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V O L . X X I N O. V I I I A P R I L 2 0 , 2 0 1 5 32 A large data breach in December 2013 shook banks and retailers out of their sense of compla- cency that fraud couldn't happen in their business. In mid-December of that year, Target Corp. acknowledged criminals had stolen customer data from 40 million debit and credit cards from Nov. 27 through Dec. 15. e follow- ing January, Target added 70 million customers aff ected by the breach. e hit to Target was palpable: while other stores saw strong sales the last weekend before Christmas, trans- actions at Target fell 3% to 4% over the prior year, and the company said sales were meaningfully weaker after the breach became public. Costs asso- ciated with the breach topped $200 million, according to a Consumer Bankers Association and Credit Union National Association report. In a broader sense, that breach, com- bined with other highly publicized inci- dents at Home Depot and elsewhere, brought microchip cards to the fore in the United States, which is the last major world economy to adopt the card technology. EMV cards, for Europay, MasterCard and Visa, became popu- lar in Europe more than a decade ago. ey aim to banish fraud in cards used at terminals. Instead of using magnetic stripes, whose numbers are used repeat- edly and are seen as a weak point in the estimated $8.6 billion in card fraud costs annually, the chips generate a one-time code that is good only for each specifi c transaction. e fi rst part of the switch to EMV is scheduled for October. " e United States is probably one of the last major countries on the face of the Earth to implement EMV technol- ogy," says Steve Whitney, executive vice president of risk management, deposit operations and information technology at Norway Savings Bank. "It's striking about how far behind we are when you look at Africa, not to mention Canada." He adds that while the switch to EMV cards is fraud-driven, it also is being prompted by companies wanting to keep a good reputation. e Target breach was a startling wakeup call. According to the PULSE 2014 Debit Issuer Study, 84% of fi nancial institutions reissued all of the exposed cards in response to the Target breach compared to 29% that would typi- cally do so for all exposed cards in other prior breaches. Additionally, 86% of fi nancial institutions said they planned to start issuing EMV cards in the next two years, up signifi cantly from the 50% in 2012, before the Target breach. PULSE noted that 14% of all debit cards were exposed to data breaches in 2013 compared to 5% in 2012, indicating such criminal activity is on the rise. Crooks lurk While Europe saw a dramatic drop in fraud after it initiated its EMV system, criminals are always on the lookout for a chink in the armor. Some are targeting countries still using mag- netic stripes both in machines and in "contactless" settings like the Internet, where card numbers are input via key- boards. "It's always an arms race with fraud," says Nick Holland, analyst and head of payments at Javelin Strategy & Research's Cambridge, Mass., offi ce. F O C U S P H O T O / T I M G R E E N WAY Banks target fraud Plan greater use of microchip cards that are costly but more effective B y L o r i V a l i g r a U.S. lags in global EMV* adoption *EMV (Europay, MasterCard, Visa) microchips for debit and credit cards S O U R C E : Javelin Strategy & Research 1.5% United States 80% Western Europe 40% Latin America Steve Whitney, executive vice president of risk management at Norway Savings Bank, in the computer operations room in Norway.

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