In October When America catches up to Europe with EMV, e-commerce will take a hit

By Bernard Lunn

In October, America will finally make the transition to chip and pin cards.

Chip and pin cards reduce fraud for card present transactions in physical stores. The chip adds another layer of protection for each transaction through a dynamic, unique authentication every time a merchant accepts payment.

That’s great for card-present transactions, but what’s going to happen with online payments? If you live in Europe and buy stuff online you already know the answer, because you will have already faced the additional data you have to fill in.

If the transaction is essential, you persevere. If the transaction is non-essential, you abandon.

Post the October 2015 EMV transition in America, expect e-commerce abandoned shopping carts to go up. Takeaway: short Amazon or other e-commerce vendors. I assume some Hedge Funds are working on that!

The reason is that countries that switched to EMV payment cards experienced a sharp increase in e-commerce fraud (21% in Europe in 2012 after chip and pin was introduced). It is not that e-commerce suddenly became more insecure. The reason for the fraud increase is simply that the fraudsters found it harder to use counterfeit cards in physical stores after chip and pin was introduced. So fraudsters were motivated to target e-commerce instead.

Any ventures that can reduce e-commerce fraud without increasing friction will clean up.

In the meantime, American consumers will face some annoying interruptions to their online shopping experience. It could be additional identity verification input or two factor authentication via an SMS message.

Daily Fintech Advisers (the commercial arm of this open source research site) can help implement strategies related to the topics written about here. Contact us to start a conversation.


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