Fraud Awareness 101: Mitigating Fraud with EMV Technology

Highlights:

• This is the second part of a blog series we created as part of a global campaign for #FraudWeek 
• The first part, which explores fraud and fraud-related chargebacks, can be read here

Previously, we talked about fraud, fraud-related chargebacks, and how they serve as a double-edged sword: they hold both merchants and cardholders victims. When fraudulent activities resulting to chargebacks occur, they make cardholders lose their trust in the merchants they transact with. The merchants, on the other hand, lose any potential revenue and clients due to fraud-related activities.

With the rising number of fraud incidents, credit card issuers and merchants are now utilizing other means to improve the authentication of transactions. One of which is the use of cards with EMV technology. 

EMV is now the global security standard for storing account information on credit cards. It stands for Europay, MasterCard and Visa, the globe’s major credit card companies who initiated the movement and eventually set the global standard for payment processing security. They were the first who developed the technology, which makes use of chips, as an alternative to the magnetic stripe that was previously used to store information for traditional cards. Now, EMV has come to represent every card that uses the chip-based technology.

EMV technology has been around for a while. The first use of EMV cards happened in Europe during the 1990s as an alternative response to the expensive way of authorizing card transactions using phone lines. Now, it has been adopted by other countries for the added security it offers, such as the US who started on a massive EMV migration in 2015.

There are two main types of EMV cards: those that require signatures to verify transactions, and those that have a PIN function. The US generally use Chip-and-Signature cards with a magnetic stripe, although the Chip-and-PIN is considered the more secure card and the more compatible one to use overseas.  

How does EMV technology make payment processing more secure?

The introduction of the EMV chips was intended to protect both merchants and cardholders against fraudulent activities that may result to chargeback. With the added security features, EMV cards helped significantly reduce fraud-related incidents in two ways:

• They make fraudulent transactions more difficult to pull off. A magnetic stripe works in a less secure fashion since it stores sensitive cardholder information on a static, permanent basis. This allows fraudsters to just duplicate this information for any other purchase anytime, which will again result to card disputes and possible chargebacks.But unlike the magnetic stripe found at the back of traditional cards, EMV chips or microprocessors store information differently. Its cryptographic technology allows it to create unique codes for every transaction and purchase. Because of this, any information stored in that particular transaction will be useless when cardholders make separate purchases.
  

• EMV technology made it nearly impossible for fraudsters to create counterfeit cards. In the old, traditional, magnetic stripe days, fraud-loving criminals find it easy to duplicate a credit card. They just skim the information from the magnetic stripe, burn that information into a blank card, and produce a duplicate that can be used just like the original.
  
  The same could not be said for EMV cards. EMV chips cannot be easily scanned, read or duplicated when inserted into a point of sale terminal because it uses a unique cryptogram. This is a more secure technology that cannot be easily decoded by a simple card skimmer.

Compared to cards with magnetic stripes, EMV cards definitely offer a more secure alternative to payment processing transactions. However, it is important to note that they only become more secure when the EMV chips are actually used. Because of this, EMV cards can only provide maximum security when used for point of sale and card present transactions---and only when the card is inserted into a terminal or reader.

Cardholders are also not safe if they rely on the chips, either---not if they are used with an EMV terminal that has been compromised. When cardholders use hacked terminals, fraudsters can still obtain their card information and use that data to create magnetic stripe card duplicates. 

While EMV technology may not provide merchants and cardholders complete protection against fraud, it does make fraud more difficult to successfully pull off. Aside from EMV technology, other innovations have also been created to address other areas that help prevent fraudsters from always gaining the upper hand.

Want to learn more about how to best combat fraud with the latest and more secure software and hardware? Our team at Agapay would be glad to help: you may contact us through any of our channels here.