Cardholders are Afraid of EMV Fraud, Even Though Merchants Have the Most to Lose
Now that a good amount of time has passed, industry insiders have had a chance to reflect and evenly consider the effects of the US’s EMV liability shift that took place in October 2015.
EMV-enabled cards were designed to reduce the risk of card-present fraud and offer more protection to cardholders. Eventually, card-present merchants will see the rate of counterfeit transaction chargebacks go down, but unfortunately, this extra layer of consumer protection has increased liability for eCommerce merchants.
It is understandable that businesses, both online and off, are worried about the increased risks associated with the EMV transition. However, a surprising recent development yields a new concern: many consumers are now quite anxious about new genres of EMV fraud.
EMV Pushing Fraud onto Card-Not-Present Merchants
The industry has already seen a huge spike in card-not-present fraud since the liability shift. Since card-present fraud is much harder to execute, fraudsters have turned to the path of least resistance: eCommerce.
Unfortunately, eCommerce merchants were already at a severe disadvantage when it came to fraud mitigation. Before the EMV liability shift, merchants were losing 1.32% of revenue each year to fraud, which translated to roughly $16 billion annually.
With card-present fraudsters shifting online, the eCommerce community will see even more significant losses in the years to come.
EMV Adoption and EMV Fraud: By the Numbers
- Australia, Canada, and the U.K. saw an 80-100% increase in eCommerce fraud within three years after migrating to EMV technology.
- CNP Fraud in the U.S. is out of control, rising 11% between Q3 2015 and Q1 2016, and by 215% between Q1 2015 and Q1 2016.
- The majority of merchants have still not made the transition—as of May 2016, EMV adoption in the U.S. stands at about 37% of merchants.
- EMV card issuance is outpacing merchant EMV adoption, with roughly 70% of all U.S. payment cards now featuring an EMV chip.
- Current EMV adoption is estimated to grow at a rate of 4-5% per month, meaning it could take years before the process is complete.
Data Breaches and Talk of EMV Fraud Spark Consumer Fears
Even with merchants bearing the brunt of the burden for fraud related to new chip technology, consumers are the ones up in arms about the increased EMV fraud risk.
Recent data reveals that 78% of online shoppers believe that they need more protection for their card data while shopping online. What this suggests is a crisis of consumer confidence while shopping online. In turn, 56% of cardholders cut back on shopping after discovering a fraudulent transaction. When consumers are hesitant to shop online, it translates to fewer debit and credit card sale numbers for merchants.
As a result, merchants suffer going both ways—they see a decrease in sales because of a lack in consumer confidence and increased chargebacks because of EMV fraud.
EMV Fraud Inspires Would-be Fraudsters
The problem with spreading information about EMV fraud is that, in doing so, the industry may inadvertently make the problem even worse.
Greater awareness of the prevalence of EMV fraud actually entices consumers to commit friendly fraud. Consumers learn of the increased threat, realize how easy it is to claim an unauthorized transaction, and hope their attempts at cyber shoplifting blend in with the criminal activity.
Unfortunately, this is not mere speculation. Friendly fraud surged in the wake of the widely-publicized 2013 Target security breach, with many consumers taking advantage of the situation to file fraudulent chargebacks. Because 40% of cardholders who successfully commit friendly fraud will do so again within 90 days, the issue just continues to snowball.
While many of these chargeback scams are conscious efforts to get something for free, other consumers might not even realize that they’re doing anything wrong. The fear of fraud has caused a lot of knee-jerk chargebacks that end up being illegitimate. Cardholders find a seemingly unfamiliar charge on their statement and, assuming that the charge must be fraudulent, file a chargeback. In most cases, the charge was actually valid, but the customer didn’t recognize the merchant’s billing identifier or the charge was authorized by a family member.
Restoring Revenue and Consumer Confidence
Consumers have less to fear from eCommerce fraud than merchants, but the burden of portraying a secure and protected environment is one merchants cannot overlook. In order to restore consumer confidence in eCommerce, merchants will need to make fraud prevention a priority.
The numerous repercussions associated with EMV fraud show how dynamic and agile this threat is. That’s why it is important for merchants to seek out an equally dynamic and adaptable fraud mitigation strategy. Merchants need a comprehensive approach, one that addresses all genres of fraud in real time.
Chargebacks911® has the solutions merchants need to stay protected. Contact us today to learn more about decreasing risks and costs while also increasing revenue and customer retention.
EMV technology will continue shifting fraud away from brick-and-mortar stores and into the eCommerce environment. Merchants have no choice but to be ready to take on the challenge. Let Chargebacks911 help.
Sources Socure, Forter, Inc., CreditCards.com, Payments Source
