European Fraud Shifts as US EMV Adoption Nears

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The European fraud landscape is in a state of constant flux, but some trends can pop out over time. For instance, new research has revealed that card fraud losses rose 6% across Europe in 2014, and £29 million in the UK alone.

Most of this increase was due to cross-border fraud, with domestic losses remaining flat. Also notable (and related): 70% of losses were due to card-not-present fraud.

According to FICO, formerly known as Fair Isaac, different countries have different defenses against fraud, and their adoption rate of powerful analytics and use of EMV technology (Europay, MasterCard and Visa’s technical standard for smart payments) matters in particular. EMV (otherwise known as chip-and-PIN) adoption for credit cards has pushed criminals from one country to the next and from one form of attack to another. To the latter point, many of them are eschewing physical card fraud and focusing on CNP transactions, such as those made over the phone or via e-commerce.

As the US adopts EMV this year (Oct. 1 is the deadline for retailers to make the switch), the fraud patterns around the world are likely to change, and banks need to improve their fraud management to prepare for this shift.

“Banks in the UK and most of Europe adopted EMV technology years ago, so it may appear that they have little to worry about from mag-stripe fraud,” said Martin Warwick, FICO’s fraud chief for Europe. “However, the trends suggest that any European plastic card can be targeted, as criminals try to ‘fill their boots’ before the US finally shuts the door on skimming fraud.”

In fact, UK cards are getting caught up in the rush of criminals seeking to exploit the slow adoption of EMV in the US, and FICO believes the same is true for European cards, as counterfeit continues to find a country with mag-strip technology. More specifically, cross-border fraud dominates in the UK—and shockingly, 47% of these fraudulent transactions took place in the US.

Overall, FICO reported a 25% increase in cross-border fraud on debit cards in 2014, compared to 2013.

The percentage of fraud losses from CNP fraud averaged 41 percent for Western European countries, and 23 percent for Eastern European countries.

In the UK, ecommerce spending in the UK more than doubled between 2008 and 2014, but CNP fraud losses have grown just 1 percent in that time. However, it has become a greater share of UK card losses, rising from 54 percent of card losses in 2008 to 70 percent in 2014.

“We are winning the war on CNP fraud, but we still have a long way to go to get CNP fraud fully under control,” Warwick said. “Authentication of customers and their devices will play an ever-increasing role. This is why FICO has been focused on advances in analytics that assess consumer behavior, and profile not just cardholders but also devices and merchants.”

France had the highest card fraud losses relative to card sales, followed by Greece and the UK, which is the same ranking as last year. Russia saw the fastest growth in card fraud losses—24 percent—but card sales in the same period grew 36 percent.

“Any market that is growing will attract criminals’ attention and that’s exactly what is happening in Russia,” Warwick said. “EMV has a long way to go to reach maturity in Russia. However, overall Russia has low fraud relative to sales. The key aim for banks will be to ensure that when growth in sales slows they are also in a position to slow the growth in fraud losses.”

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