The link between EMV adoption and card-not-present fraud is well documented -- historical data suggest there’s a direct link between the two and most analysts and industry experts say that the United States will face a rise in card-not-present (CNP) fraud.
However, a new report from The Aite Group says that there may be another metric that will increase when chip-and-pin cards arrive en masse in the US: bank application fraud, where people use phantom or stolen identities to get banking products.
Analyst Julie Conroy notes that, as merchants moved to EMV in countries like Australia and Canada, application fraud rose “threefold,” while fraudsters ignored counterfeit fraud, since it became harder and harder to trick. “Criminals will instead use synthetic and stolen identities to obtain their own cards,” wrote Conroy.
At Trustev we've seen this too, with three major banks coming to us recently to vet their online signups.
Application fraud in the U.S. may actually grow at a more dramatic rate than in past transitions to EMV, for a few reasons. First, US-based debit and credit cards have a less stringent criteria for applicants. Secondly, its seems that after adopting EMV, countries saw an increase of “cross-border counterfeit fraud,” where criminals would bring counterfeited cards and use them in non-EMV compatible countries.
The Aite Group writes that the US was a big target since it was the last G-20 country to adopt EMV, meaning that there won’t be a substitute for much of the cross-border counterfeit fraud that’s occurred in previous years.
This is not so much a problem for merchants but for banks and financial institutions. With the application for credit and debit cards getting easier and more of a focus for criminals, there’s a high potential for application fraud for financial institutions. With financial institutions on the hook for most fraudulent transactions, application fraud could be another headache for them.