The stats are in: Credit card fraud is down 75 % because of chip technology

The Reserve Bank of India (RBI) has mandated all banks to replace all existing magnetic stripe-only cards with EMV chip cards by December 31, 2018. Banks are replacing the cards free of cost. The process that began three years ago (in 2015) is now finally culminating by month-end.

The directive is applicable to all domestic as well as international cards, and the older magnetic stripe-only cards will not be valid after the deadline. The cards need to be replaced even if their validity date ends after December 31, 2018.

Named after its original developers Euro-pay, MasterCard and Visa (EMV), this technology features payment instruments (cards and mobile phones) with embedded microprocessor chips that store and protect cardholder’s data.

Unlike magnetic stripe cards that require just a swipe on a point of sale (PoS) device to complete a transaction, chip and PIN cards require the same to complete a transaction. This provides an extra level of security.

The whole idea behind integrating EMV® chips into credit and debit cards was to make transactions safer and more secure for consumers and merchants. A recent report by Visa shows that it has hit the mark. Visa took a look at the numbers, comparing chip card use by consumers and adoption by merchants from the initial rollout of chip cards in 2015 to now.

What they found is pretty staggering. Counterfeit fraud, where a criminal steals your payment card number and imprints it onto another card to use in-person at their favourite store, is down 75 per cent from September 2015 to March 2018 at U.S. merchants that are chip-enabled.

The sharp drop illustrates that the chip technology is doing its job as intended. That's important because criminals are always on the prowl searching for an easy way to get money.

Data that travels through a payment network when you insert your chip card is different than the data that is sent when you swipe your payment card using its magnetic stripe. The chip generates a one-time code that can only be used for one transaction. If cybercriminals steal your card number from the merchant's system or from a data breach, it is essentially impossible to commit counterfeit payment card fraud because the one-time code cannot be re-used and the card number alone is not enough to complete a transaction at a point-of-sale (POS) machine.

So chip cards and terminals protect the customer from his or her stolen payment card number being counterfeited and protect the merchant from having to refund the money while losing their merchandise. In the end, everyone wins except for the fraudster.

Some other findings from the Visa study include:

More than 3.1 million U.S. merchant locations or 67 per cent of U.S. storefronts are now fully chip-enabled and accepting chip cards. As recently as September 2015, only 392,000 merchants were accepting chip transactions. That's a 680 per cent increase since chip technology debuted in the U.S. About 97 per cent of overall U.S. payment volume in June 2018 was on chip-enabled cards. In September 2015, $4.8 billion was spent on chip transactions. In June 2018, that figure had jumped to $76.7 billion. Reasons for merchants to switch to the chip

More and more merchants are accepting chip card transactions, but some, especially smaller merchants, have been slow to adopt the technology. But there are good reasons for updating to accept chip card payments, not the least of which is customer expectation. People who have chip cards expect the payment security they provide, and not accepting chip payments might be seen as a negative with consumers.

Other reasons for adopting chip technology include:

Implementing chip-based POS terminals is easier than ever before. It has become standard technology among many merchants and their technology suppliers. Transactions involving chip-based payment cards at many merchants are faster than when EMV chip cards first became available thanks to Visa Quick Chip technology. Implementing and investing in chip-based POS systems in many cases can also support new payment technologies like contactless payments.