FMI Report Details Costs of Debit Card Fraud Prevention

The Food Marketing Institute (FMI) has released a report examining the extent to which the organization’s food retailer members are paying a disproportionately higher amount in fraud prevention costs compared with the actual rate of debit fraud in their stores. Signature debit transactions make up 85 percent of all debit fraud, while 41 percent of purchases with debit transactions are completed with a more secure PIN debit transaction.

The report, Debit Card Fraud and the Impact of Regulations on the Grocery Industry, estimates the cost of fraud for the food retailing industry. FMI’s study notes that if food retailers accepted debit cards at the same rate as other stores do, 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.

In spite of the higher frequency of fraud, banks have historically urged consumers to use signature debit cards, which according to FMI are more profitable for banks than PIN debit cards. Retailers absorb 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,” said Leslie G. Sarasin, president and CEO of Arlington, Va.-based FMI. “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 tandem with the report, FMI sent a letter to Ben Bernanke, chairman of the Federal Reserve System, requesting that the board review supermarket costs connected with preventing debit card fraud before finalizing its 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,” added Sarasin. “We’re simply trying to share the facts and be the honest broker in this process.”