Research Director of the Aite Group, Julie Conroy, talks payments fraud and the growing impact of the migration to EMV, with PaymentEye's Senior Reporter, Sarah Gill, in our Finetics™ Studio at Money20/20.
Sarah Gill, Reporter: I'm joined by Julie Conroy, Research Director at Aite Group. Welcome. One of the biggest stories in the US at the moment is migration to EMV. How is that going, firstly, and what do you think the impact it's going to have on fraud in the US?
Julie Conroy: You know, it's an interesting time to have Money2020, just 25 days after the liability shift. I think October 1 was kind of like Y2K. It was a little bit anticlimactic. But we're going to see the snowball effect as more cards come in market, more terminals come in market, you know, consumers start getting trained, which I think the education is one of the biggest gaps in this. But it's going to progress, and then we're going to see adjustments to the way people pay, the way fraudsters attack the payment system from there.
Sarah Gill, Reporter: I mean, do you think people are dragging their heels? Do you think there is enough awareness about why this is necessary?
Julie Conroy: I don't think there is enough awareness at the mass consumer level. Unlike the UK, where you guys had the benefit of government backing in the education process and you had the "I Heart PIN" Day on February 14, 2006, we have none of that here. And so we haven't had the mass media blast to educate people about why this is happening, that they have to dip, that they can't forget the card in the reader. And so we've had a little bit of early pain. You know, we did a survey and found out that only 16% of merchants had any formal training planned for their front-line staff. And so we're already seeing that manifest in terms of longer transaction times, longer queue times. So it's going to be a little bit of a rocky road for the next few months.
Sarah Gill, Reporter: And I guess the US has been sort of like low-hanging fruit--is that fair to say--for fraudsters?
Julie Conroy: It is very fair to say. We've been easy pickings. I mean, we've seen the counterfeit card fraud rise commensurately as a result. So 2012, we had $2 billion worth of counterfeit card fraud in the US market. 2014, we are already up to $3 billion. So it's crazy.
Sarah Gill, Reporter: That said, it's a huge job. I mean, what kind of, do you think, the short-term impact of the shift will be, or do you think it will be more of a longer-term impact in the broad? Or do you think it will push forward out into international, away from the US?
Julie Conroy: All of that's going to happen, but it's going to happen very gradually. Because we're the largest card market to go. We are by far the most fragmented. So we're not going to see these dramatic shifts overnight. But over time, I think we'll see things very similar to what you experienced in the UK, where fraud shifts to the CNP environment, where fraudsters start committing more application fraud so that they can get the cards for themselves instead of buying stolen card numbers in the underground. I think we're going to see things like gift card fraud migrate from the big box stores, who are already upgrading, down to the small mom-and-pops, who unfortunately can't really survive that.
Sarah Gill, Reporter: And so is there any trend you're particularly concerned about in the industry? Or do you think there's something people could be working better on to prevent fraud?
Julie Conroy: I think that the gradual trend towards CNP fraud is something we all need to be concerned about. We saw the spike in the UK, we saw a similar spike in Canada. As the UK and Canada went, we still have a solid amount of counterfeit fraud that was taking place as the bad guys made up counterfeit cards and took them to other countries, often the US. As we go, there's no other market of sufficient size and scale to service an outlet. So we're going to have a lot less counterfeit card fraud as we progress. That's going to put extra pressure on the CNP channel. So I think that that is something for us all to keep an eye on.
I also think the education piece can't be underestimated. And I've actually spoken with merchants that are planning to--they've already turned on EMV for a month. They're planning to turn it off over the holidays because they're so worried about the attrition due to long lines due to confusion. So they're willing to experience and absorb some fraud rather than inconvenience customers.
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