New data out from FICO shows that physical debit card fraud in the US jumped 70% in 2016. That is because there is not only more debit card usage, but that usage has driven criminals to use more fake card readers to nefariously skim debit card information. Last year, hacked card reader crimes rose 30%. Most of the card fraud comes from ATMs, of which over 66% are owned by non-banks. Over the last several years, that puts card fraud at ATMs up an astonishing 546% according to FICO. Debit card fraud represents the single largest operating risk at many banks and, by our survey, the average bank takes an annual loss of about $0.30 per card which equates to over $1.00 per card of fully loaded cost, including labor and insurance. This is the highest on record for banks and is up about 5% over 2015.
As can be seen below, point of sale (POS) terminals compose the smallest number of fraud types. Those POS terminals that were hacked or where fraud took place are normally outdoor venues such as gas stations and convenience stores.
This physical card fraud was largely predicted with the roll out of EMV card chips in the U.S. Going after credit cards first, issuers have lagged debit cards. As such, more criminals have migrated to ripping off debit card holders, a trend that will continue until more debit cards and ATMs get EMV-enabled. At the end of 2016, for instance, more than 50% of VISA credit cards had EMV chips, while just a little over 40% of debit cards did. While EMV credit card holders are largely protected against hacked physical cards, debit card holders are not.
It is likely that this has already hit your radar screen as it has hit ours. In a survey of banks, here are ten of the most popular steps that are being taken to limit the amount of risk for both the bank and customer:
- Upgrading ATMs and card – this is overdue at many banks and requires making more of a capital expenditure in ATMs and working with card issuers to get out EMV-chipped debit cards.
- Ensure you have updated contact information from each of your customers so you can contact them through a variety of channels including phone, text, and email.
- Provide unusual activity alerts to customers via text or email.
- Get customers on online and mobile banking as these are superior ways to check balances and activity to better monitor their accounts.
- Work with your card provider to make it easy and standard practice that your customers update their travel and debit card usage patterns. This will help both fraud and customer service. Many banks do this by an automated email that goes out three times per year before the very defined bank card usage spikes in July, September, and December. The message for this email is to remind customers of common fraud tactics and let them know that while your bank is standing by to prevent fraud, it is up to the customer to play an active role.
- Educate customers both on your website and in newsletters about non-bank ATMs that look like they are in disrepair, have odd signage or force you to enter your pin twice. Provide pictures of what a card skimmer looks like.
- Educate customers on how criminals snoop over your shoulder at ATMs, how they distract you or how they powder the keypad to see the pin strokes. Show customers the proper technique for covering the keypad when entering their pin and how criminals are often nearby to “help” stuck cards.
- Provide a handy card that customers can store a picture of or keep in their wallet or purse that has your contact information and hours of operation to report ATM or card problems.
- Help customers understand what your bank policy is for theft recovery and how the Federal law doesn't protect debit cards the same way as credit cards. Most bank customers are shocked to know that they could be liable for up to $50 for the first two days of theft and then $500 thereafter. It is better to have this discussion ahead of time and make sure your customers understand that the real risk is on them.
- Build fraud and ID theft protection into a premium deposit account offering as fraud headlines will help drive greater interest over the next couple of years.
Submitted by Chris Nichols on April 20, 2017