A recent security breach helps demonstrate that when it comes to fraud and interchange price fixing, merchants apparently are looking to have it both ways.
The data breach at Michaels Stores affected stores in at least 20 states after fraudsters replaced PIN pads with fraudulent “skimming” devices. Of course, as I noted in an American Banker op-ed, while Michaels is responsible for the security failure, community banks and other financial institutions have to take the actual financial hit.
Thankfully, debit interchange revenue helps community banks quickly reissue debit and credit cards to customers to protect them against these types of fraud. Unfortunately, once the Federal Reserve’s proposed rule cuts debit interchange revenue to below the cost of providing the service, future fraud costs will be borne by consumers and the community banks that serve them—not interchange revenue or the retailers who fail to protect customer card data.
While merchants clamor for government price fixing of debit card interchange to boost their bottom line, they also count on financial institutions to provide fraud protection that is funded by interchange revenue when their stores are compromised.
Do you get my drift? This is yet another reason why ICBA is fighting for legislation to delay the Fed rule and study the interchange issue, so policymakers can catch on as well.