Throughout the years, more and more cases of credit card fraud have been reported. Credit card fraud accounts for 40% of all cases of financial fraud worldwide. In America, 10% of all Americans have fallen victim to credit card fraud. One of the main reasons is due to the magnetic stripe technology credit card companies use to store financial information in credit cards that have become incredibly easy to replicate once all the necessary information have been stolen.
In 2013, Target suffered a major breach of information as hackers reportedly stole payment records of almost 110 million customers and is considered to be one of the largest security breaches in history. As a result, customers have become increasingly restless and Target has struggled to regain their customers’ trust. Interestingly, Target was not the first to fall to hackers and will not be the last in what is now called as an identity theft epidemic.
Reportedly more than 4 billion data records were stolen globally in 2016. A great number of the stolen information are financial information that could be used for credit card fraud, which has risen over the years and has threatened to continue to rise unless an effective security measure is in place.
In an effort to reduce, or even eradicate, credit card fraud, EMV chip cards have replaced the standard magnetic strip cards to make it more difficult to commit fraud. EMV stands for EuroPay, Mastercard, and Visa, the three payment networks that worked together to form a universal standard for card payments.
EMV chips prevent credit card fraud by producing a unique cryptographic code for every transaction, which makes it difficult to replicate. Even if the card information has been compromised, those with counterfeit cards are unable to use their card for transactions since they would have no way of producing and/or reproducing the chip’s cryptographic code. This is also used in conjunction with a PIN (Personal Identification Number) in order to have a second mode of authentication for the card.
Even though EMV chip card technology was already in place, merchants were still non-compliant and would not install chip terminals. A major shift in liability occurred when it was announced that merchants who did not have EMV-chip-reading terminals would be made liable for fraudulent transactions. Before it was announced, banks would absorb the charges and would have suffered losses. After the announcement, merchants would reimburse the banks for those charges.
With the advent of the EMV chip, credit card fraud has been reduced considerably. Although it is not perfect and it still has its vulnerabilities, it has been quite effective and will continue to be effective once security features and policies are set in place.