Fraud is a multibillion-dollar drain on card payment systems that seemingly defies containment. Growth in online and mobile access, coupled with the ramping up of EMV security, now has U.S. card issuers bracing for an onslaught of fraud, especially new account fraud. This is according to a report just released by LexisNexis Risk Solutions titled Issuers Confront Application Fraud and Account Takeover in a Post-EMV U.S.
"EMV chip technology represents the strongest anti-fraud protection at the POS terminal," said Kim Little Sutherland, Senior Director of Identity Management at LexisNexis. However, it is not a panacea, and certain types of fraud are certain to rise. "Notably, with the window closing on easily replicable mag-stripe cards, we forecast a shift and bump in identity schemes – characterized by the use of synthetic identities and the misuse of true identities," Sutherland added.
Since the United States began implementing EMV (Europay, MasterCard and Visa) security, most discussions about card fraud have centered on card-not-present (CNP) fraud increases. Among card issuers surveyed by LexisNexis for its report, however, fraudsters are not turning en masse to CNP scams.
"Fraudsters that have found success in POS card fraud are unlikely to immediately give up what may represent an enterprise with years invested in its success," the report stated. In fact, as has been widely reported, that's what happened when EMV was implemented in the United Kingdom.
U.S. card issuers lose $10.8 billion to card fraud each year, with credit card fraud leading the pack, according to the report. LexisNexis found that the majority of card fraud ($7.6 billion or 71 percent of total card losses) involve credit cards; $2.7 billion (25 percent) are the result of debit card fraud. Prepaid cards contributed just $500 million to the total. The LexisNexis report draws from a survey of 100 risk and fraud officers at card-issuing U.S. organizations of varying size. The report focuses on what emerged as two of the most troublesome types of fraud: application fraud and account takeovers, each of which accounts for 20 percent of total annual card fraud losses.
Counterfeit fraud represents 16 percent of total card fraud losses, and is being fueled by a vast array of compromised personally identifiable information available on the black market. Nearly 62 million Americans were affected by card data breaches in 2014, for example. And much of that information "will remain useful for the entire life of the victim," the report noted.
The pervasiveness of card fraud has resulted in significant time and money being invested in fraud detection and mitigation, and issuers are no exception. Among those surveyed for the LexisNexis report, 78 percent plan to make sizable investments in fraud mitigation over the next 12 months. Dynamic and static knowledge-based authentication lead the list of tools targeted for additional investment, followed by mobile carrier identity verification and manual reviews.
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