Food retailers' fraud prevention costs could potentially rise to US$3.17B -- 100 times more than the cost of fraudulent transactions -- if their signature debit card acceptance rate rose to match that of other retailers, says FMI report

LOS ANGELES , February 29, 2012 () – According to a study by the Food Marketing Institute (FMI), food retailers’ fraud prevention costs could potentially rise to as high as US$3.17 billion—100 times more than the cost of fraudulent transactions—if their signature debit card acceptance rate rose to match that at other retail sectors, Progressive Grocer reported Feb. 28.

Only 41% of debit card purchases made from food retailers were completed using a PIN number.

Eighty-five percent of all debit fraud involved signature debit transactions.

Although PIN debit transactions are more secure than signature debit transactions, banks have historically tended to promote the use of signature debit cards.

FMI reports that banks derive a larger profit from signature debit cards than PIN debit cards. In cases of signature debit card fraud, liability shifts away from the issuing entity and retailers end up absorbing more of the cost.

“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 FMI Chief Executive Officer Leslie G. Sarasin.

She added, “Intervention in the debit card market was absolutely necessary to increase competition and efficiency in what has been, and remains, a broken market.”

The FMI has sent a letter to the chairman of the Federal Reserve System Ben Bernanke requesting that, prior to finalizing an interim final rule concerning adjustments to swipe fee fraud provisions, the board review the costs of preventing debit card fraud that are currently borne by supermarkets

The primary source of this article is Progressive Grocer, Deerfield, Illinois, on Feb. 28, 2012.

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