EMV Chips Get Credit for a Big Drop in Canadian Debit Card Skimming Fraud

With the U.S. embarking on its gradual implementation of EMV chip card technology beginning this year, recent news from Canada’s national debit network should be encouraging. Introduction of EMV—the Europay-MasterCard-Visa standard—in Canada has helped reduce debit card fraud losses on Interac cards due to skimming to the lowest level since 2003, the Toronto-based Interac Association reported this week.

Debit card fraud losses tied to skimming decreased to (C)$38.5 million in 2012 from a high of (C)$142 million in 2009, down 73%. That represents 0.012% of domestic Interac debit card volume and the lowest volume of fraud losses since data were recorded in 2003. The number of cardholders reimbursed for losses fell to 93,800 in 2012 from 238,000 in 2009. Cardholders are protected from losses under the Interac Zero-Liability Policy.

The implementation of EMV has had a “significant” impact on skimming fraud on Interac cards, says a spokesperson for Interac Association and its parent company, Acxsys Corp. Interac announced the move to the chip, and away from traditional magnetic-stripe cards, in 2005 and began rollout EMV in 2008, the spokesperson says.

Fraud volume peaked in 2009, “when fraudsters knew the window was going to close, and we’ve seen that steady decline since,” the spokesperson says. “It’s been at that 65% conversion number where we started to really see the impact.”

Skimming typically occurs when a consumer swipes his card through a point-of-sale terminal or inserts it in a card reader or ATM (known as an automated banking machine or ABM in Canada) to which a small electronic device that captures the cardholder’s account data from the card’s magnetic stripe has been attached.

Unlike mag-stripe cards, EMV cards often require cardholders to enter a PIN to validate the card to the terminal. The terminal validates itself to the EMV chip by communicating with secure elements within the chip before any account information is transmitted between the two. Chip-only cards protect against skimming, counterfeiting, and transaction replay types of fraud such as electronic pick-pocketing where readers are used to capture information. Chip cards, however, have no special defenses against online card fraud.

At the end of January, 99% of all active Interac debit cards and 99.6% of all ABM cards had been converted to chip, according to Interac. Nearly 90% of point-of-sale terminals had been converted, with all POS terminals scheduled to be converted by the end of 2015.

Interac also is in the process of rolling out Interac Flash, a contactless debit card that uses only chip processing, instead of magnetic-stripe data type processing as a back-up. Flash runs on the EMV chip, but its issuers must add radio frequency identification (RFID) technology to enable contactless interaction between the card and the POS terminal.