Card companies report rising fraud losses

Credit card issuers are reporting a spike in fraud losses for 2012, and U.S. issuers--including credit unions--are the weakest link in the world in terms of preventing these losses, said industry experts.

Unlike their counterparts in Europe, U.S. institutions, have not converted to the Europay MasterCard Visa (EMV) security chip and PIN technology, considered the strongest defense against credit card fraud losses.

Credit unions and other card issuers who delay adopting the EMV will face a rapidly increasing risk of loss as fraud migrates from countries deploying the EMV protection to countries with less stringent standards--such as the U.S., said Mark Rennie Davis, a principal at MasterCard Advisors, the professional arm of MasterCard Worldwide.

In a column he wrote about the topic in (Jan. 25), Davis estimated that a  fictitious bank with five million cardholders and average market characteristics could lose as much as $25 million if EMV migration is delayed until 2015, instead of starting this year.

Although the cost of emigration is estimated at between $5 billion and $13 billion, the risks associated with delaying its deployment are growing, he said. He predicted that counterfeit fraud in the U.S. will rise as EMV chip cards continue to replace magstripe-only cards elsewhere. As counterfeit fraud increases in the U.S., it will focus on issuers who have not migrated to EMV, Davis said.

Also, cross-border revenue will decline because fewer merchants in EMV-mature countries accept cards that don't comply with the EMV standards, he said.

Credit card companies are already reporting increases in fraud losses, after a decline for several years, said American Banker (Jan. 29).  Discover Financial Services reported losses for fiscal 2012 at $93 million, a 70% hike from two years earlier. That figure is adjusted for rising transaction volumes.  The publication also reported Capital One Financial had experienced a 20% increase in fraud losses adjusted for volume from 2010 to 2011--the latest data available.

The major U.S. card brands have said they will require most U.S. merchants to use terminals that can handle EMV cards by October 2015.