Chip-and-Pin Credit Cards: Are They Actually Reducing Fraud Risk

Media Division | January 18, 2017

The security of credit cards has always been a concern since their inception.  Cyber hackers and attackers have developed and used several different clever methods to steal the information from individual’s credit cards.  Between card number generators, and skimmers, they are always using different ways to illicitly steal a person’s card information.  This has brought card makers to continuously develop better ways to keep credit cards secure.  And the most recent card security measure has been the implementation of chip-and-pin cards.

Chip-and-pin cards are formally titled EMV cards, which is an acronym for the card issuers that came up with the standard, namely Europay, MasterCard, and Visa.  The cards contain a computer chip that communicates with compatible card readers, and a unique transaction code is generated.  Chip-and-pin cards have actually been around for several years. Specifically, they were concocted sometime in the 90’s and then majorly released in the 00’s.  The United States was quite behind in the uniform implementation of these types of cards, whereas Europe and many other parts of the world were already standardly using them.  The U.S. did not make EMV mandatory until October 2015, and this was in large part due to a series of card fraud incidents with major retailers.  After the mandatory switch, the liability of fraudulent transactions from non EMV cards transferred from banks to retailers.

EMV technology requires two parts, including the card and a compatible reader.  There are still a large portion of retailers who are yet to obtain EMV compatible readers.  According to a study from MasterCard, “The company also sees 2 million chip-active merchant locations on its network, a 468 percent increase in chip terminal adoption since October 1, 2015. Two million merchants represent 33 percent of all U.S. merchants.”  So while some retailers may simply not accept MasterCard, this still leaves around two thirds of retailers who have not adopted chip compatible readers.  The retailers who have not yet adopted the technology tend to be smaller or local merchants.  It could possibly be the financial cost of purchasing a new compatible reader or system, but this is purely speculation, as there could be other reasons as well.

The Effectiveness of Chip-and-Pin Cards

The effectiveness of the EMV cards cannot be disregarded.  While the switch has had its turbulence, the levels of fraud have decreased significantly.  The study from MasterCard states, “MasterCard fraud data shows a 54 percent decrease in counterfeit fraud costs at U.S. retailers who have completed or are close to completing EMV adoption, when comparing April 2016 to April 2015. Demonstrating the power of EMV and the risk of not adopting it, counterfeit fraud costs increased by 77 percent year-over-year among large U.S. merchants who have not yet migrated or have just begun the migration to chip.”  So, for those retailers who have adopted the technology, it has benefitted them with reduced risk of fraud, and has made those who have not adopted the technology more primary targets and increased their risks of fraud.  The implementation of chip-and-pin cards seems to have been a very positive move in the realm of credit card use.

With the massive amount of credit card transactions within our contemporary society, the protection of these cards is more important than ever.  As time goes by, we should ideally see an even bigger shift as more retailers begin to adopt the technology so that their customers and systems are protected.  The occurrence of credit card fraud is higher than ever, and retailers cannot afford to risk it anymore.

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