Europe’s EMV Transition Forces Fraud Abroad

By Pete Rizzo, Editor (@pete_rizzo_)

Six years after the Single Euro Payment Area (SEPA) completed its EMV migration, the European Central Bank (ECB) has revealed that the level of card fraud within the region declined in 2011 to €1.16 billion. This represented a 5.8 percent decrease from the €1.26 billion observed by the E.U. institution in 2010.

The total value of fraud was also found to be on the decline, dropping to 0.036 percent in 2011 from 0.040 percent in 2010. This marked the lowest registered total since 2007 despite an uptick in card usage and the total value of transactions.

But while this news is obviously good for those in SEPA, in countries that have yet to migrate to EMV, card fraud is on the rise. Seventy-eight percent of all counterfeit card fraud was carried out in non-SEPA countries in 2011: a figure that rose 11 percent from 2010.

As of the fourth-quarter of 2011, most merchants, consumers and banks within the SEPA region had completed their shift to EMV, a fact that the authors said heavily contributed to the declines in fraud found in the report. Ninety-seven percent of ATMs, 94 percent of POS terminals and 88 percent of cards had been upgraded for EMV as of this time.

In this Data Point, we’ll break down the organization’s key findings to look at the effects Europe’s EMV migration are having not only on SEPA countries, but those outside SEPA to determine how a similar transition may affect the United States.

POS Terminals Became A Less Important Channel For Fraud

Card-not-present (CNP) fraud was the most used fraud channel for debit and credit cards during the study period, accounting for 68 percent of all fraud. CNP fraud was attributable to 25 percent of fraud at point-of-service (POS) terminals, and 7 percent at ATMs. 

CNP fraud was responsible for nearly half – 48 percent – of all debit card fraud within the SEPA region. Fraud levels were higher at ATMs and POS terminals – 34 percent and 18 percent, respectively.

ATMs Become Bigger Target For Fraud

Though the combined value of ATM and POS fraud decline from 2010 to 2011, fraud at ATMs jumped by 7.4 percent. The report authors indicated that the rise in ATM theft was driven by a 43 percent reduction in POS theft.

In more than half of the cases – 51 percent – ATM and POS fraud was conducted with counterfeit cards. Forty percent of the fraud was the result of lost and stolen cards. The author’s noted that the decrease in counterfeit fraud was “owing to the EMV migration” based on its higher observed levels in non-SEPA countries.

How Europe’s EMV Transition Is Impacting Global Fraud

The ECB found that just 2 percent of fraudulent transactions in SEPA were acquired outside of the region. However, these incidents accounted for 25 percent of all fraud, a statistic the authors attributed to the preference of fraudsters to exploit “low security standards such as magnetic stripe technology.”

The authors concluded, “since EMV migration is almost complete, it is much easier to target non-EMV countries outside SEPA.”

Industry experts have predicted that the United States in particular will see rising levels of fraud by continuing to delay its EMV transition. Major U.S.-based financial institutions such as Discover and Capital One are already seeing fraud increases, the American Banker reported earlier this year.

From 2010 to 2012, Discover’s fraud losses rose 70 percent, due in part to tighter fraud restrictions in other markets.

For more insights and data, view the ECB’s “Second Report On Card Fraud” in full here.