The payments industry has undergone a multitude of changes in recent years. Generally, these changes have been for the better. Greater acceptance of the EMV standard and improved technologies are making mobile payments more secure and accessible, while also protecting consumers' personal and financial information.
Despite the large number of benefits, industry experts have noticed adverse effects. According to Chargebacks911, a division of Global Risk Technologies, the rate of card-not-present fraud has gone up since these new technologies and standards have grown in use.
CNP fraud mainly takes advantage of purchases made online, over the phone or via mail order. In each of these, a static credit card or account number is used. When thieves get their hands on this number, little stops them from using it elsewhere for their own gain.
The United Kingdom saw a spike in CNP fraud of 79 percent since adopting EMV, and in France, an increase of 20 percent. Aite Group, a research and advisory firm, predicted that CMV fraud losses in the U.S. will amount to $7.2 billion by 2020, compared to only $2.8 billion in 2014.
CNP fraud protection
EMV Connection's whitepaper, "Near-Term Solutions to Address the Growing Threat of Card-Not-Present Fraud," addressed this growing concern, stating that all players in the payments industry, from credit unions and other financial institutions to merchants, must work together to protect consumers from fraud. It also highlighted the point that there is no all-inclusive solution that will prevent all fraud; a security system needs to have four elements that target a variety of threats. They include:
- Tokenization, which replaces the static 16-digit code on credit cards
- Fraud tools, including collecting data for fraud analysis and risk management
- Authentication methods, such as biometrics and randomized PIN pads
- 3-D secure, a messaging protocol that allows the cardholder to authorize the purchase during the actual payment process
Though these methods can protect merchants and consumers from CNP fraud, many retailers are hesitant to adopt some of these methods. For instance, 3-D secure is largely regarded as a quick way to reduce conversions online. It adds to the payment process, which can frustrate the consumer who wants to be able to quickly make a purchase.
However, a report from Ayden, a Dutch e-commerce processor and acquirer, indicated that there are some countries in which not having 3-D secure integrated into the payment process can actually do more harm than good, CardNotPresent.com reported. In fact, the presence of a system of this nature has a 30 percent conversion rate in India. The report, titled, "Optimizing payments to increase revenues," stated that retailers in Great Britain, Vietnam, the Russian Federation, Qatar and the Czech Republic also do better when utilizing this technology.
Currently, though, these conversion factors don't translate in the U.S. or many other countries. U.S. retailers that use a 3-D secure system currently face a negative 43 percent conversion rate compared to those that don't.
PaymentsSource reported that two major credit card companies have vowed to improve their 3-D secure systems: Visa's Verified and MasterCard's Secure Code. Through these systems, chargebacks for CNP fraud aren't required to go back to the issuer, which has brought on negative feedback. However, the companies have stated they would work toward giving merchants and issuers equal treatment in this regard.
As the payments industry continues to evolve, so will the techniques of fraudsters. Retailers and consumers need to be aware of the risks they face when making or accepting CNP transactions. Furthermore, merchants should be educated in the many ways they can work toward preventing this growing risk.
In time, perhaps the U.S. will adopt the same standards India and other countries have in regards to 3-D secure integration, which can reduce the amount of this form of fraud. Meanwhile, credit unions can do their business and individual members a great service by giving them information about how best to conduct business and perform transactions when a CNP purchase is needed.