The Fraud Landscape is Shifting: 5 Tactics for Debit Issuers

Combating fraud is one of debit issuers’ biggest challenges. As the most popular payment method, debit generates more fraud losses for financial institutions than any other payment option. Issuers are also facing an evolving fraud landscape as perpetrators shift tactics and targets.

The industry must continuously advance its fraud-detection capabilities to stay ahead. To do so, issuers need to understand the shifts taking place in fraud and the best practices they can employ to reduce risk.

Fraud – a perennial challenge

Fraud presents a three-pronged challenge for debit issuers:

1. It generates significant losses.
2. The investment in fraud tools, systems, and staff is expensive.
3. Issuer responses – and even false positives – can create a negative cardholder experience and erode trust. 

According to the Federal Reserve Financial Services 2024 Financial Institution Risk Officer Survey, debit cards accounted for 39% of fraud losses across all financial institutions — the largest share among all payment types. The combined cost of fraud losses and prevention is debit issuers’ largest transaction-related expense.

Financial institutions with at least $10 billion in assets incur an average cost of 5¢ per debit transaction for fraud losses and prevention, according to the most recent Federal Reserve data.¹ This is 40% of their overall debit transaction costs.

The importance of mitigating fraud risk extends beyond costs. Each incident of potential or actual fraud impacts the cardholder’s experience. How the issuer detects, responds, and resolves the issue can make or break account holder trust.

Issuers that visibly prioritize security and swiftly resolve fraud cases stand out in a crowded market. As new fraud types proliferate, cardholders are increasingly frustrated by frozen accounts, declined legitimate transactions, and lengthy investigations into disputed charges. By proactively protecting account holders and quickly making fraud victims whole, issuers build trust and loyalty.

The evolving nature of fraud

Traditional third-party fraud is no longer issuers’ primary concern. FIs now face growing risks from friendly fraud, synthetic identity theft, and scams.

Industry data show that a growing share of fraud is “authorized-party fraud,” according to the Federal Reserve’s Fraud Classifier Model. In some cases, cardholders commit “friendly fraud” by disputing legitimate transactions to avoid payment. In others, criminals create synthetic identities, combining real and fake information to fraudulently open accounts and obtain funds. Synthetic identity fraud is now a $35 billion problem.²

There has also been a dramatic rise in scams and social engineering. These include authorized push-payment fraud, in which victims are tricked into approving transfers to fraudsters.

Broader reports of consumer fraud are hitting record levels. The Federal Trade Commission reports consumers lost more than $12.5 billion to fraud in 2024, a 25% jump from the prior year.³

While Regulation E protects consumers against unauthorized transactions, it does not guarantee reimbursement for scam-related losses that were technically authorized. The legal and operational ambiguity in handling such cases can strain account-holder relationships.

Compounding the problem is the growing use of generative artificial intelligence (AI) by criminals. Deepfake audio, synthetic identities, and AI-enhanced phishing tactics are becoming more common, making fraud detection – by both issuers and by consumers – more complex.

Friendly fraud and scams often involve valid credentials or voluntary user actions, making them harder to identify using traditional transaction-monitoring tools. Moreover, the weaponization of AI means that both the scale and sophistication of attacks are escalating.

However, AI is also helping the industry enhance its fraud defenses. Trained AI models can detect and block fraud in real time without human intervention, leading to an improved customer experience.

5 key tactics for issuers

Debit issuers should take a proactive approach to the growing sophistication of fraud threats. There are five key actions issuers can take to bolster fraud prevention and management.

1. Educate Your Cardholders

Cardholders are the first line of defense against fraud. The ABA’s #BanksNeverAskThat campaign features consumer tips, videos, and an educational interactive quiz to test consumers’ ability to identify scams. In addition, account alerts, educational videos, and proactive fraud warnings embedded into mobile banking apps can raise awareness and help fight scams. Similarly, the National Credit Union Administration offers a Fraud Prevention Center to help educate credit union members on how to avoid becoming a victim of financial crime.

2. Bolster Authorized-Party Fraud Prevention

Fraud in this category is not only difficult to detect but on the rise. Debit issuers can combat authorized-party fraud by adopting layered defenses. These can include:

• Advanced application screening that incorporates device intelligence and behavioral biometrics
• Automated cross-referencing of applicant details against fraud-consortium data
• Dynamic risk scoring at onboarding and at the time of a transaction

Issuers should also track the following indicators:

• Excessive chargeback rates
• Rapid shifts in spending patterns
• Histories of frequent card loss/replacement requests

Implementing tiered velocity controls that limit transaction and withdrawal volume for new accounts, as well as real-time monitoring of cardholder-behavior changes, can further reduce losses.

3. Continue to Invest in Advanced Tools

AI and machine-learning solutions can assess thousands of data points in real time to detect irregular patterns. PULSE’s DebitProtect^® service employs these tools for decisioning and provides an additional layer of defense for issuers. PULSE monitors all network activity and can help issuers avoid significant losses.

4. Collaborate with Other Issuers

Industry collaboration has proven effective in defeating this common foe. Issuers participating in consortium data initiatives have seen dramatic improvements in fraud detection.⁴ Forums like the Financial Services Information Sharing and Analysis Center and public-private task forces are critical for sharing intelligence on emerging threats.

5. Regulatory Readiness and Flexibility

In recent years, the Consumer Financial Protection Bureau and Congress have considered expanding scam-related protections for consumers. Some forward-looking financial institutions have already adopted broader reimbursement policies. Financial institutions should remain agile and ready to adapt their disputes approach to reflect evolving requirements and consumer expectations.

These tactics can help issuers manage and even preempt fraud threats, and PULSE can help. We deliver each transaction’s fraud score to the issuer in the online transaction message, which supports real-time issuer decisioning. We also employ an automated process to detect, mitigate, and communicate BIN attacks. These tools and the above tips can help issuers safeguard their role at the center of consumers’ financial lives.

To learn how PULSE can help in the fight against fraud, read our companion piece, review our capabilities, or use the form above to request a call from your Account Executive.

_{1. 2021 Interchange Fee Revenue, Covered Issuers Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions, Federal Reserve.}

_{2. 2021 Generative Artificial Intelligence Increases Synthetic Identity Fraud Threats, Federal Reserve.}

_{3. New FTC Data Show a Big Jump in Reported Losses to Fraud to $12.5 Billion in 2024, Federal Trade Commission press release, March 10, 2025.}

_{4. Banks Can Boost Fraud Detection by More than Ten-Fold through Better Collaboration, Research Shows, LexisNexis Risk Solutions press release, 2024.}