Research at the Federal Reserve Bank of Atlanta provided a view of fraud trends at early implementers of EMV in the United Kingdom, France, and Australia to understand how the U.S. credit card fraud might develop post the 2016 implementation.
Although the adoption process is ongoing, the industry has made great progress since the point-of-sale (POS) liability shift went into effect in October 2015.
- The majority of general-purpose credit and debit cards issued in the United States today contain a chip, with nearly all (97 percent) of the country’s payment value occurring on these cards.
- Approximately two-thirds of U.S. merchant locations are set up to accept EMV chip-based payment cards (Visa 2018).
- Card fraud losses as a proportion of the total amount of card spend, also known as the fraud rate, was 7.0 basis points (or £7 for every £10,000 spent) for 2017.
- This represents an approximately 5 percent decrease from the 2010 fraud rate of 7.4 basis points.
- After dropping in 2011, the fraud rate steadily increased each year through 2015, reaching 8.4 basis points.
- In 2017, CNP fraud stood at £409.4 million, a significant increase over 2010 CNP fraud (see chart 2). Two factors explain this rise. First, EMV was designed to thwart counterfeit and lost-or-stolen card fraud when implemented with PIN cardholder verification, as was the case in the United Kingdom, so it was natural for fraudsters to shift their attention away from those fraud types and onto CNP fraud. Second, since CNP transaction volumes are rapidly growing, it seems reasonable that absolute fraud would also grow, even with a flat or more slowly declining fraud rate.
- For 2017, the fraud rate for French-issued cards stood at 5.4 basis points, the lowest annual rate of fraud in the period from 2010 to 2017 (see chart 6).
- The rate steadily increased from 2010 to 2015 before it fell in 2016 and then dropped significantly in 2017. Not only did the fraud rate drop in both years, but absolute fraud figures also declined significantly: nearly 10 percent in 2017.
- … this decline was due largely to increases in the use of strong customer authentication solutions by both financial institutions and merchants for CNP transactions.
- Since the beginning of the EMV migration, both absolute fraud losses and the fraud rate have increased significantly, climbs that continued even after the liability shift dates (see chart 10).
- Absolute fraud increased from $AUD204 million in 2010 to over $AUD561 million in 2017. For the same time period, the fraud rate for Australian payment cards nearly doubled, rising from 3.8 basis points to 7.5 basis points.
- CNP fraud rose steadily in 2012 and 2013, then increased sharply in 2014 following the liability shifts (see chart 11). Although the CNP fraud growth rate began declining in 2015, fraud losses still increased by more than 13 percent in 2017, reaching over $AUD476 million.
The big takeaway is in the conclusions where the report indicates that UK and France became
“better equipped to mitigate CNP fraud a few years after EMV migration.”
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group