The massive Target data breach compromised the credit and debit card information of 40 million consumers and spotlighted the enormous payment card fraud problem in the U.S.
It’s also drawn attention to the looming payment card security overhaul that’s coming to the U.S. over the next five years, called EMV, or the “chip card” standard. For consumers, EMV will be most recognisable as a chip on credit and debit cards that works as an embedded microprocessor.
Created by Europay, Visa, and MasterCard, the payments security standard has already been implemented in most of the developed world and contributed to overall reductions in fraud.
In a new report from BI Intelligence we look at what the EMV standard is, how much it will cost to implement, how much it could save in terms of mitigated fraud, and whether or not the upgrade will ultimately be worth its cost.
For the U.S. to adopt the standard, banks, processors, and merchants will have to upgrade their systems to accept and process chip card transactions. It’s not a small task and could end up being an enormous financial burden.
Here are some of the key takeaways from the report:
- The massive data breach at Target stores in late 2013 is only a spectacular recent example of a deep-seated card fraud problem in the U.S. In 2013, fraud in the U.S. cost $US6.8 billion and accounted for 51% of global card fraud losses. That amount is completely out of proportion to the U.S. share of global card transaction volume.
- We estimate that the total cost of implementing EMV in the U.S. will be about $US11 billion, representing a huge cost — but also a big opportunity for payment technology and service providers.
- The benefits of the EMV standard will not be distributed evenly across the payments industry. Fraud perpetrated with counterfeit credit cards will decrease because EMV cards are more difficult to copy. But that will lead to a spike in “card-not-present fraud,” as criminals move to different channels, particularly online transactions. This is a threat to e-commerce retailers.
- There’s a great deal of uncertainty over which variant of chip card transaction will catch on in the U.S. market. Banks will make the choice, and the option they choose will have a big impact on how effective the new standard will be at reducing fraud.
In full, the report:
- Gives detailed breakdowns of the costs of upgrading hardware, software, ATMs, and reissuing payment cards.
- Looks at the key deadlines that payment card networks are using to pressure the industry to make the switch to EMV.
- Explores whether the card networks will be successful in getting different players in the payments space to adopt the new standard.
- Analyses how the card networks will benefit from pushing their partners to adopt EMV, including the potential upside for mobile payments adoption.
- Includes an interview with a key EMV expert who gives us insights into what the migration will look like, why it’s important to make the change, and the types of businesses that will take the longest to upgrade.
- Explains why the rollout of EMV might turn out to be a Pyrrhic victory for many of the players involved, even when the fraud cost reduction is taken into account.
For full access to BI Intelligence’s payments industry coverage, including downloadable charts and data, sign up for a free trial.
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