Why counterfeit credit card fraud in the US is down 75%

A new study published by Visa inc. (NYSE: V) shows that counterfeit credit card fraud decreased by 75% from December 2015 to March 2018, thanks to the introduction of EMV Chip Credit Cards. This is further proof that these chips are having the desired effect and helping to curb fraudulent point-of-sale (POS) transactions at retailers. (Last year, counterfeit credit card fraud only decreased by 50% compared to 2015.)

During the same period, counterfeit fraud dollars spent at all U.S. merchants fell 46%. As an economic crimes sleuth, I’m on the front lines of the war on fraud and have seen first-hand how EMV chips have directly led to these dramatic declines.

Let’s take a look at this technology to understand why EMV chips have been proven to be so effective, and why it’s so important to banks, merchants, and you.

EMV chips on credit cards have reduced counterfeit credit card fraud in the country by 75% since their introduction in October 2015. Image source: Getty Images.

Why EMV chip migration was necessary

The EMV chip was named in honor of its developers: Europay, Mastercard Inc. (NYSE: MA), and Visa. Cards without this chip store all relevant data on the magnetic stripe on the back of the card, including the cardholder’s name, credit card number, expiration date, and CVV number. However, once the information is written to this tape, it is forever static, which means it will never change.

At a time when data breaches are apparently daily occurrences and gas station skimmers are endemic, this information is always at risk of being stolen by malicious actors. And once that information falls into the wrong hands, it’s notoriously easy for fraudsters to sell it on the dark web and fabricate counterfeit credit cards with that information encoded on the back. What made these counterfeit credit cards particularly effective was that they could be engraved with the fraudster’s true identity on the front so that even when a particularly alert employee asks to see the identification of the fraudster. crook, it displays the exact same name displayed on the front of the credit card.

The EMV chip has changed the whole dynamic of card payments at the point of sale. Although this information is always stored on the back of the card, the EMV chip generates a unique code each time it is used in a transaction, which means thieves cannot produce counterfeit cards and use them at a store. trader who uses chip reading equipment.

The good news

Given the capabilities of the EMV chip, it’s easy to see why counterfeit credit card fraud has declined so much in US retail stores since late 2015. Over 3.1 million stores now accept EMV chip card payments, an increase of 680% since the EMV migration. took place in October 2015. This represents about two-thirds of all retail storefronts in the United States. The number of smart cards in circulation has also increased significantly. According to Visa, as of June, there were nearly 500 million smart cards in the United States. Before the migration, there were “only” 159 million in circulation. That’s good for a 214% increase and represents about 69% of all domestic Visa cards.

Bad news

Of course, that doesn’t mean we are out of the woods when it comes to credit card fraud. While EMV chips have worked wonderfully for the purpose for which they were created, and their adoption by the retail and credit card industries has been as successful as hoped, there are still several other types of widespread fraud that the EMV chip was never designed to combat. Most notably, of course, this includes fraudulent online transactions where credit card numbers are typically entered manually for payment. Pumps at gas stations also don’t have to comply with the EMV standard until October 1, 2020, one of the reasons skimmers are always a big deal at gas stations.

What you can do to protect yourself

Since fraud and scams will be an integral part of life, what can consumers do to protect themselves? There are several steps consumers can take to protect themselves and limit their losses when the almost inevitable fraud occurs.

First of all, use credit card as much as possible. Consumers have more legal protections when using credit cards than almost any other type of payment, including cash, checks, or debit cards.

Second, monitor your accounts and credit report regularly. When verifying your accounts, make sure that all activity can be verified personally. You obviously only want to see accounts that you have personally opened listed on your credit report. Federal law guarantees that all consumers can access their credit report free of charge once a year at annualcreditreport.com. However, many services, including some bank and credit card accounts, now offer this monitoring service for free, and it might be beneficial to shop around and find out if anything makes sense for you to subscribe.

Finally, you may want to consider starting a fraud alert or credit freeze with credit agencies. A credit freeze is the most effective option because it prevents any creditor from accessing your credit report and prevents fraudsters from opening new credit accounts in your name. Of course, this same functionality will also be a disadvantage for you if you have to open a new credit account while it is frozen.

EMV chips have been a huge success in preventing counterfeit credit card fraud at the point of sale, and that’s exactly what they were designed to do. This does not mean, however, that consumers can stop being diligent when it comes to protecting their personal information.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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