Posts Tagged: MasterCard and Visa


16
Feb 16

The Great EMV Fake-Out: No Chip For You!

Many banks are now issuing customers more secure chip-based credit cards, and most retailers now have card terminals in their checkout lanes that can handle the “dip” of chip-card transactions (as opposed to the usual swipe of the card’s magnetic stripe). But comparatively few retailers actually allow chip transactions: Most are still asking customers to swipe the stripe instead of dip the chip. This post will examine what’s going on here, why so many merchants are holding out on the dip, and where this all leaves consumers.

chiptransVisa CEO Charles W. Scharf said in an earnings call late last month that more than 750,000 locations representing 17 percent of the U.S. face-to-face card-accepting merchant base are now enabled to handle chip-based transactions, also known as the EMV (“Europay, Mastercard and Visa”) payment standard.

Viewed another way, that means U.S. consumers currently can expect to find chip cards accepted in checkout lines at fewer than one in five brick-and-mortar merchants.

Why are so many chip-capable checkout terminals already installed that have not been enabled to actually accept chip cards? Allen Weinberg, co-founder of Menlo Park, Calif. based management consulting firm Glenbrook Partners, examined this very question in a recent column that pointed to several factors holding retailers back from enabling dip-the-chip.

WHAT LIABILITY SHIFT?

New MasterCard and Visa rules that went into effect Oct. 1, 2015 put merchants on the hook to absorb 100 percent of the costs of fraud associated with transactions in which the customer presented a chip-based card yet was not asked or able to dip the chip. The chip cards encrypt the cardholder data and are far more expensive and difficult for card thieves to clone.

Despite the increased risk of eating the entire loss from counterfeit card use in their stores, many merchants are taking a wait-and-see approach on enabling chip card transactions. Weinberg said some merchants — particularly the larger ones — want to turn the often painful experience of training customers how to use the chip cards and terminals into someone else’s problem.

“They see [chip cards] as just slowing down lines and chose to wait until consumers learned what to do — and do it quickly — at someone else’s store,” Weinberg wrote.

Weinberg adds that for many larger merchants, switching on the chip readers also can be a big and expensive project. Part of the problem, he says, is that many integrated point of sale systems — particularly the electronic cash register software for these systems — were just not ready in time for the Oct. 2015 liability shift.

“Even if the software was ahead of the game, they faced long certification queues at many acquirers,” Weinberg wrote. “I believe this is going to be a problem for a while.”

Visa said based on recent client surveys it expects 50% of face-to-face card accepting merchants to have chip card transactions enabled by the end of this year. But even 50 percent adoption can mask a long tail of smaller merchants who will put off as long as they can the expensive software and hardware upgrades for accepting chip transactions.

“My dry cleaner isn’t worried about someone using counterfeit cards at his cash register,” Weinberg said, noting that many businesses meanwhile discount the chances that hackers will siphon customer cards by sneaking malicious software onto point-of-sale devices — a problem that has lead to one breach after another at brand name retailers, restaurants and hotels over the past several  years. Continue reading →


27
Oct 14

‘Replay’ Attacks Spoof Chip Card Charges

An odd new pattern of credit card fraud emanating from Brazil and targeting U.S. financial institutions could spell costly trouble for banks that are just beginning to issue customers more secure chip-based credit and debit cards.

emvblueOver the past week, at least three U.S. financial institutions reported receiving tens of thousands of dollars in fraudulent credit and debit card transactions coming from Brazil and hitting card accounts stolen in recent retail heists, principally cards compromised as part of the breach at Home Depot.

The most puzzling aspect of these unauthorized charges? They were all submitted through Visa and MasterCard‘s networks as chip-enabled transactions, even though the banks that issued the cards in question haven’t even yet begun sending customers chip-enabled cards.

The most frustrating aspect of these unauthorized charges? They’re far harder for the bank to dispute. Banks usually end up eating the cost of fraud from unauthorized transactions when scammers counterfeit and use stolen credit cards. Even so, a bank may be able to recover some of that loss through dispute mechanisms set up by Visa and MasterCard, as long as the bank can show that the fraud was the result of a breach at a specific merchant (in this case Home Depot).

However, banks are responsible for all of the fraud costs that occur from any fraudulent use of their customers’ chip-enabled credit/debit cards — even fraudulent charges disguised as these pseudo-chip transactions.

CLONED CHIP CARDS, OR CLONED TRANSACTIONS?

The bank I first heard from about this fraud — a small financial institution in New England — battled some $120,000 in fraudulent charges from Brazilian stores in less than two days beginning last week. The bank managed to block $80,000 of those fraudulent charges, but the bank’s processor, which approves incoming transactions when the bank’s core systems are offline, let through the other $40,000. All of the transactions were debit charges, and all came across MasterCard’s network looking to MasterCard like chip transactions without a PIN.

The fraud expert with the New England bank said the institution had decided against reissuing customer cards that were potentially compromised in the five-month breach at Home Depot, mainly because that would mean reissuing a sizable chunk of the bank’s overall card base and because the bank had until that point seen virtually no fraud on the accounts.

“We saw very low penetration rates on our Home Depot cards, so we didn’t do a mass reissue,” the expert said. “And then in one day we matched a month’s worth of fraud on those cards thanks to these charges from Brazil.” Continue reading →