Journal of Financial Market Infrastructures

The impact of microchips on payment card fraud

Guerino Ardizzi


The issue of payment card fraud has received a great deal of attention from the authorities. A large amount of card fraud can be attributed to the phenomenon of counterfeit debit cards. Debit cards are a widely used payment instrument in "face-to-face" transactions. With the advent of the single euro payment area, the European banking community has shared (and almost achieved) the ambitious goal of replacing all payment cards (and accepting terminals) with chipcompatible ones, which are considered harder to clone than those with magnetic stripes. Using biannual balanced panel data from over 100 Italian banks, we estimate the impact that this chip-card migration has had upon card fraud. The results confirm the positive effects of the new technology: the ratio between fraud and ATM/point-of-sale transactions (ie, the card fraud loss rate) decreases significantly if the chip card is used.