Fraud Displaced During EMV Transition


Zach Capers, CFE
ACFE Research Specialist

Last year, I wrote about the U.S.’s transition to EMV credit cards and the associated fraud liability shift from card issuers to merchants. The article mentioned the possible side effect of fraud being displaced from in-store to online transactions as has happened in many countries that have undergone similar transitions; one year later, the initial data is in and that possibility is now a reality.

A new report from ACI Worldwide shows that online credit card fraud during the 2015 holiday season increased by 8 percent over the 2014 holiday season. Furthermore, the report shows that 1 out of every 67 online credit card payments was a fraudulent attempt compared to 1 out of 72 the year previous. While there are many factors at play and online purchases continue to increase year over year, the findings correspond with increases expected by industry experts and follow the trends previously experienced by other countries.

Meanwhile, the transition to EMV credit cards has resulted in other forms of turmoil for merchants big and small. Visa was recently sued by Wal-Mart over the card issuer’s insistence on a signature verification system rather than a PIN requirement that Wal-Mart and many others claim would significantly increase security for customers while reducing fraud. Wal-Mart’s central claim is that Visa makes more money by processing signature based transactions than they would with a chip and PIN system, thus profiting at the expense of retailers and their customers.

Another complication wrought by the adoption of the new credit card systems is the slow certification process for new credit card terminals required by last year’s liability shift. A New York Times report in March documented the plight of mid-sized business that were still waiting for their new payment terminals to be certified despite having them in place since the November 2015 deadline. Some merchants argue that relationships between financial institutions and certification firms leave little motivation to speed up this process since uncertified merchants must continue to pay for any fraudulent activity incurred on their terminals.

On Capitol Hill, Wal-Mart and others seem to have an ally in U.S. Senator Dick Durbin who recently assailed the credit card industry’s refusal to allow PIN based transactions and the delayed certification process. The senator also echoed the frustration of many consumers regarding long waits at retail checkout counters caused by slow software processing in new card terminals.

As more consumers adapt to their new EMV credit cards and new merchant terminals are certified and updated with improved software, some of the unexpected issues with EMV adoption will be resolved. Unfortunately, many of the most significant problems with the transition were either widely predicted or entirely avoidable.