Debit cards have long been positioned as a low-cost, reliable way for merchants to accept payments. But recent data shows the risk equation has shifted. Today, merchants are absorbing a growing share of debit card fraud losses, even as fee structures and network rules remain largely unchanged.
Recent analysis highlighted by PaymentsJournal, drawing on biennial data from the Federal Reserve, shows that merchants were responsible for nearly half of all debit card fraud costs in 2023. That marks a steady transfer of risk away from banks and toward the businesses accepting the payment, both in-store and online.
How the balance shifted
Under the Dodd-Frank Act, debit interchange fees are intended to be reasonable and proportional to the cost of processing a transaction, including anticipated fraud losses. The goal was to balance costs across merchants, banks, and payment networks.
In practice, that balance has moved. In 2011, banks absorbed close to 60 percent of debit fraud losses. By 2023, their share had dropped to just over 28 percent. During the same period, the merchant share climbed steadily, reaching nearly 50 percent.
Federal Reserve data also shows that regulated banks continue to earn strong margins on debit transactions, generating roughly 24 cents in revenue on costs of just over 4 cents per transaction. For merchants, this means higher exposure without a corresponding reduction in fees.
Debit fraud is not shrinking
As the burden has shifted, overall debit card fraud has continued to grow. In 2011, fraud losses totaled about $7.80 per $10,000 in debit transaction value. By 2023, that figure had risen to $17.63.
The nature of debit fraud has also changed. The introduction of EMV chip cards reduced counterfeit fraud at the point of sale, but risk did not disappear. Instead, it moved into card-not-present transactions, including ecommerce, phone orders, and other remote payments. These transactions are harder to verify and often leave merchants with fewer protections when disputes arise.
For many businesses, debit acceptance today is less predictable than it was a decade ago.
The operational impact on merchants
Fraud losses are only part of the cost. Chargebacks and disputes add fees, consume staff time, and delay cash flow. When a debit transaction is reversed, merchants may lose the sale entirely while still paying chargeback and processing fees.
Recent settlements involving Visa and Mastercard highlight how contentious chargeback responsibility has become. While the regulatory environment continues to evolve, merchants are still managing the day-to-day impact of reversals and disputes.
The result is a growing focus on payment predictability, not just speed or convenience.
Why merchants are rethinking their payment mix
As debit fraud costs rise, many merchants are taking a closer look at how different payment types affect risk, margins, and cash flow.
Card payments remain essential for convenience, but they also introduce exposure to:
- Post-transaction disputes
- Chargeback fees
- Reversals after goods or services are delivered
This has renewed interest in payment methods that provide greater certainty once funds are accepted, particularly for higher-value transactions, deposits, and situations where reversals create operational or financial strain.
Where ACH and check guarantee fit
ACH and guaranteed check payments operate differently from card transactions. When properly verified and guaranteed, these payment types are designed to reduce the risk of post-transaction reversals tied to fraud or disputes.
For merchants, that can translate to:
- More predictable cash flow
- Clearer allocation of risk at the time of payment
Rather than replacing cards, ACH and check guarantee often complement card acceptance. They give merchants flexibility to choose the payment method that best aligns with the transaction, the customer, and the level of risk involved.
Source: https://www.paymentsjournal.com/merchants-are-bearing-the-burden-of-debit-card-fraud/