It has been found that chip credit card migration in Canada is increasing fraud detection, thus credit card security is increasing. Because of this increased security, charge backs are being prevented. These new chip cards are proving their success in preventing credit card fraud at the point of sale.
Chip credit cards were created to address mounting concerns by merchants about fraud and the high probability of charge backs. For quite some time, credit card fraud has been a profitable enterprise for criminals. Chip cards were designed to tackle the $250 million that was lost due to credit card fraud in 2006. Since then, the growth of credit card fraud has been 25 percent per year.
The Rate Of Fraud
Moneris Solutions, the company that performed the research to show the decrease in fraud and charge backs and the largest credit card payment processor in Canada, has shown that merchants that accept the chip credit cards are seeing fraud at a lower-than-average rate. This is the first time such data has been collected in Canada regarding chip cards and their connection to fraud and charge back reduction in Canada.
As for how these cards work, they have an embedded microchip that contains the account number. The terminals and the cards work together to make sure the transaction is secure. The cardholder then confirms the transaction by using a personal identification number (PIN). This number is input in the terminal. If a person doesn't know the PIN, they cannot use the card. The idea is for a person to only be able to use the card if they know the PIN. A person who is not the cardholder would only know the PIN if they were told by the cardholder what it was. This is opposed to a person simply signing a signature on a terminal, which could be signed by anyone unless those on the receiving end of a transaction religiously checked identification.
Capturing Fraud Early
Capturing fraud before it starts is very important because of how it reduces the odds of charge backs. Reducing charge backs saves merchants money and the worries for consumers that have had cards stolen or lost are reduced.
Figures by Moneris have revealed that the merchants who processed over 40 percent of their daily transactions using the chip terminals have four times fewer charge backs than merchants that processed less than 40 percent of their daily transactions on the old systems. Retailers have said that they are experiencing an average of 2.9 percent less in charge backs as a total, while restaurants are seeing almost two times fewer charge backs than they used to. Because gas stations have fewer fraud occurrences, they were not included in the findings.
Nonetheless, the success in Canada is leading to an increased interest in chip credit cards in the United States. In fact, credit card companies have been warming up to the technology and are rolling them out left and right. Because credit card fraud is so prevalent in the United States, using this way to reduce it can pass a great deal of savings on to the consumer in a number of ways
Importance Of Chip Cards
The importance of chip cards is being emphasized by these findings. Moneris has addressed concerns by stating that the findings have illustrated the importance of chip cards to consumers and merchants. Tremendous value has been shown to everyone along the chain of payment.
Now, almost one-third of the transactions that are processed in Canada are using the new chip cards. This has made the findings by Moneris well worth the work that has gone into them. The findings are leading to many other merchants opting for the chip terminals so they can process the chip cards using the PIN system.
After looking at the data of 21,000 merchants, Moneris found that 40 percent to 95 percent of them had used new chip technology to process their transactions in September 2009. This has made holiday shopping and shopping throughout the year much more secure than it was before the chip system was introduced. So now merchants are eagerly awaiting the arrival of consumers with chip cards. The more consumers there are using the cards, the more secure the transactions are going to be.
Are They Safe?
Despite these findings, there has still been a question of whether or not the cards are safe. With 64 million credit cards circulating across Canada, safety is a question. One concern is that fraudsters will "skim" the cards. This means that they use a device at the point of sale that records the information on the magnetic strip and then a camera close by records you entering your PIN.
The good news is that the chip cards are even eliminating skimming because it is practically impossible to duplicate the smart chip in the card. Chip cards are completely immune to skimming, especially at devices that are not chip-enabled. The information in the strip is encrypted so that duplication cannot be done.
Because of the improvement in fraud prevention, the chip cards have proven to be good for consumers and banks. Consumers are protected from fraudulent transactions on their cards and merchants and banks do not have to deal with the losses. This makes them a very safe option.
All in all, the chip card system is improving the way credit cards are used throughout Canada so that merchants and all involved at the point of sale benefit. By reducing fraud and charge backs, the savings can be passed on to the consumer through reduced prices and much more.