By Dr. Manfred Mueller and Louis Modell
Are you all caught up on The Rise and Potential Fall of Fraudulent Card Not Present (CNP) Transactions: Part 1 and Part 2?
What If Card Not Present (CNP) Transactions Were as Secure as Card Present (CP)?
Yes, online purchases are supposed to be quick and easy. Frictionless, instant purchases are what online merchants want. But with the increased amount of identity theft and fraud, consumers need something to change.
Every car owner is used to presenting their credit card at a gas station. Why not present your card prior to an online purchase? Consumers are used to inserting their card into a reader at the point of sale (POS) — so why would they mind doing the same at home?
Since the introduction of EMV (which stands for Europay, MasterCard, and Visa and is a global standard for credit cards that uses computer chips to authenticate and secure chip-card transactions), consumers are being mandated to use chips at the POS.
The younger generation is not intimidated by technology, especially using a chip card for a purchase. Using an EMV reader at home or on mobile devices during an online purchase is anything but far fetched.
Let’s Leverage the Hundreds of Millions EMV Cards in Use Today
What if we set the standard for online purchases by incentivizing the use of EMV cards? The single biggest benefit for merchants and issuing banks would be the reduction of fraud.
In 2014, CNP fraud cost $2.8 billion and is estimated at $3.8 billion for 2016. If fraud was cut by even 25%, we’d see a savings of $950,000,000 .
CP chip transactions by authorized users have significantly reduced fraud, saving an estimated $5.2 billion in 2017. With the adoption of EMV, CNP will start to see those same savings.
The Big Benefits for Consumers
Consumers are just as concerned about online fraud and identity theft as merchants and banks. Most people have suffered at least one incident involving a compromised credit card or the hacking of confidential information. Recent high-profile breaches include Target, LinkedIn, Anthem, Yahoo, IRS, Department of Justice, and MedStar Health. Consumers will use a product if it increases security and/or eliminates online purchasing fraud.
As if protecting identity and eliminating fraud weren’t incentive enough, what if additional benefits were built into using an EMV card for online purchases? Think discounts on purchases, reward points, premium access to content, and cashback — or additional features and functionality, like storing URLs, FIDO credentials, form-fills, and favorites.
The Compelling Case for Merchants
When a merchant starts accepting online orders, they’ve officially entered the CNP world. But what they need is the security of the CP world. The ultimate goal should be to drive more business to a merchant’s online store and increase online sales due to the new added security and benefits of using EMV chip cards.
So how can merchants make this happen? First, they need to accelerate check out for and reward consumers that pay with a chip — of course, consumers should be able to choose between methods of payment (including cards already on file), but adding an incentive for EMV use can only benefit everyone involved.
Next, if transaction processors and card issuers lowered transaction fees for chip cards, including flat rates, incidentals, charge backs, payment gateway fees, etc., merchants would see an immediate increase in profits (and in turn, banks would acquire new card members and consumers would enjoy the discounts and perks, as noted above).
The argument seems so simple. Wouldn’t you want to save money, reduce help desk and customer service calls, and ultimately, prevent fraud? An EMV smart card reader is plug-and-play. There is little to no cost for the merchant. It can essentially be paid for through the reduction in fees and fraud. Plus, merchants can drive brand loyalty by issuing cards. It seems like a win/win.
But there are other stakeholders in this system…
What’s in It for Payment Gateway Providers, Acquiring Banks, and Card Issuers?
Payment Gateway Providers
PayPal. Amazon. WorldPay. Stripe. Braintree. Auth.net. Yes, even these bigwigs can benefit. If payment gateway providers support EMV cards for online purchases, it can increase their customer base and improve customer experience. Imagine decreasing or eliminating fraudulent transactions altogether, thus reducing the workload of managing and resolving claims.
The acquiring bank (a.k.a. merchant bank or acquirer) is the financial institution that maintains the merchant’s bank account. The contract with the acquirer enables merchants to process credit and debit card transactions. The acquiring bank passes the merchant’s transactions along to the applicable issuing banks to receive payment. With EMV card adoption, merchants can increase their online business, creating more transactions, and thus, more revenue in transaction fees for the acquirer. All the while, the decrease in CNP fraud can eliminate chargebacks and undo extra processing and reporting work.
Last, but not least, let’s consider how the credit card issuing bank wins in this system. Can issuers like American Express, Visa, and MasterCard increase brand loyalty by offering a product for secure online purchases and increase their cardholder base by acquiring new customers? Yes. Can they decrease fraud and increase profits? You bet. Can they differentiate their brand and add additional customers by being among the first in the market enabling EMV CP transactions for online purchases? Absolutely. Can they decrease or eliminate chargebacks completely, saving on processing time, fees to merchants, and associated headaches and friction with banks and merchants? Undoubtedly. Can they dramatically reduce or eliminate customer service calls and time spent handling online fraud claims? Again, of course they can.
It seems like we just might be on the cusp of the fall of fraudulent CNP transactions. Whether you’re an online consumer, a merchant, or a bank, the choice is quite literally at your fingertips.