The United States is finally catching up to its European neighbors in terms of adopting the more secure EMV chip credit and debit cards. EMV, which stands for Europay, MasterCard, and Visa, is considered less vulnerable to credit card fraud than magnetic stripe cards because their embedded, encrypted chips cannot be copied by counterfeiters. Despite the ongoing shift to EMV chip cards, projections point to a doubling of credit card fraud from about $3.1 billion to over $6.4 billion in 2018.
How is this possible? Fraudsters will have fewer opportunities to clone cards with illicitly placed magnetic readers, so counterfeit cards will likely become less prevalent. Just as bankers, merchants, and consumers shift to EMV chip cards, fraudsters will have to shift to other devious means of committing credit card fraud. One area prime for fraud involves “card not present” (CNP) fraud.
CNP fraud takes place when someone uses someone else’s credit card to pay for a transaction but does not physically present the card to the merchant. For example, when placing an order over the phone or online. It doesn’t matter if the card has a secure chip or not if the card is not present to be scanned and verified. So long as the fraudster has the credit card’s number, billing ZIP code and CVV (Card Verification Value) number.
CNP fraud is expected to displace the gains made by EMV chip cards, nearly dollar for dollar. This happened when Canada adopted EMV cards a few years ago. According to the Canadian Bankers Association, counterfeit card fraud went down from $245.4 million (CAD) in 2008 to $111.5 million in 2013. At the same time, CNP fraud increased from $128.4 million in 2008 to $299.4 million in 2013.
How to prevent CNP credit card fraud
An article on the subject posted on Pymnts.com offered a three-pronged approach to prevent CNP credit card fraud:
- Tokenization, which makes stolen data useless
- Behavioral analytics, which helps in making authorization decisions
- “3-D secure,” which adds another layer of security such as a PIN or password
Take CNP one step further by using order validation tools to verify customer information and detect signs of potential fraud. For example, DOTS Order Validation will produce an overall quality score based on inputs such as customer and credit card details.
Order Validation cross-validates data against seven distinct contact validation services such as BIN Validation, Address Validation, and Phone Exchange. Mismatches and risk factors (such as if the cardholder’s name is bogus, the shipping and billing addresses are different, or the card is a gift card or from a country of high risk) are immediately flagged before the transaction reaches the payment gateway. Using the quality score and warnings from our Order Validation API, you’ll be better able to detect potential CNP fraud before it happens.