The arrival of EMV chipped cards could trigger an increase in credit-card related scams, but analytics could help institutions combat the problem.

“The U.S. has $3 billion in losses associated with the card-present fraud, when we roll EMV out where is that fraud going to migrate to? The fraudsters are not going to give up that type of income,” said Dena Hamilton, vice president, business solution group of the Americas, at BAE Systems Applied Intelligence.

To reduce counterfeit, lost and stolen card fraud, and to protect cardholder data, nearly every country in the world widely deployed EMV. As a result, fraud attention turned toward the U.S., where an estimated 7.7 million people reported the fraudulent use of a credit card, according to December 2013 Justice Department statistics.

Much of the focus to date has been on how EMV will stop much of the bleeding from card-present fraud, but the history in other countries showed fraud moved toward the path of least resistance to other areas of exposure.

The good news-bad news scenario, according to Hamilton, was following other EMV rollouts such as in the United Kingdom, the Asia-Pacific and Canada, the statistics showed successful EMV rollouts decrease card fraud. However, there is also a 300% to 400% jump in application fraud.

“Application fraud rises because it is perpetrated by identity theft.” Hamilton pointed out.

Application fraud can take place several ways. Criminals often first commit typical identity theft, whereby they steal someone's identity to open an account. When successful, fraudsters often springboard into adding themselves to a valid account through ID manipulation.

In ID manipulation, also called synthetic identity fraud, criminals use actual information, such as social-security numbers, to create fake identities. Technology research and consulting firm Gartner estimated synthetic identity fraud makes up 20% of current credit charge-offs and 80% of credit card fraud losses.

BAE Systems said it proactively monitors for application frauds in real-time, as well as in the post-process, through a combination of analytical approaches.

“The system looks for anomalies at the individual or personal level, any anomalies in the application itself and at a network level, so we can do linkage across customer accounts and entities to see if we can see any anomalous behavior,” Hamilton said.

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Roy Urrico

Roy W. Urrico specializes in articles about financial technology and services for Credit Union Times, as well as ghostwriting, copywriting, and case studies. Also: writer/editor of a semi-annual newsletter for Association for Financial Technology since 1997 and history projects funded by the U.S Interior Department, National Park Service and Warren County (N.Y.).