The Cost Of Debit Card Fraud To Banks And Credit Unions

Debit card fraud is a serious and growing problem for banks and credit unions. Every year, institutions lose millions of dollars to fraudulent charges. But what exactly is debit card fraud? And how can financial institutions better protect themselves from losses?

If you’re a financial institution, you know how costly debit card fraud can be. In addition to the money lost to fraudulent charges, banks and credit unions also incur costs for investigating and resolving fraud cases, and often lose trust with customers and members.

A recent report from LexisNexis shows that today, for every $1 stolen through fraud, including debit card fraud, banks and credit unions total liabilities average $4.36. This means the true cost of fraud is over four times the value of the stolen funds.

Real-time AI software can help protect your institution against debit card fraud. By monitoring accounts in real-time for suspicious activity, AI can help catch fraudsters in the act before financial damages mount. Real-time AI software analyzes transactions as they’re occurring, not simply in post transactional batch data analysis like legacy solutions. This is why debit card fraud detection using AI can be so effective.

Today, investing in real-time software to protect against debit card fraud is a must for all financial institutions. Besides the promise of reducing the overall costs associated with debit card fraud, real-time Ai helps to better protect your customers’ and members’ PII and accounts. Simply put, it can help keep your institution’s reputation and balance sheet strong.

What Is Debit Card Fraud?

Debit card fraud occurs when someone uses your customers’ or members’ cards without permission. This can happen if someone steals their card or gets their card number and PIN and either creates a clone card or uses the card and PII data online during a card not present transaction.

Worse, with all the card details cloned and the PIN number known, fraudsters can drain physical cash from a victims account at almost any ATM, globally.

Debit card fraud is a serious problem for banks and credit unions, as they are responsible for fraud transaction reimbursements, leading to significant financial losses.

There are several ways that criminals can obtain debit card details. One common method is called skimming, where criminals use a device to copy the information from the magnetic strip on debit cards and use camera devices to decipher the PIN. They may then use this information to create a physical clone of the card, which they can use to withdraw cash from the cardholder’s account or make brick-and-mortar and online purchases.

Another method of debit card fraud is known as CNP fraud, or card not present. It occurs when criminals make purchases using cardholders’ details without having a physical card. Fraudsters can steal card details from an online store or intercept them when they purchase over the phone or the internet. Unfortunately, a vast amount of card data and personally identifiable information are available for purchase on the dark web, making fraud even easier to commit, and harder to prevent.

How Does Debit Card Fraud Affect Financial Institutions?

Debit card fraud can be difficult to detect and has a significant financial impact on banks and credit unions. Unfortunately, its often detected by the account holder, and not the institution itself, causing a great rift of trust between the institution and its customers or members.

Unfortunately, many financial institutions are still relying on their card processors to identify fraud transactions. This legacy approach isn’t enough to ward off today’s bad actors. The card processors have limited data availability and this limits their technologies ability to effectively identify fraud.

When fraudsters use stolen debit cards, or stolen debit card data, to make an unauthorized purchase, the funds for that transaction normally come from the account holder’s bank account. That can lead to overdraft fees and other charges and cause inconvenience and financial pain for the account holder. The natural progression of this is dissatisfied customers which may eventually lead to your clients’ switching banks or CUs.

However, the most obvious consequence of debit card fraud for banks and CUs is financial loss. In 2021 alone, $588 million was lost to debit card fraud. It’s crucial for financial institutions to take debit card fraud detection seriously and invest in efficient real-time fraud prevention strategies.

In addition to the direct costs associated with reimbursement for fraudulent transactions, there are indirect costs. These indirect costs include the cost of investigating and prosecuting criminals and the loss of customer confidence in the wake of a major fraud scandal.

Banks and credit unions have implemented several security measures to help combat debit card fraud, such as chip-and-PIN technology and 3D Secure authentication. However, criminals are constantly finding new ways to circumvent these security measures, so banks and credit unions need to stay one step ahead.

How Can AI Software Help Protect Your Institution Against Debit Card Fraud?

Fraud detection using real-time AI and real-time data analytics is now considered among the most effective ways financial institutions can fight back against debit card fraud. Bank fraud prevention software can help banks and credit unions to effectively detect fraudulent activity on accounts, as the activity is occurring. Risk and fraud teams can then take steps to prevent it from reoccurring on that account, or the transactional data can be modeled to help fight attacks on other accounts.

Bank fraud prevention software may also help financial institutions identify new trends in debit card fraud and develop strategies to protect customer/member information. As AI continually learns and models, it also has the capability to predict where new threats may occur.

However, not all AI software is created equal, and there are still some ways that criminals can get around it. For example, fraudsters may target financial institutions that are not using real-time AI-based protection on their customers’ accounts, or institutions with less sophisticated or outdated AI software.

Or worse, and perhaps the greatest area of weakness where fraudsters exploit, institutions who rely on obsolete batch data analysis to detect fraud.

Real-time fraud prevention software is a valuable tool in the fight against debit card fraud. Using real-time AI-based protection, financial institutions can better protect their customers’ information and accounts and can reduce the amount of money and associated costs lost to fraud each year.

Why Should You Invest In Real-Time AI Software To Protect Your Institution Against Debit Card Fraud?

Financial institutions can no longer afford to take a reactive approach to debit card fraud prevention. When customers discover and report fraud, it’s too late; the same goes for finding fraud through batch data analysis. Simply put, discovering fraud in post transactional data means it’s already occurred.

Since criminals constantly find new ways to obtain and use debit card information, financial institutions need to be proactive in their fight against fraud. This is why your financial institution should employ only the most sophisticated, real-time AI to monitor, detect, predict, and prevent debit card fraud.

ToolCASE offers a premium real-time transactional fraud prevention software to the bank and credit union industry. Our solution works around the clock ‌to keep your customers, your members, and your institution safer from unsavory actors.

ToolCASE’s best-in-class, real-time Ai, called RembrandtAi, has already helped financial institutions save hundreds of millions of dollars in fraud losses.

And it can help do the same for yours.

Discover how ToolCASE’s incredible RembrandtAi can help your financial institution today, at