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.
A nationwide shift to EMV chip cards began in the U.S. in early 2015, yet many are still unaware of how EMV can impact security at the point-of-sale (POS). Every EMV-enabled card has built-in encryption technology, making it very challenging for scammers to hack into and copy. The chip tokenizes payment information instead of transmitting cardholder information at every swipe. This tokenization makes the EMV chip a much safer and more reliable means of transmission of payment information. Merchants bore the brunt of the changes, having to update POS systems to be EMV-ready.
While the changes then 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. In this post, we look at the continued importance of EMV, especially concerning prepaid card issuers.
Prepaid Cards vs. Debit and Credit Cards
Prepaid cards differ from debit and credit cards. 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 card value.
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. Even the Consumer Federal Protection Bureau (CFPB) has acknowledged this popularity and adjusted rules to protect consumers around these cards. These rules included:
- Consumers with registered accounts are to be protected against errors, unauthorized charges, and fraud. The consumer may not be liable for errors or unauthorized charges reported immediately on these cards.
- The card provider must investigate and settle the complaint within 10 business days. Additionally, card issuers are liable for any failures or lapses in providing adequate security for sensitive customer data that is gathered, processed, updated, or stored in their systems, software, or code.
Rules like these 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
The global card market grew from $251.33 billion in 2021 to $271.03 billion in 2022. What’s more, as an increasing number of credit cards meet the EMV standards, criminals have shifted focus to the less lucrative but less protected prepaid cards. 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 most significant 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 transitioned, 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 assured consumers that their payment cards are secure. Consumers may 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 provides 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. For instance, mobile EMV allows for the direct loading of a customer’s account credentials onto a mobile phone or wearable. This method is just as safe as a contactless EMV chip, but it provides more options and greater convenience. EMV is also becoming more and more popular around the world as a global payment standard.
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 consider the added security that EMV provides strongly. 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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