Both Card Present and Card Not Present Fraud Grew in 2016
According to estimates from Javelin Strategy and Research, there was an 8 percent increase in U.S. consumers impacted by payment card fraud at the point-of-sale in 2016, while those victimized by card not present fraud grew at a much larger rate. Although the industry was bracing for an increase in CNP fraud with the rollout of EMV and more fraud attempts shifting online, the increase in card present fraud was less expected. Keep in mind that while more secure cards and POS terminals has and will shift more fraud attempts to the card not present channel, the fraudsters who specialize in counterfeit card and POS fraud are maximizing their efforts and potential now while they still can.
As one of the last major economies and modern payment systems to adopt the more secure EMV card and payment technology, the U.S. has plenty of history to study for perspective on what to expect. At least this was enough history to expect a shift of more fraud to the online channel in response to cracking down on counterfeit card fraud at the physical point-of-sale. The level of growth in CNP channel fraud that occurred in 2016, however, may still have exceeded expectations.
According to data from Javelin, card not present channel fraud impacted 3.42 percent of U.S. consumers, up from 2.41 percent last year. This marked a year-to-year growth rate of 42 percent, compared to 8 percent year-over-year growth in the number of consumers who had a payment card compromised and used at the physical point-of-sale.
The majority of identity fraud, according to Javelin, occurs on existing payment card accounts. It is estimated that 5.07 percent of payment card accounts experienced fraud, up from 4.45 percent last year and 3.14 percent in 2012. Identity fraud on existing payment card accounts totaled $8.8 billion in fraud losses in 2016, which was 55 percent of total ID fraud losses in the United States.
With the many data breaches that have occurred and more that will continue to happen, fraudsters have access to payment card and identity data for committing various types of fraud, be it counterfeit cards used in-store or using card details for CNP fraud. It’s estimated that 15.4 million U.S. consumers were impacted by some form of identity fraud in 2016, an 18 percent increase from last year. Considering this and the growth in CNP channel identity and card fraud, the 8 percent increase in card present fraud is modest in comparison.
As more merchants equip themselves with EMV payment terminals we can probably expect fraud to get worse before it gets better. As the opportunities and locations to commit counterfeit card fraud using mag-stripe cards dwindle, fraudsters will be increasing these activities while they still can. According to Visa, there were over 1.8 million U.S. merchant location that were equipped to accept EMV chip cards by the end of 2016, representing 39 percent of all merchant locations. Fraudster will recognize this window is closing, and in response ratchet up counterfeit and card present fraud activity now as well as learn how to commit fraud online.
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