The Evolution of Payment System Risk Management
And the Changing Dynamics of Credit Card Fraud Prevention

Boston, MA —
Risk managers in the payment card industry are ready to adopt new approaches to fraud prevention as means evolve in which cards and card users are authenticated at the moment the transaction begins. More sophisticated modes of authentication have arisen as new technology has enabled them.

The payments industry stands poised to move into a next phase of evolution as the prospect of mobile commerce becomes more tangible. Operatives concerned with how these new technologies will change the risks posed to payments systems are also looking at how the same technologies might be leveraged further to make payments systems more secure.

The first objective of The Evolution of Payment System Risk and the Changing Dynamics of Credit Card Fraud Prevention report is to assess selected available statistics about card fraud as reported by various reporting bodies around the world. Secondly, this report presents the discussion of how fraud prevention paradigms are shifting to incorporate emerging technology in the market, as well as more sophisticated schemes by fraudsters. Mercator also reviews some of the implications of the proliferation of EMV, both as a fraud prevention measure and in terms of the risks of late adoption. We conclude with recommendations for payments industry participants who seek to improve security and fraud prevention efforts.

“The industry’s response to ‘The Data Breach Era’ is indicative of an even broader and deeper paradigm shift. The industry is shifting away from the use of static data in payment card processing (in which much of the messaging is transmitted “in the clear?” or much of the process relies on unchanging payment card credentials) to dynamic data (whereupon the messaging in payment transaction processing is encrypted or otherwise changes from one stage of the process to the next, or the process incorporates analytics of multiple changing data sets),” David Fish, Senior Analyst in Mercator Advisory Group’s Credit Advisory Service and author of the report comments. “In these ways, the data created by and used in payment card transactions is, in theory, harder for malevolent actors to decipher, manipulate, and reuse for criminal purposes.”

Highlights of this report include:

The paradigm for fraud prevention is changing in tandem with the criminal activity targeting payments. As fraudsters become more sophisticated so must payment processes evolve to keep one step ahead.

Global fraud is at a relatively low and stable rate, and statistics from various countries with standardized reporting processes show improvement in some instances and deterioration in others.

The fallout from security breaches has stimulated the industry to innovate, resulting in a paradigm shift amidst the conceptualization and implementation of payment card data security.

The use of dynamic data from a variety of sources and in a number of processes involved in payment transactions serves to improve the integrity of the payment system.

Furthering the impact of fraud migration from EMV markets to non-EMV markets is the mandated liability shift for merchants still accepting magstripe transactions.


One of 7 exhibits in this report:

This report is 22 pages long and has 7 exhibits.

Companies mentioned in this report include: Accertify; American Express; CardSystems Solutions; CyberSource; Datacash; EMVco; Heartland Payment Systems; MasterCard; Smart Card Alliance; TJX; United Nations Federal Credit Union; Visa.

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About Mercator Advisory Group

Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world’s largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors.