Expanding Interchange Price Controls Would Put Fraud Protections at Risk

By Deborah Matthews Phillips

June 03, 2022

Maintaining strong risk-mitigation technologies has never been more important for the banking industry, but “big box” merchant lobbyists are attempting to disrupt advances in card fraud mitigation efforts.

While merchants are pushing for the cheapest routing options of card transactions and expansion of the Durbin Amendment provisions to credit cards, these misguided efforts would undermine investments in protections and security that defend cardholders from criminal activity.

Rising Financial Fraud Poses Consumer Risks

State-of-the art fraud and risk-mitigation technologies have become mission-critical for banks and their customers. Reports of suspicious activity on debit and credit cards have grown 9.26 percent from 2014 to 2021, with every $1 of fraud caught costing financial institutions $3.52.

With a reported 72 percent of consumers trusting banks to act in the best interest of their customers, banks invest heavily in ensuring consumers continue to have confidence their money and data are safe and secure. The online payments industry alone will spend an estimated $9.3 billion annually on fraud protection by the end of this year.

Community Banks Invest Heavily in Protections

To stay ahead of fraudsters that continue to attack the payments system with new tactics, community bank issuers put time and effort into selecting processing networks that have strong, mature fraud management practices and systems in place. Building and maintaining channel-agnostic technologies designed to prevent fraud is a key expense for banks that helps protect cardholders while yielding valuable benefits to merchants.

Staying ahead of criminals in the digital environment also demands increasingly sophisticated fraud detection tools. These include geo-location, IP address verification, biometrics, tokenization, and advanced data analytics, such as AI solutions and machine-learning neural networks.

Further, fraud detection must occur across the account lifecycle, not just when an authorization is attempted. According to Javelin Strategy & Research, identity fraud scams accounted for $43 billion of the $56 billion in fraud losses banks incurred in 2021.

In addition, card issuers offer customers zero-liability protection, meaning cardholders will not bear any loss if their account is compromised. This important feature is just one reason why cardholders have significant trust in cards issued by community banks.

Protecting the System from Durbin Amendment Expansions

If “big box” merchants are successful in their efforts to extend debit card interchange price controls to the credit card market, they would diminish the ability of card issuers and networks to maintain and invest in world-class fraud detection and prevention systems. Consumers and small businesses would ultimately pay the price by absorbing more losses, with rising consumer and small-business risks decreasing trust in the banking system.

Safeguarding the customers that rely on the payments system guardrails that protect them from criminal activity is of paramount importance to our economy. Congress must avoid ill-advised regulations that only benefit “big box” merchant profitability and leave community banks, consumers and small businesses holding the bag.