Fraud rates for debit cards jumped last year, according to a new report.

The Pulse electronic funds transfer network's 2010 Debit Issuer Study found that the total fraud loss rate for signature debit was 7.5 basis points in 2009.

"If a bank had $100 million of total [signature] debit card spend [most legitimate, some fraudulent], it would lose $75,000 in fraud," said Tony Hayes, a partner with the Boston consulting firm Oliver Wyman Group, which conducted the research.

He said that fraud and compliance rank among the top issues that banks say they are concerned with this year.

"Fraud always is a huge issue," Hayes said.

In 2008, signature-debit fraud losses totaled 5.2 cents per $100 spent, or 5.2 basis points, the report, which was released Monday, said.

Loss rates for PIN-debit purchases increased last year to 1 basis point from 0.8 basis point in 2008. "Using a PIN at the point of sale really safeguards the account," Hayes said.

The net fraud loss on a typical $35 signature-debit purchase was 2.6 cents, based on 49.6 cents earned in interchange. For a typical $41 PIN-debit purchase, interchange revenue was about 26.5 cents, and the net fraud loss was 0.3 cent, according to Hayes.

Citing other areas of concern, 77% of survey participants said they felt that regulatory pressure is a big challenge this year because changes to the Electronic Funds Transfer Act will negatively impact debit card profitability. This summer, consumers must give consent before issuers can enroll them in overdraft-protection programs.

About 79% of financial companies allow cardholders to overdraw their accounts using debit cards. Of those, 63% allow cardholders to overdraw their accounts at automated teller machines and at the point of sale, the survey found.

In February and March Oliver Wyman surveyed 64 financial companies, including large banks, credit unions and community banks. Collectively, the participants issue about 78.7 million debit cards. Pulse, of Houston, is a unit of Discover Financial Services.

The changes in the EFT Act could hurt financial companies because overdraft-protection programs traditionally have increased annual revenue per active card by $31 — assuming the financial institution imposed a $27 overdraft fee, that active cardholders initiated an average of 17.3 transactions per card per month and 39% of transactions authorized overdrew their accounts, the Pulse report said.

Financial companies also face the issue of fewer approved transactions, lower interchange income and less-profitable debit card programs. And only 45% of survey participants have a plan for decreased fee income, according to Pulse.

To counteract the impact of the changes in the EFT Act, issuers may raise monthly maintenance fees, increase minimum balances, add conditions or introduce prepaid cards for lower-end consumers, the report said.

Debit card transaction growth increased last year, including on small-business cards, "a typically underpenetrated market," said Judith McGuire, a Pulse senior vice president for product management. Currently, 70% of financial companies issue business cards, which represent 6% of total cards, the study said.

Overall, financial companies still see opportunities for growth and have higher transaction-growth expectations this year, Pulse said. Financial companies predict PIN-debit transaction growth to increase by 9% and signature-debit transaction growth to increase by 8%. Both estimates are higher than the roughly 7% growth reported for both sectors in 2008.

For 2010, "Pulse plans to work with issuers to help financial institutions find opportunities, which includes researching the economics behind rewards program to see if it is what the financial institution needs," McGuire said.

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