Here is a new white paper from the Smart Card Alliance that looks at fraud from the issuer’s perspective. Contributions came from the payment brands, issuers and industry --- speaking in one voice.  It goes into depth about the types of payment fraud and approaches to combat it and where chip technology fits into risk mitigation approaches. There’s also detail about the cost of fraud. This follows our recent position paper advocating contactless with dynamic cryptograms in online authentication as a good direction for the U.S. payments industry to stop payment fraud.  Among the paper’s conclusions: magnetic stripe cards are the culprit for U.S. fraud problems. By incorporating dynamic data into payment transactions, stolen account or transaction information is rendered useless.

Much of the fraud on debit and credit cards in the United States results from activities like counterfeiting and card skimming.  Credit and debit card fraud is possible because magnetic stripe cards use static data that can be copied and reproduced on fraudulent cards or used in an Internet purchase transaction.  The Alliance does not see protection of data or better fraud detection techniques as the solution to the fraud problem. Rather, the solution is to replace this static data with dynamic data, because it renders stolen account or transaction information useless.

To achieve this goal, the Smart Card Alliance recommends contactless chip cards, already implemented throughout the United States. Current contactless payment devices generate dynamic cryptograms (encrypted codes), similar to those generated by EMV payment cards, so certain data on the card and the terminal change with every transaction. The authentication of the cryptogram assures the issuer that the card presented is authentic. If data is copied or intercepted at the reader, the data is already obsolete for future transaction attempts, and cannot be used successfully to counterfeit cards or replay transactions. Importantly, the current U.S. payments infrastructure can already handle the contactless payment dynamic cryptograms.



“Use of the contactless chip card technology already in place will set the stage for eventually moving to globally-interoperable EMV cards and terminals,” added Vanderhoof. “Once the payments infrastructure moves to EMV, U.S.-issued payment cards will benefit from the same highly secure and globally interoperable payments infrastructure as in the rest of the world.”



The new white paper provides an overview of current fraud levels in the U.S. and of projected trends based on the move to EMV outside of the U.S. The different approaches used by the U.S. payments industry to combat fraud are described, with a discussion of how new technologies and processes, particularly chip card-based technologies and processes, help to mitigate card-based fraud losses.



About Contactless Card Issuance and Acceptance



Contactless cards have been issued in the United States since 2004. As of June 2009, more than 90 million contactless cards, fobs, and tags have been issued by multiple card issuers under the brand names American Express, MasterCard, and Visa. More than 130,000 merchant locations accept contactless payments today, including a broad cross-section of merchants in a wide variety of merchant categories.



About the Smart Card Alliance Contactless and Mobile Payments Council



The Contactless and Mobile Payments Council is one of several Smart Card Alliance technology and industry councils. The Council was formed to focus on facilitating the adoption of contactless and mobile payments in the U.S. through education programs for consumers, merchants and issuers. The group is bringing together financial payments industry leaders, merchants and suppliers. The Council’s primary goal is to inform and educate the market about the value of contactless and mobile payment and work to address misconceptions about the capabilities and security of contactless technology. Council participation is open to any Smart Card Alliance member who wishes to contribute to the Council projects.



About the Smart Card Alliance



The Smart Card Alliance is a not-for-profit, multi-industry association working to stimulate the understanding, adoption, use and widespread application of smart card technology.



Through specific projects such as education programs, market research, advocacy, industry relations and open forums, the Alliance keeps its members connected to industry leaders and innovative thought. The Alliance is the single industry voice for smart cards, leading industry discussion on the impact and value of smart cards in the U.S. and Latin America. For more information please visit http://www.smartcardalliance.org.



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