Are New Security Measures Making Fraud Worse?

Danielle Beurteaux

200405620-001One unfortunate byproduct of the annual holiday shopping surge is an increase in fraud. And a recent report from ACI Worldwide claims that this year will be particularly bad, with a 30% increase in fraudulent transactions.

Part of the blame lies with the digital economy, as shoppers are using more devices to make their purchases, which brings an increase in “card not present” transactions. Retailers aren’t always asking to see the card with which the online purchase was made when the goods are picked up in store.

The U.S. already accounts for almost half of the global fraudulent debit, credit card, and prepaid card transactions each year, and swipe-and-sign cards are usually blamed.

One new measure that was supposed to help with fraud is the new EMV card. The chip in the card generates a new transaction code each time the card is used, unlike the magnetic strips in the old cards. That information never changed, so once stolen, it could be used over and over. The October 1 deadline for new cards to be issued and retailers to change their PoS technology so they could be used came and went without many consumers receiving cards or many retailers accepting them.

But instead of making transactions more secure, some EMV cards seem to be exacerbating the problem for a couple of reasons. First is that, right now, they still allow the option to swipe and sign, which isn’t as secure as using a PIN to go along with the chip. The FBI recently issued a statement detailing the problems with this compromise for both retailer and shoppers. Some retailers agree, even if they say that the financial outlay to update their PoS technology is too big a burden.

The second is that the cards could increase rates of online fraud (a little financial irony there). This has happened in other countries that have instituted EMV card rules. Digital fraud more than doubled in Australia after the introduction of EMV cards. When it became more difficult to make in-store transactions using stolen cards, the criminal focus turned to digital shopping.

We might be safe this season, in part because so few stores are taking the cards anyway. But buy buttons and mobile wallets, which often lack robust security features, could present a bigger fraud opportunity.

But when it comes to consumers and the digital economy, good old fashioned human behavior takes some of the blame. Eager to score great deals, shoppers often let their guard down and do things like click on links that might look legit but install malware on a device. As any successful fraudster knows, human weaknesses are the same, online or offline.

Retailers are vulnerable to more than credit card fraud. Learn more about what’s behind another major financial risk in Supply Chain Fraud: Where Has All the Money Gone?

Danielle Beurteaux

About Danielle Beurteaux

Danielle Beurteaux is a New York–based writer who covers business, technology, and philanthropy. Her work has appeared in The New York Times and on Popular Mechanics, CNN, and Institutional Investor's Alpha, among other outlets.