By Jane Clabby, Clabby Analytics
EMV (Europay, MasterCard and Visa – the three companies who developed the EMV standard) is a global standard for credit/debit cards that use computer chips to authenticate and secure chip-card transactions. More secure than magnetic stripe (magstripe) cards, EMV chip cards encrypt bank information with a unique transaction code each time the card is used for payment. As a result, if transaction data is stolen, it cannot be used again – greatly reducing the risk of counterfeit card fraud. Businesses and credit card companies are in the midst of a transition between magstripe-based transactions and chip-based transactions.
In a recent briefing with Marc Borbas, VP of Marketing at INETCO, a global provider of real-time transaction monitoring and analytics software, he described how INETCO is helping ease this transition by providing insight to (1) prioritize terminal migration to EMV (2) identify fraudulent usage patterns in non-EMV devices (3) provide information on why EMV-capable transactions have defaulted to magstripe and (4) discover how to reach peak EMV efficiency.
INETCO Insight and INETCO Analytics give both card issuers and merchants the ability to make data-driven decisions during the EMV transition to reduce fraud liability, improve transaction performance and optimize terminal conversion.
INETCO Insight provides agent-less transaction monitoring software and a data streaming platform for a real-time, end-to-end operations view into the performance of all digital banking transactions in all banking channels, self-service networks, and payment processing environments. By using real-time network-based data capture rather than collecting data in log files, for example, all transaction data is collected – including failed transactions, transaction attempts, fragments and duplicates, enabling IT operators to proactively identify issues.
As banks increasingly shift from human interaction to a range of self-service channels, valuable customer-oriented data is generated that can help financial institutions better serve their customers. The INETCO Analytics on-demand banking and customer analytics platform analyzes this collected data to provide business insight into how customers are interacting with retail banks and financial institutions – improving both profitability and customer experience. EMV migration is one example of how INETCO can collect and analyze transaction data to provide business value.
The adoption of EMV has already contributed to a drop in counterfeit fraud rates, with Visa reporting in May 2016, a 47% drop in counterfeit fraud in EMV-enabled merchants compared to the previous year. This may sound like good news, but according The Strawhecker Group, by September2016 only 44% of US retailers were estimated to have EMV-capable terminals, while only 29% could actually accept chip-based payments. As the window of opportunity is closing as merchants and credit card companies make the change-over, MasterCard has seen a 77 percent increase in counterfeit card fraud year-over-year among merchants who have not completed the transition to EMV. In fact, $4 billion in fraud is expected this year, and as much as $10 billion is predicted between now and 2020, according to a new study from antifraud company iovation and financial industry consultant Aite Group.
Initially, the responsibility for fraudulent transactions was with the card issuer, but after October 1, 2015, liability shifted to the merchant (in most cases) if they had not upgraded systems to use chip-enabled cards, devices and transactions. This provides an incentive for both card issuers and merchants to make a speedy transition to chip technology.
But this transition is not without its challenges; with better security comes increased complexity. The transaction size is larger, and the chip, card and pin all need to be verified- which may impact performance. The new terminals are expensive and software may need to be upgraded to ensure interoperability. In addition there are many decisions surrounding the transition itself. Which terminal locations should be migrated first? What is the competition doing? What is my transaction volume and which terminals are the most profitable? What is the customer density in a given location?
INETCO and EMV
As stated earlier there are four ways that INETCO can help with EMV migration. Let’s look at each of these in greater detail.
- Prioritize terminal migration to EMV –Many factors should be considered when looking at which terminals to migrate first. INETCO’s analytics can determine where non-compliant terminals are located and assess the impact. By analyzing transaction volumes through a particular terminal and/or profitability, these terminals can be upgraded first. By looking at customer density within a particular location, businesses can decide to move new terminals to a different location.
- Identify fraudulent usage patterns in non EMV devices – For businesses in the midst of the transition to EMV, INETCO can collect and analyze information to detect activity in magstripe transactions that could indicate fraudulent usage, minimizing financial exposure. For example, if a transaction is identified as high-risk based on a particular pattern (volume, time-of-day, location etc.) the transaction can be declined.
- Provide information on why EMV-capable devices have defaulted to magstripe – Since many businesses now are running magstripe and EMV in parallel as they shift over, it is important to identify why a particular transaction that should have been processed as EMV wasn’t. INETCO can easily spot transactions that should have gone EMV, and identify the source of the issue and also help with charge-back dispute resolution. In addition, operators can see the split between magstripe and EMV in real-time and/or set an alert if the threshold reaches a specified metric.
- Discover how to reach peak EMV efficiency – INETCO has identified three dimensions that should be considered during EMV migration. First, businesses should look at terminals and what % has been converted. Configuration, certification and roll-out issues should be identified so that each conversion can benefit from knowledge gained from previous ones. Merchants should be educated to understand the benefits of converting. Second, cardholders should look at what % of the customer base is active and how the cards are functioning. Consumers, too, should be educated on the security benefits of using chip-cards. And finally, businesses must look closely at the transactions themselves and how to achieve top performance: Are there software upgrade and interoperability issues that are affecting transactions? And if so, what is the impact and how can the issue be resolved.
With so many changes in the way consumers interact with banks via mobile, on-line and other self-service channels, INETCO has evolved to support not only IT operators in proactively identifying performance issues, but business managers as well. With collected transaction data and INETCO Analytics, customer behavior and preferences can be analyzed to improve user experience and fraud patterns can be detected for better risk management – providing a much broader range of potential use cases for INETCO.
During the briefing, Borbas introduced the concept of the “Uberbanked Consumer,” today’s consumer who is faced with many banking options outside the realm of traditional banking where the loyal customer selects a single bank to provide checking, savings, money market accounts, mortgage and other financial needs. The Uberbanked consumer values convenience, consumer experience and a good deal – and will use a range of solutions from a range of financial institutions that are both traditional (bank) and non-traditional (Venmo). Because these users are fickle, transaction performance is becoming more and more important as these traditional financial institutions compete to maintain customer loyalty and mindshare. This is another use case where INETCO can provide unique value.
I also inquired about Blockchain, a protocol that originated in 2009 at Bitcoin to record financial transactions and has evolved since then to record the transfer and ownership of assets in many industries, providing database records that are validated and propagated, and more importantly, cannot be changed or deleted. INETCO is following this potentially disruptive trend closely, and believes there may be a future opportunity for the company to provide a centralized view of a system that is inherently decentralized.
I was pleased to see that INETCO has stuck to its roots in transaction monitoring and analytics for payment processing and financial institutions. At the same time, the company is well-positioned for the future–embracing new types of users, additional retail banking channels, adjacent industries (such as retail) and a growing portfolio of use cases.