of control compared to similar fraud in countries that already used EMV the name of the chip card standard Further Reading What happened after the US moved to chip-embedded payment cards Chip cards work by creating a unique code for each transaction and ideally require a customer to enter a PIN to verify that they want to make the purchase This doesnt make it impossible to steal information from chip-based cards but it does make it much harder to reuse a stolen card By contrast using a magnetic stripe to swipe a card simply offers all the relevant information to the merchants card reader which is much easier for a bad actor to steal Gemini Advisory now says that 60 million credit and debit card numbers were stolen in the US in the past 12 months and most of those were chip-based cards The firm found this information by trawling Dark Web sites where stolen credit card numbers are routinely sold The firm said that 458 million or 75 percent of the numbers posted this year were stolen from a physical point-of-sale POS terminal in a brick-and-mortar store while the other 25 percent were stolen from online breaches EMV cant protect against online fraud so that 25 percent doesnt say anything about chip-based card security Still swiping But what about the other 458 million Ninety percent of those cards were EMV-enabled cards Still that doesnt mean that the chip security isnt working These results directly reflect the lack of US merchant compliance with the EMV implementation Gemini writes While nearly everyone in the US has had their old magnetic stripe cards replaced with new cards that have a chip its not uncommon to try to pay for something at a brick-and-mortar store with a chip card only to be asked to swipe the magnetic stripe on the back That puts a customer at risk of having their card information stolen no matter whether they have a chip or not When EMV was being rolled out proponents said that merchants would be incentivized to upgrade their POS terminals to accept chip cards because the liability for any fraud would be shifted from the banks to the merchants or whoever was not supporting chip cards during a transaction To avoid fraud costs merchants would buy expensive new terminals big card networks reasoned Further Reading How Apple Pay and Google Wallet actually work But in some cases merchants have chosen not to upgrade In other cases merchants buy those expensive new terminals and cant use them because they have to be certified by the merchants payment service provider Behind every credit or debit card transaction you make there are several parties that are responsible for relaying information about the money being exchanged and the credit limits of the customer You can read more about this ecosystem here Some of these payment service providers have been slower to act than others There are thousands of payment service providers each offering small- and medium-sized businesses slightly different services for different fees From a customers perspective its difficult or impossible to tell which companies are providing a merchants payment processing services and who is responsible for lack of EMV support From the merchants perspective the cost of fraud might be less than the cost of figuring out what needs to be done after they buy a chip card reader In 2016 Visa and MasterCard said they would limit the costs retailers might incur for counterfeit transactions while they wait for EMV support according to CreditCardscom Visa promised it wouldnt make merchants liable for fraud costs below 25 or fraud costs from more than 10 transactions from the same account Limiting merchant liability is good for merchants but it also takes some of the urgency out of the need to make sure your EMV terminal is working Still its unclear what actions big card networks like Visa and MasterCard plan to take to make chip card readers more ubiquitous In February 2018 Visa wrote that only 59 percent of US storefronts were able to accept chip cards not including ATMs and gas station pumps that have until 2020 to become EMV-compliant Thats a concern because not only are customers vulnerable to having their card information stolen when they cant use their chips but also fewer EMV-compliant storefronts give fraudsters more places to actually use the stolen card numbers Neither Visa nor MasterCard responded to Ars request for comment