The Food Marketing Institute (FMI) issued a report that examines the extent to which FMI’s food retailer members are paying a disproportionately higher amount in fraud prevention costs compared to the actual rate of debit fraud in their stores. Signature debit transactions account for 85 percent of all debit fraud, while 41 percent of purchases with debit transactions are completed with a more secure PIN debit transaction.
Debit Card Fraud and the Impact of Regulations on the Grocery Industry estimates the cost of fraud across the entire food-retailing sector. The FMI study points out that if food retailers accepted debit cards at the same rate as other stores accept them, they could be paying as much as $3.17 billion in fraud prevention costs, more than 100 times what they actually lose from fraudulent transactions. In fact, 85 percent of all fraudulent debit transactions involve signature debit.
Despite the higher frequency of fraud, banks have historically encouraged consumers to use signature debit cards, which are more profitable for banks than PIN debit cards. Merchants bear more of the cost of fraud on signature debit cards, as liability shifts away from issuers.
“Supermarkets have long encouraged their customers to enter a PIN when swiping a card because it is more secure and efficient, and we believe it’s inappropriate for food retailers to shoulder the cost burden of more fraud-prone signature cards,” Leslie G. Sarasin, president and CEO of FMI, said. “Use of a PIN helps minimize data security risks preventing our customers from a card compromise that may leave them without critical access to funds in their checking accounts.”
In association with the report, FMI issued a letter to the Honorable Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System, urging the Federal Reserve to review supermarket costs associated with preventing debit card fraud before finalizing the Federal Reserve Board’s interim final rule on swipe fee fraud adjustment provisions.
“Intervention in the debit card market was absolutely necessary to increase competition and efficiency in what has been, and remains, a broken market,” Sarasin continued. “We’re simply trying to share the facts and be the honest broker in this process.”