Dive Brief:

• Fraud loss rates have climbed for debit cardholders, according to a Kansas City Federal Reserve Bank analysis issued Wednesday that is based on Federal Reserve Board data released in December. The actual loss rates detailed in the report differed depending on whether the transactions moved over a dual-message network, like that offered by card giant Visa, or a single-message network, such as Star or NYCE.
• That 2023 data set for non-prepaid debit fraud showed the loss rate for cardholders rose over 2021 when debit cards were used to pay for goods or services online or in stores. Meanwhile, it wasn’t always the case that the loss rates rose for merchants and card issuers, according to the Kansas City report comparing 2021 and 2023 data.
• Overall, the incidence of debit card fraud climbed for e-commerce purchases between 2021 and 2023, but in some cases in-person fraud rates on debit card transactions declined during that period, the analysis said.

Dive Insight:

The Kansas City analysis dug into the debit data issued by the Federal Reserve Board in December as part of its biennial report on debit card use last year. That report rekindled debate over the central bank’s decision to reset a cap on debit card interchange fees that revolve to some degree around fraud rates.

The latest debit card analysis from the Kansas City Fed bank explained how the arrival of EMV chips implanted in cards as of 2015 was part of an effort to decrease fraud for in-person commerce. Despite that effort, debit card fraud has continued to climb across use scenarios. (The analysis didn’t address credit card fraud.)

“Card-not-present fraud rates of non-prepaid debit cards have continued to climb,” the Kansas City report said. “In contrast, card-present fraud rates have reversed their previous trend, declining for dual-message networks and increasing for single-message networks.”

The Kansas City report noted that fraud is most prevalent among ”financially vulnerable consumers,” according to a different Fed study published last year, with those victims also more likely to incur losses.

“Uncovering which types of consumers are more likely to experience debit card fraud and incur fraud losses may help explain why cardholders’ fraud loss rates have been increasing and inform efforts to mitigate them,” the latest Kansas City Fed report concluded.