LONDON - September 17: Growing ATM fraud could be a key factor in accelerating U.S. conversion to the chip card, as adoption of the Eurocard Mastercard Visa (EMV) standard 'smart' chip cards leaves the U.S. exposed to organised criminal gangs of fraudsters seeking an easy target.
This is the opinion of Level Four's CEO Martin Macmillan, published today in a whitepaper at the BAI Retail Delivery Show 2004 in Las Vegas. Outlining the very real threat to consumers, the whitepaper details the growth of ATM fraud, and highlights the risks that US banks and card issuers face as it becomes one of the final markets in the developed world still to use magnetic stripe ATM cards.
"The actual cost of ATM fraud, including administrative costs, in the U.S. is approaching $200 million a year and is rapidly increasing," said Martin Macmillan, CEO of Level Four Software. "Despite industry efforts to improve security and customer education, banks and card issuers should consider introducing chip cards into its ATM networks before the situation gets out of control. Other regions of the world are replacing magnetic stripe payment cards to address the rising tide of fraud, and the U.S. is currently behind."
Level Four argues that fraud migration will quickly become apparent as North
America's more immediate neighbors, such as Latin America and Canada, migrate to the EMV standard.
Most countries are looking to tackle card fraud through the use of EMV standard chip cards; the introduction of chip cards removes the main point of weakness in today's infrastructure - the magnetic stripe card, which is cheap and easy to duplicate. EMV becomes standard from January 2005 in Western Europe and some countries in Asia Pacific, and from January 2006 for the rest of Europe, the Middle East, Latin America and Canada.
While ATM fraud is a global problem, many major world economies with exception of the U.S. are moving to embrace EMV standard smart chip cards in their ATM and POS networks. Chip cards radically reduce card counterfeiting and counter the most damaging types of fraud being perpetrated today, due to the complexity of the chip itself and the information it holds. Chip cards also provide a platform for offering value added applications on top of the payment functionality on the cards.
Fraud attacks on ATM networks is of particular concern in the U.S., where the growth in third-party managed ATM networks through independent sales organizations (ISO) provides soft targets for criminals.
ATM fraud in the U.S. has grown rapidly in the last few years, and now stands at around $50 million a year according to estimates by the Electronic Funds Transfer Association (EFTA). ATM fraud has continued to rise globally in 2004, with growth rates in excess of 35 per cent in some countries.
The complex structure of the U.S. industry, with many ISOs and different acquirers and network operators, has made it a challenge for industry bodies, such as the ATM Industry Association (ATMIA), to implement a response.