Stopping the Post-EMV Surge in Online Fraud
- By Michael Lynch
- Mar 16, 2017
The predicted increase in online fraud in the U.S. has arrived with the adoption of chip card technology (also known as EMV).
According to data from ACI Worldwide, while online transactions grew in the U.S. by 12 percent, there was a 43 percent increase in online fraud. This spike has been expected, given what was seen in the countries that have already implemented EMV. They experienced a significant reduction in counterfeit card fraud, while online fraud spiked dramatically.
The end of 2016 saw nearly 1.81 million merchants in the U.S. switch to accepting EMV chip cards, more than double the year previous. Experts therefore expect the online fraud figure to continue to rise as even more offline retailers adopt EMV for use in point-of-sale (POS) transactions. As fraudsters are shut out of the in-store channel by EMV, they turn their attention to the online one. Thieves are becomingly increasingly sophisticated in the area, now using fully automated bots to place fraudulent orders using stolen customer data.
Such personal data is now in abundant supply on the black market due to wide-scale data breaches at large retailers and financial institutions. According to Javelin, the number of identity-theft victims rose to a record 15.4 million last year from 13.1 million in 2015. The use of automated botnets to commit online fraud in the U.S. increased by 47% between Q3 2015 and Q2 2016 according to PYMNTS.com. That figure is even higher for orders involving luxury goods—an increase of 87% during the same period.
To fend off these attacks, businesses continue to seek technology to help them stem the tide. Juniper predicts online retailers and financial institutions will increase spending by 30 percent on fraud prevention solutions, hitting $9.2 billion annually by 2020.
Reducing Online Fraud Without Friction
The greatest asset in online payment—the high speed and volume it enables—is also potentially its weakest point. It’s clear the prevention of fraud requires a more thorough review of transactions before they are processed but, at the same time, adding friction to slow down and reduce purchasing volume is not an acceptable solution for either businesses or consumers.
Retailers and other enterprises need the means to protect those transactions from fraud, while still maintaining a positive customer experience. Fortunately, there is a method of tightening security in online purchases that does not introduce friction or otherwise slow down transactions. Through the use of software, retailers can collect information from the device being used to place an order to better assess transaction riskiness and identify potential fraudsters. By noting geographical and time attributes, plug-ins, IP addresses, and other relevant information contained within the device, merchants can better uncover high-risk indicators and establish the device’s trustworthiness.
Armed with this information, online merchants can more precisely identify the bots and other fraudulent techniques and prevent fraudsters from placing orders while continuing to deliver outstanding service to their genuine customers. No friction needs to be added to the ordering process at all. In this system, retailers get the best of both worlds—fast transactions that effectively lock out the fraudsters.
With the widespread adoption of EMV in the U.S., the surge in online fraud is coming. Fortunately, the solution to it is out there and it is only up to retailers to seize it.