EMV global payment standard will drastically reduce credit-card fraud in the US

The card fraud rate in the US (in comparison of the total volume of transaction) stood at 0.08% in 2011, which is double that of the Eurozone, the analyst firm noted, where card fraud reached around €1.314 million in 2011 with an increase of 4.3% year-over-year. More than half of the card fraud last year was due to the Card Not Present (CNP) payment mechanism and 36% was due to faulty Point-of-Sale (POS) applications.

However, EMV chip-based payment cards, also known as smart cards, contain an embedded microprocessor. That microprocessor chip contains the information needed to use the card for payment, and is protected by various security features, so they’re a more secure alternative to traditional magnetic stripe payment cards. As of the second quarter of 2012, there were 1.55 billion EMV-compliant chip-based payment cards in use worldwide, according to the standards organization in charge of the specification.

“[The] EMV standard is based on risk management which the chip-based card can do itself (offline) or with an external validation support (online),” said Frost & Sullivan’s global program director for ICT in financial services, Jean-Noel Georges. “Based on the risk, different security measures are implemented at the correct level of payment.”

Most regions have already migrated to EMV. According to Frost & Sullivan's analysis, EMEA had disbursed 850 million EMV cards, Asia-Pacific 396 million and Latin America 345 million cards as of March 2012.

However, the US is next. Through its Technology Innovation Program (TIP), Visa has expanded in the US to give merchants the capability to process contact and contactless EMV transactions. Mastercard is doing the same by using EMV as the backbone for the next generation of payments. In June 2012, American Express announced its roadmap to advance EMV chip-based cards for all merchants, processors and issuers.

There are other upsides of EMV besides fraud mitigation, the analyst noted.

“EMV is not only a secure, interoperable and flexible payment standard, it is also an opportunity to develop new partnerships and value added services,” said Georges. “Contactless features and Near Field Communication (NFC) accelerate EMV adoption through the deployment of payment terminals capable of handling contact and contactless payment solutions.” According to Frost & Sullivan’s last report, the number of NFC-enabled mobile phones will pass a quarter (26%) of the total number of standard mobile phones in 2015.

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