Financial Institutions Take Note of Consumers’ Growing Fraud Fear

In a recent article on Bank Systems and Technology, Matt Gunn reported that in a recent update from Unisys Security Index 64 percent of American citizens were seriously concerned about identity theft.  The report also indicated that about two-thirds of Americans are seriously concerned about credit and debit card fraud, while concerns about the safety of online transactions reached their highest recorded levels.

Financial institutions, are taking notice of consumers’ growing worries, especially over debit card fraud. Many banks have already put a lot of resources into meeting credit card fraud management challenges, but until recently debit card fraud has been a back-burner issue. Now it’s getting more attention: witness a recent press release by a regional bank that provides financial services to retail, corporate and small business customers in New Jersey and Pennsylvania, touting the institution’s rewards program that gives customers points when they use their bank cards for signature-based credit POS transactions. The release explains that when an account holder uses a bank card’s debit mode to make a purchase, “the customer's card information and PIN are stored, opening the door to potential security risks and breaches.” 

While it’s true that debit card fraud may cause more damage to a customer account than credit card fraud, attempting to convince customers to shift back to credit card usage doesn’t address the inherent problem.  Consumers have become used to the debit PIN paradigm for buying everything from groceries to electronics. Merchants, in fact, often default to debit when buyers use bank cards, as it typically costs them less to process a sale this way than as a signature-based credit transaction.

Consumers are increasingly more likely to use bank debit cards over traditional credit cards. In this straightened economy, more consumers are relying on their bank debit cards to keep spending in check because the money comes right out of their accounts, and they’re not accumulating debt. The Federal Reserve said in January that Americans borrowed less for the tenth month in a row in November, and that the borrowing category that includes credit cards fell by $13.7 billion.

Moreover, debit card fraud doesn’t just happen when people are out shopping. It can also happen within (or on) a bank’s own four walls. Criminals have been known to place card skimming devices on ATM machines, and tiny cameras inside the machines to record screen information and account holders’ PINs as they key them in.  

Clearly, it’s important for financial institutions to proactively limit exposure to debit card fraud. A compromised debit card opens the door to many more problems than does a compromised credit card. There’s the possibility that fraudsters will be able to infiltrate deposit accounts over time to commit other types of fraud, such as wire and ACH. For banks, investing in debit card fraud protection now is the stepping stone to protecting other channels and other payment instruments that also affect the demand deposit account.