Chip Cards: A semi-satisfactory first birthday

One year after its launch in the US, the EMV card threw a wrench into counterfeit card fraud which declined by over 50 percent. But while the chip-and-pin is giving a hard time to fraudsters, online transactions, where no pin is required, are disquieting. In an article published on October 10 on NBC News website, Herb Weisbaum, one of America’s top consumer experts, assesses the chip-based credit and debit card. The popular columnist entitled it “One Year on, Are Chip Cards Effective? Or Just Very Annoying?” Indeed, they are both.

The effective part: Card fraud plummeted

This is thanks to a personal identification number which has to be keyed in, and also to a microprocessor embedded in the chip card that cannot be cloned. Retailers who have upgraded to EMV card terminals saw a 47 % decline in counterfeit card fraud in May 2016 compared to the same month last year, reports Visa. MasterCard evaluates the drop to 54 percent during a corresponding period.

The annoying part: Time at checkout augmented

Unlike the magnetic stripe card, you don’t swipe this one but “dip” it and leave it in the terminal until the transaction is complete. This has slowed the checkout process and created some customer frustration. Visa and Mastercard trust that a new technology, now in pilot testing at various grocery store chains, will accelerate things and boost customer satisfaction. With the former’s Quick Chip and the latter’s M/Chip Fast, the entire process should take less than 3 seconds, down from the current 12 to 15 seconds.

The very annoying part: Online fraud skyrocketed

However exceptional is the EMV card, it is a toothless tiger online. There, neither the pin nor the physical card is required, so that fraudsters outwitted it soon enough. This is termed card-not-present (CNP) fraud and it’s wreaking havoc. CNP fraud jumped by almost 50 percent in the last year, according to a study by Vesta Corporation, a company that authenticates and guarantees online shopping transactions. Randy Vanderhoof, director of the U.S. Payments Forum who expected this turn of events, said they can’t fight all of the battles at the same time but are now focusing on closing the biggest hole in the system, that is, counterfeit cards being used in physical stores. Therefore, we’ll have to wait a while for the online battle to be won.

The interesting part: War declared

Before EMV, credit card companies took responsibility for fraudulent purchases. But they got smarter, and shifted their liability. Now it’s up to the stores rather than the card issuers to take the rap for counterfeit fraud if they don’t upgrade their terminals to accept EMV payments. Feeling dragooned, some small merchants have gone so far as to sue the credit card companies claiming the latter have violated fair trade practices by conspiring to coerce them into upgrading their checkout systems. If they won’t shoulder the frauds, at least they’ll have to bear the costs of upgrade. The credit card issuers are resisting but a federal judge has allowed the case to move forward.

Article published in EMV and Smart Payment Cards

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