U.S. payments fraud is expected to rise unless the industry looks towards new technologies, such as contactless chip cards, the Smart Card Alliance said in a new white paper released. “Fraud in the U.S. Payments Industry: Fraud Mitigation and Prevention Measures in Use and Chip Card Technology Impact on Fraud,” was developed by the Contactless and Mobile Payments Council, and is available here.
Much of the fraud on debit and credit cards in the United States results from activities like counterfeiting and card skimming. Credit and debit card fraud is possible because magnetic stripe cards use static data that can be copied and reproduced on fraudulent cards or used in an Internet purchase transaction.
The Alliance does not see protection of data or better fraud detection techniques as the solution to the fraud problem. Rather, the solution is to replace this static data with dynamic data, because it renders stolen account or transaction information useless.
To achieve this goal, the Smart Card Alliance recommends contactless chip cards, already implemented throughout the United States. Current contactless payment devices generate dynamic cryptograms, or encrypted codes, similar to those generated by EMV payment cards, so certain data on the card and the terminal change with every transaction.
The authentication of the cryptogram assures the issuer that the card presented is authentic. If data is copied or intercepted at the reader, the data is already obsolete for future transaction attempts, and cannot be used successfully to counterfeit cards or replay transactions. Importantly, the current U.S. payments infrastructure can already handle the contactless payment dynamic cryptograms.
The new white paper provides an overview of current fraud levels in the U.S. and of projected trends based on the move to EMV outside of the U.S. The different approaches used by the U.S. payments industry to combat fraud are described, with a discussion of how new technologies and processes, particularly chip card-based technologies and processes, help to mitigate card-based fraud losses.