Why EMV is Still Important for Fighting Prepaid Card Fraud

EMV was once viewed as an unnecessary cost for prepaid issuers, but the tides have changed. Learn how this standard can help fight new waves of fraud crashing into the prepaid realm.

Introduction
EMV has been rolled out in the U.S. for three years now, though many are still unsure of how EMV can impact security at the point-of-sale (POS). Merchants bore the brunt of the changes, having to update POS systems to be EMV-ready or face the consequences of shifted liability after the October 1, 2015 cutoff date. Many rushed to update systems, train staff, and ensure that stores were completely EMV-compliant, while others lagged behind. Independent of merchant behavior, business continued as usual. It’s projected that total installed EMV terminals in the US will hit roughly 65% before the end of 2020.

While the change largely impacted credit and debit card users, issuers and the merchants that accept these forms of payment, prepaid cards were also an affected group. Prepaid card issuers face similar fraud and security risks as those associated with debit and credit cards—and more. Prepaid card issuers must be sure that their cards are functional across the globe, even at merchants that are EMV-capable. The transition—like with credit and debit cards—has not been seamless. We look at the continued importance of EMV, especially as it relates to prepaid card issuers.

Prepaid Card vs. Debit and Credit Cards
Prepaid cards differ from debit and credit cards exactly like they sound: rather than being linked to a bank account (like debit cards) or having the ability to draw funds on credit (like credit cards), prepaid cards allow users to spend money they have already loaded onto the card. As such, prepaid cards are more susceptible to fraud and theft because their equivalency is closer to cash than any other card. This is especially true as prepaid cards often have fewer consumer protections than credit or debit cards, depending on the amount of the card.

Open-loop cards have become especially popular. These cards, which are issued in partnership with the card brands (Visa, MasterCard, etc.), can be used anywhere those networks are accepted. In recent years, the Consumer Federal Protection Bureau (CFPB) has acknowledged this popularity and adjusted rules to offer consumers some protection around these cards. Most recently, the CFPB has released the following rules to extend protections on prepaid cards:

  • Proposed amendments that require consumers to register accounts in order to receive benefits related to error and fraud, including the ability to dispute transactions and recover stolen money. This change could extend retroactively, to enable these rights to users who encountered fraud prior to registering their account, but after having their identity verified.
  • Provide additional flexibility to consumers using credit cards linked to digital wallets, which often serve as a sort of prepaid account since consumers are using them to both store and access funds in a direct manner. The new rule would ensure that consumers receive full federal credit card protections on their regular credit cards, but also streamline the ability to link those accounts to digital wallets to store funds.

Due to the complexity of implementation surrounding some of these rules, the CFPB has extended the effective date to April 1, 2019. Rules like this—and the quickly approaching deadline—put the impetus on prepaid card issuers to implement security measures on the cards they issue to ensure that fraudulent transactions are minimized.

The Role of EMV in Fighting Prepaid Card Fraud
Industry analysts note that general purpose reloadable prepaid cards have grown significantly from under $1 billion in 2003 and are expected to reach $116 billion by 2020. What’s more, as an increasing number of credit cards meet the new EMV standard, criminals have shifted focus to the less lucrative but less protected prepaid cards. FIS notes that about 3.4 million people lost control of their prepaid cards in 2017, triple the amount of 2016. This astounding number means that prepaid card issuers have a lot of work to do in security prepaid card transactions. EMV plays a critical role in this.

The reluctance on the part of prepaid issuers to adapt EMV capabilities once made sense; it seems an unnecessary expense with little promise of preventing the forms of fraud specific to the prepaid market. However, since fraudsters have now shifted focus to this realm, the urgency of the threat is apparent. Additionally, EMV migration is significantly less costly than it was even one year ago, thanks to emerging technology.

Perhaps the greatest indicator that the time is right for prepaid processors to issue EMV-ready cards is the rate of consumer acceptance. As traditional debit and credit cards have already made the transition, consumers have grown to accept and even expect this experience in all their payment card transactions. The near-ubiquitous nature of cards with the EMV chip has given consumers some added assurance that their payment cards are secure. It may be possible that consumers go out of their way to avoid cards that do not have this feature in the future.

In addition to offering more peace of mind to consumers, EMV also offers added benefits for prepaid issuers looking to implement emerging technologies into their products. EMV has positive ramifications that touch across mobile, wearables, and other emerging technologies.

Conclusion
While many prepaid issuers have been hesitant to support secure EMV issuance, the tides are changing. The shift of criminal focus from credit cards to prepaid and mag-stripe cards has put pressure on prepaid issuers to strongly consider the added security that EMV provides. In conjunction with new rules being rolled out by the CFPB, it behooves prepaid issuers to consider EMV compliance in issuing cards, especially as consumers grow more comfortable with this security measure and even come to expect it.

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